97. 'Cooperative Advantage' article in Roast Magazine

Cooperatives like TUK in Rwanda offer farmers many benefits
(Photo credit: Clay Enos and Sustainable Growers)

"Cooperative Advantage: What Do Cooperatives Mean for Farmers, Roasters and Consumers?" appears in the new July/August issue of Roast Magazine.

In this blogpost we'll share the highlights, but we hope you'll consider hopping over to Roast's website to purchase the issue - either digital or hard-copy. $7 for the single issue or $35 for 1 year subscription.

Co-authors Ruth Ann Church and Dr. David L. Ortega review the growing interest in coffee produced by cooperatives, including two papers published in peer-reviewed journals by Michigan State University research teams. The first paper offers quantitative results on farmer productivity and household welfare from a study from Rwanda and the Feed the Future Africa Great Lakes Coffee support program. The second paper shares results from a coffee shop field experiment with consumers of pour-over coffee. It captures willingness-to-pay for coffee based on the organization of the producers, namely coffee that is labeled 'grown by farmers belonging to a cooperative'.

Insights from these quantitative studies bring credibility to qualitative work that has been popping up across the specialty coffee industry over the past year. The Specialty Coffee Association's Kim Elena Ionescu interviewed Merling Preza of PRODECOOP at Re:Co 2019 in Boston. The non-profit TWIN published a 2019 report on producer organizations that gleaned insights from 31 producer organizations in nine countries. The common theme is that the farmer cooperative can be a valuable node in coffee value chain, providing benefits to farmers that altruistic consumers, especially millennials, are expecting in their specialty food choices.  

Cooperative members in Rwanda mitigate
soil erosion for their coffee plot.

Quantitative Results

After reviewing the context of today's consumer demand for transparency and a history of problems that come with cooperative leadership, key quantitative results are shared. First, the authors of the Food Security article find that farmers who are cooperative members in Rwanda score significantly higher on an “adoption of best practices” index than coffee farmers who are not co-op members. The farmers belonging to cooperatives also receive more income from their work—approximately 18 percent higher revenue per coffee tree. These elevated metrics, the researchers conclude, begin a virtuous cycle for farmers who belong to a cooperative. They are more likely to have healthy soil and plants, which leads to higher productivity per tree, which then lowers cost of production per kilogram cherry, and in turn improves net income per tree. Indeed, productivity (kilos of cherry per tree) of cooperative members is 20 percent higher than that of non-members, and cost of production (Rwandan Franc/kilo cherry) is 24 percent lower than farmers who are not cooperative members. 

Courtney Gates at Espresso Elevado
in Plymouth, MI prepares a pour-over.
(Photo credit: Teresa Pilarz)

The article focusing on consumer willingness-to-pay (WTP) in Food Research International finds that when personality traits are used to segment consumers, a strong willingness-to-pay for coffee from farmers organized cooperatively can be identified. The results indicate:

• An average WTP of an additional $1.31 per 12-ounce cup of pour-over coffee, in a specialty coffee shop setting, when the cup descriptor is “coffee grown by farmers belonging to a cooperative.”
• Consumers with higher subjective knowledge (consumer’s self-evaluated knowledge of coffee) had lower premiums for cooperative-grown coffee, suggesting that these consumers may base their product valuation on sensory characteristics more than descriptive information of production structure.
• The personality traits of “conscientiousness” and “extraversion” increase WTP and a higher level of the personality trait of “agency” or “outspokenness” decreases WTP (For more on the Big Six personality traits, see Bazzani, 2017, in Food Quality and Preference).
• Age was the only statistically significant sociodemographic determinant of WTP, with older consumers being willing to pay slightly more on average.

Tough Questions Arise
These results bring up complex topics long debated in the specialty coffee industry. For example, how do consumers value basic knowledge of the producer organization type (e.g. cooperative) vs. a voluntary sustainability standard such as Fairtrade? What role does the flavor and taste in the cup play in developing consumer WTP and repeat purchases? If a cup of coffee supplied by a farmer cooperative earns a premium over other coffee at a cafe, for example the $1.31 extra measured in the experiment, what portion of these funds makes it back to the coffee grower? These are all good questions which are recommended for further research.

Lee Harrison with Joe Coffee in
New York City 
(Photo credit: Joe Coffee)

What Should Roasters Do With the Info?

