Monday, May 6, 2019

What to Pay for Coffee - Not So Complicated

May 6, 2019
Ejo Heza women's group in Rwanda - sorting cherry

Guest blogger Kathy Tian, MBA/MS 2020, Erb Institute at the University of Michigan and Ruth Ann Church, President, Artisan Coffee Imports

Let's say you're a coffee roaster. Is it complicated to know what to pay for your green coffee? Not so much. Drawing content from two panels at SCA Expo in Boston we synthesize why. Both of these panels rigorously researched costs in Colombia and Rwanda: two different countries and two different continents. In one panel, "East Africa Quality Innovation," Ruth Ann Church shared  the connectedness of marketing, price and quality in Rwanda. Guest blogger, Kathy Tian, spoke on a separate panel: "Implications of Specialty Coffee Farming Costs in Colombia." 

Recommendations to roasters boil down to three steps:

1. Ask your importer if their contract with the producer is a fixed price contract or based on the C-price? Hopefully the importer's answer is that your less-than-container-load of bags of microlot coffee were bought on a fixed price contract. For microlot purchases up to about 300 bags, (sometimes more), this usually possible. NYBOT C-price based pricing is necessary when the coffee volume is large enough to need hedging in futures markets.

2. Ask your importer what is the farmer paid? Hopefully the importer's answer is "we can tell you that no problem." And then they give you a $ per unit answer. If they give you a lot of excuses about how difficult it is to answer, try reassuring them that you can handle doing some conversions if they can't. But shouldn't an importer be able to do the conversions (from local currency to US$; from KG to pounds; from cherry to green)? For example, Artisan Coffee Imports shared the prices Kopakama's members received for the past three years in this chart during the SCA panel:
2019 (projected)
Avg. farmer price* $/lb. green
$.80/ lb
farmgate + 2nd payment + premiums

If your importer seems conflicted or "over asked" when you inquire about the price to the farmer, there's a fair chance that he/she doesn't know. And there's a fair chance they would like to know also, but they have been deflected by their contact at origin when they try to find out. YOU can be the catalyst towards more transparency and education about where value is in the value chain. YOU, as the roaster, have a powerful position in this chain, no matter what your size. If your volumes are small, then your questions and your responses to answers may not change current business practices in the short term. But, when you ask the questions and urge your supplier to get clear answers from their supplier, your voice makes a difference over the long run.

Cherry harvest in Rwanda
3. What is your pricing philosophy? There are many things to consider when it comes to your pricing philosophy, including how much to anchor on the NYBOT C-price, and how much time and money you, the roaster, wants to invest  to understand costs. Also, how much you believe the farmer should be able to dictate their own price. Kathy Tian, based on her experience in Colombia, recommends focusing on the following two thought processes first, which may help simplify and clarify the roaster's approach:
1)      Think about today’s farmers and future farmers. Try to understand the opportunity cost for a young person in the origin country who can consider coffee farming against other options to earn a living.

An importer could potentially play a critical role in helping you achieve this part of your pricing philosophy. For example, perhaps your importer can share what the opportunity costs are of current and future farmers at origin. More than likely, a young person will have alternatives available to them in agriculture. A knowledgeable importer may be able to share the exact value of opportunity costs for you.  

2)      Think about the power that you have in your value chain to lower costs, other than the price paid to the farmer. If you are a small roaster sourcing exclusively from farms of <0.5 hectares, your ability to realize cost savings upstream is very limited. Instead, consider ways in which you could lower costs at the roaster level.
There are a few ways to lower costs at the roaster level. One opportunity is for small roasters to encourage medium size roasters that benefit from economies of scale in packaging, retail, and transportation fees to take action to address the needs of small holder farmers. This is currently happening in the industry but could be amplified to create more rippling impacts in coffee communities around the world. 
A second option is for small roasters to work together and share supply chains—collaborating on sourcing. This should reduce costs of exports and imports by guaranteeing larger order quantities, which can be passed on to the farmer. 
Alternatively, some small roasters seek out green bean importers who act as the consolidator of many small orders and transparently share the cost savings with the producers. "Transparently" in this case means the importer can tell you the dollars and cents per unit (e.g. per pound green) the farmers received. (See 2 above.) 

Wednesday, April 17, 2019

Economic Sustainability Panel Offered at SCA Expo Boston

April 17, 2019
A few days ago a panel, organized by Artisan Coffee Imports, took place at the Specialty Coffee Association (SCA) Expo in Boston titled, "East Africa Quality Innovation."
Panelists were (LtoR):

·       Sara Yirga, moderator and founder of YA Coffee Roasters in Ethiopia
·       Rachel Samuel-Overton, Co-founder Gesha Village, Ethiopia (private estate)
·       Lauren Rosenberg, Managing Director, Long Miles Coffee, Burundi (private)
·       Ruth Ann Church, President of Artisan Coffee Imports, representing Kopakama coop, Rwanda

The combined insights from these speakers offered the audience an opportunity to hear how three East African organizations from three different countries -- Ethiopia, Burundi and Rwanda -- are tackling the complex contexts in which they work. They shared their stories of how they offer brilliant tasting, fruity East African coffee, with narratives that are genuine.

The panelists focused primarily on marketing, and how marketing green coffee as a producing organization requires also attention to price paid to suppliers (either farmers, workers or both) and quality control mechanisms, to control the quality of incoming coffee.

Gesha Village, the relatively new estate established in 2011 in Bench Maji zone, Ethiopia, shared an inspiring video that advertises their annual auction. The estate earns 15% of revenue from sales of the 6% of coffee sold during the auction. Prices can go as high as $100/lb green.

Long Miles Coffee, founded in 2013, offered the perspective of a private organization, working in a complicated and ever-changing regulatory context. Their mission is to uplift farmers and to do this, they find they must continuously find ways to work closer with the farmers, 12 months per year. Ms. Rosenberg also highlighted the visibility they give