The “personality traits” study raises the question of whether psychometric data on coffee consumers is already in use at roasting companies. One specialty roaster, Joe Coffee in New York City, updated its overall brand strategy a few years ago with market research ensuring employee values and brand values were aligned. The next step in brand development, according to Lee Harrison, Joe Coffee’s senior director of coffee and roasting, is to invest in consumer research to better align the brand with customers. “It’s important to get data about what people want so that we can refine our assumptions and connect with consumers in a relevant way,” he says.

Would research that identifies willingness to pay based on personality traits be of interest at Joe Coffee? Harrison replies affirmatively. “Not just for sales and profitability here in New York, but for relationships at origin, too. If farmers had this information, they could better market themselves, and it would make our job of marketing their coffee more efficient,” he says.

Recognizing that the results of this consumer study are limited by its setting, the findings still have important implications for many stakeholders in specialty coffee. It helps us to consider the diversity of coffee consumers beyond sociodemographic segmentation and instead make marketing and supply decisions with long-lasting intrinsic characteristics in mind. Combining these consumer insights with confirmation from the other studies on cooperatives’ positive impacts can encourage all who work with cooperatives and strive to make coffee better.

Sunset at Kopakama cooperative near Lake Kivu, Rwanda

Leaders of the Ejo Heza women's group appreciate one
of the roaster customers, Victrola Coffee, who pays a premium.

The Feed the Future Africa Great Lakes Coffee support program launched in August 2016 with
a workshop in Kigali, Rwanda. (Photo credit: Michigan State University)

93. It Pays to be a Member - Cooperatives Research

January 6, 2020

From 2015- 2018 the USAID Africa Great Lakes Coffee (AGLC) support program funded ground-breaking research in Rwanda. We'd like to share the findings from this research in a series of blogs - welcome to the first one! All the publications from the project can be found on the website of the lead partner for the project, Michigan State University (MSU): CLICK HERE for publication list.

Published October 5, 2016, the paper titled "Role of Cooperatives on Adoption of Best Management Practices & Productivity in Rwanda Coffee Sector" brings an analysis that can only be accomplished with a primary dataset that is large. The dataset for this paper is from 1024 coffee farmer households randomly selected in four different coffee-growing districts: Gakenke, Rutsiro, Huye and Kirehe.

The lead author is David Ortega, a young, exciting faculty member of MSU's College of Agricultural and Natural Resources. Much of David's past work has been in China, in particular with the meat industry and safety standards. His quantitative 'ag econ' work is recognized widely and he brought the AGLC research team his unique experience and skills in experimental design for surveys.

The co-authors on the paper include: Aniseh Bro, (then a Ph.D. student, now teaches at Appalachia State University); Daniel Clay, (then professor of Community Sustainability at MSU, now consultant); Maria Claudia Lopez (professor of Community Sustainability at MSU), Alfred Bizoza (then director of IPAR in Rwanda, now a professor at the University of Rwanda); and yours truly, Ruth Ann Church, (then masters student in Community Sustainability, now working full-time in coffee with the sheepskin in hand!)

91. New Farmer Typology - a tool as valuable as the coffee flavor wheel

April 15, 2019

Dr. Celestin Gatarayiha, Head of Coffee Division, NAEB-Rwanda, takes in Dr. Clay's explanations of the new farmer typology.

A milestone event occurred April 12, at the SCA Boston. Dr. Dan Clay was present at SCA Boston to present one of the newest and most credible pieces of research on sustainable farm profitability and a new 'Farmer Typology' model. "Farmer Incentives and Value Chain Governance: Critical Elements to Sustainable Growth in Rwanda’s coffee sector" was presented during the scientific research poster session, 12 noon - 2pm on that Friday. Ruth Ann Church, co-author of the report during her days as a masters student at Michigan State University, was pleased to present alongside professor Clay. Clay has been studying coffee value chains for about 30 years, primarily utilizing applied field research in African countries. In coffee circles, he is most noted for leading the PEARL project, 2003 - 2008, in Rwanda, which launched the country, previously unknown to the gourmet coffee world, into the specialty coffee sector. The "Farmer Incentives" paper was published in the peer-reviewed journal, Journal of Rural Studies 63 (2018), p. 200-213.

Given the number of recent reports and panels discussing the issue of cost of production, coffee prices and farm profitability, this research is likely to be received with excitement across the globe.

Recent reports on profitability include: ICO document 124-6e, "Profitability of coffee farming in selected Latin American countries – interim report"; an SCA two-session panel on the "Future of Specialty Coffee", and at least two other panels on cost of production at SCA -- one from Food 4 Farmers and one from a team of MBAs at the University of Michigan. The ICO report and the panels often lament the lack of available and credible research with large sample-sizes on the topic of coffee smallholder profitability. These entities will welcome this new, peer-reviewed research with the largest single-country sample size of any report on the topic in the last 10 years, (n=1024 per country; both Rwanda and Burundi were surveyed, so total sample size = 2048.)

Not only is the research recent (based on 2015/2016 survey data) and robust, it has been vetted by the Rwandan government and found to be useful. They based significant policy decisions on the findings of this report. This fact is noted in the "Outcome in Rwanda" section of the poster. The section states:

The Rwandan coffee board (the National Agricultural Export Development Board, NAEB) used the data and analysis from this research to defend its move to raise the cherry floor price 70% in 2017. (Floor price of 150 Rwf/kg cherry in 2016 was raised to 264.) They were able to stand their ground against opposition from exporters, because of the legitimacy and independent nature of this analysis. The research underscored the voice of the farmer at the negotiation table.

This real-life outcome (a 70% price increase for 355,000 Rwandan coffee farmers in 2017) illustrates how data can be the critical, enabling difference to improve governance of the entire coffee value chain.  

"Farmer Incentives and Value Chain Governance" poster from SCA Scientific Poster Session. Image of the 48" x 36" poster.

Reviewers may wonder if the work can shed insights for coffee-growing geographies outside of Rwanda and Burundi, two small, land-locked central-African countries. Church maintains that the answer is "yes, the research offers a unique focus on differences in farmer motivation and capacity depending on farm size, and similar patterns can be observed in many countries and other value chains." The poster features the new "farmer typology" diagram that is ground-breaking for making something we've always known, suddenly visible and defined. It's like when the "coffee taster's flavor wheel" first came out. Cuppers everywhere knew those flavors, but an illustration and diagram of what "everyone knows" becomes an invaluable tool.

New Farmer Typology - hypothesized to be applicable in many countries, not just Rwanda and Burundi

The new "farmer typology" diagram presented in the poster at SCA is a similarly universally valuable tool because it illustrates capacity to invest versus incentives to invest by size of plantation in a low cherry price scenario.  Let's look first at the issue of incentives, as this is the aspect of coffee farming that seems to be recognized as important, but so far not analyzed in terms of differences across farm size. Farmers do not respond equally to price incentives. The typology shows how in a low cherry price scenario, the largest farmers neglect their coffee trees because of lack of motivation from market returns. This phenomena is now being documented across the industry in almost every trade magazine one picks up every month: C&CI, May 2019, pg. 43; SCA Magazine 25 Issue 8, Feb. 2019, pg. 013; Global Coffee Report, Mar/Apr 2019, pg. 21; Roast, May/June 2019, pg. 79.

Coffee Taster's Flavor Wheel

These publications, as well as the new "Farmer Investments" paper we are highlighting here, describe how large farmers neglect their coffee trees, their yield per tree goes down and their investments, meaning costs of production fall to extremely low levels. The typology goes on to show that, in contrast, the smallest farmers are not motivated by market prices. Their incentives are basic survival and they do not have other choices or means to generate cash. They produce as much coffee as they can every year out of necessity. In a sense, they over-invest their labor in their coffee-trees, which drives up costs. The Farmer Typology above illustrates this difference in incentives with the yellow curve, showing small farmers on the left with high incentives (despite low coffee prices) and large farmers (on the right) with low incentives.

However, high performance in agriculture requires that producers have the capacity not just the incentive to invest. Farmers must have the resources and abilities to invest in their coffee trees and at the same time be motivated to do so. One without the other will not have a positive result.  Capacity is illustrated with the blue curve in the diagram. Too often today, those working on issues of coffee sustainability and improvement of farmer livelihoods are wasting resources, because these two curves are not yet well understood. If someone meets a few farmers who haven't learned 'climate smart' best practices, it's too often assumed that 'best practices training' is going to help all coffee farmers. When in fact, what we see from the typology, is that large farmers usually know the best practices (capacity is high on the right side of diagram). Resources need not be wasted on training them. What is missing for largeholders is the business incentive from higher prices. Take training dollars and invest them instead in higher prices and for large farmers, and productivity increases will appear.(1)

The typology shows however that at the small farm level (left side), farmer capacity is low and investments in various types of training, (nutrition, basic math, basic business and best practices), may lead to both livelihood improvement and productivity improvement. Organizations such as Sustainable Growers in Rwanda, for example, target a population of smallholder coffee farmers characterized by tiny farms, low education levels and almost no other choice for cash income besides coffee. Looking at the typology, one would guess that investing in training programs for these farmers, will help them invest their labor in better ways. That will increase productivity, regardless of what cherry price is paid. This perspective of, "we can help them earn more by teaching them how to increase yield" is common in coffee. The problem is, most of any nation's coffee, even in small countries like Rwanda and Burundi, is not produced by these small farmers. 57% of Rwanda's coffee trees belong to Rwanda's largest farmers. 

The typology may seem like common sense to coffee industry veterans who have seen the differences in farmer motivation before their own eyes. In a low cherry price scenario, the coffee veteran has observed A. the large farmer who has not hired labor to help harvest his trees for two years because "it's not worth it" and B. the smallholder farmer with a garden of trees who invests so much time and family effort in weeding, mulching, fertilizing, even paying neighbors to help with harvest, only to receive a tiny sum that doesn't begin to cover labor costs. Now, with the typology published in this report, we will have a tool to help us understand what we are seeing better - placing it in context with other scenarios we've seen. Like the coffee flavor wheel, it is a tool that can help the entire industry understand its business better.

(1)A 22% productivity increase was documented in the Feed the Future Africa Great Lakes Coffee support project (award number: AID-OAA-LA-15-00006), after cherry prices increased 70% in 2017 vs 2016. Contact Ruth Ann Church for a copy of her presentation at SCA Expo 2018, "Farm Profitability: Impact of Best Practices."

L: Ruth Ann Church, co-author and now an M.S. in Community Sustainability; R: Dr. Dan Clay, lead author, professor and Director, Global Programs in Sustainable Agri-food Systems, Michigan State University 

83. New Views Shared at Farm Profitability Panel at SCA Expo

May 14, 2018

About 150 SCA Expo attendees joined a lively session on the topic of "Farm Profitability: Impact of Best Practices" on Apr. 20. The five panelists themselves came from five different countries.

• Ruth Ann Church presented data from Rwanda, wearing her "researcher hat" from Michigan State University;
• Paulo Van der Ven, Managing Director at RD2 Vision in Montpellier, France, shared a multi-country overview;
• Paul Stewart, Global Coffee Director at Technoserve and based in Ethiopia, shared data from Kenya and
• Mark Lundy, Senior Researcher at Centro Internacional de Agricultura Tropical, CIAT, in Colombia shared insights from their ground-breaking work in Nariño, Colombia. 
• Moderator Kraig Kraft, a CRS manager based in Nicaragua, expertly guided the session. 

Eventually, the session should appear as a podcast on the SCA podcast site. Watch this space!

The session started by introducing the audience to a simplified formula for profitability:



Kraft then outlined how each of these boxes includes a lot of complexity. 

• KGs represent "yield" or "productivity" of the coffee plant. We know productivity is highly dependent on agronomic factors like elevation, rainfall, soil quality, temperatures, etc.
• PRICE implies the "farmgate price" when we're discussing farm profitability, but often other prices are used in the research, such as the NY C price, FOB or EXW prices, "market prices" and government-set floor prices.
• COSTS implies the labor and inputs needed to cultivate the trees and harvest the coffee. But which labor? There is paid and unpaid labor. And which inputs? Typically, it's fertilizer, pesticides and herbicides, but there are others.
• PROFIT also has many types. There's profits (positive) and profit losses, to begin with. There is gross profit and net profit, and some people prefer to use the terms "margins", "net turnover" or "net revenue" or "net income" for the same thing. 

The research from each of the speakers emphasized a different part of this formula. 

The emphasis in Van der Ven's part was the relationship between KGs and Costs. He gave an overview of one of key insights from the SCA Farm Profitability report, which he helped write. Often farms where KGs (productivity) and costs are low are more profitable than others, all other things equal. This is surprising for some to hear, since it is often assumed that higher productivity always leads to more profitability.  First, he described how the progression from "less profitable" to " more profitable" on a coffee farm is not always linear. It's possible that costs increase for a few seasons before profits accrue. Secondly, Van der Ven showed how RD2's literature review of 11 different studies, including data from 10 countries, allowed them to create the following graph. It illustrates how low input farms have low yields and low production costs/ha, but are often still profitable.

Each circle represents a country and the size of circle-points is proportional to yield.

Low input farms have low yield, low production costs (x axis) and often are profitable (y axis) 

Source: 2017 RD2 Vision report for SCA.

Thirdly, Van der Ven makes an often over-looked observation. Coffee is unique, because with fruit trees, income is almost never zero. If the farmer does nothing the entire year, he/she can often still get some fruit (coffee cherry) off the tree and sell it. This doesn't mean there is profit, but it means there is some revenue, even when costs (investments) are negligible. 

Van der Ven concluded with the key take-away that more applied research is needed, as opposed to measurements and recommendations from ideal demonstration plots. He emphasized that real obstacles, costs and outcomes can be very different in "actual farm life" than that which is possible in a controlled experimental farm. Solutions for farmers need to be based on assessments of whether a new practice will realistically generate profits.

Stewart's presentation focused on how training can boost KGs without increasing Costs. His data was from a project in Kenya where farmers had been trained in "climate smart" practices. This list of practices included at least six practices that are in addition to the typical six practices understood to comprise "best practices." Stewart emphasized that these are practices that few smallholders currently implement, but they are low-cost or no-cost, easy and quickly impact productivity. The slide shows impressive results.

 

The chart shows how the trees on the demonstration plots (right side, n=18) fared seven times better than the average coffee trees in Kenya (left side, n=335). In other words, adoption of the climate smart practices resulted in up to a seven-fold increase in yields.

Church's presentation focused on measurements of the impact of PRICE on profitability. Sharing data from Rwanda and the Feed the Future Africa Great Lakes Coffee (AGLC) support program, she started with a slide showing the response to the farmer survey (n=1024) asking which three factors farmers would say are the biggest obstacles to deciding to invest more in coffee. "Low cherry price" ranked the highest, and topics like training and high costs ranked low.

Prices matter to farmers, more than getting more training or lowering costs. Source: AGLC data, 2016, n=1024. Innovation Lab for Food Security, Research Paper no. 32.

The presentation continued to show how in Rwanda over a three year period, when the farm-gate price for cherry rose 55%, there were significant increases in the number of farmers implementing best practices, profits went up (not surprisingly), and importantly, productivity rose 22%.  It is notable that this yield improvement occured in a year where there was a drought and farmers had no idea the higher price was coming.

Lundy's presentation elaborated further on the importance of PRICE. He shared insights from CIAT research on how to better understand the diversity of farms and farmer outcomes in a coffee-growing region like Narino. First, CIAT segmented farmers by significant characteristics like the percent of household income from off-farm wages (click here for details). Then, they categorized the markets into which farmers sell, noting the different PRICES that each market pays. By over-lapping the two, Lundy showed new insights into when and why farmers are profitable.

Production Costs - average (top bar) and 3 "types". Source: 2013 Narino, Colombia study by CIAT.

The three different markets are: Mass Specialty A, Mass Specialty B (with higher prices), and Microlots, offering the highest prices of all, but also the lowest volumes of purchases. By over-laying average farm-gate prices from these markets over the farm costs illustrated above, it was clear that only those farmers selling to microlot buyers would make a profit. The implications of this has motivated a successful effort to improve livelihoods in Narino, but the implications are also daunting when one imagines how many coffee farmers there are, and how few microlot buyers there are today. As a key take-away, Lundy re-iterated this point:

"The most important finding of the research is that we should not be talking about cost of production but costs of production. Different kinds of coffee growers have different efficiencies and different costs of production and these differences get lost when data are aggregated."

Conclusion: Kraft guided the question and answer session, which included questions about whether direct trade, on average, results in better profits for farmers. Another participant observed how corruption, like counterfeit fertilizers, can create so many extra costs for farmers. Kraft summarized the session by concluding that
finding the funding and expertise to conduct further research on these topics is paramount for the specialty coffee industry.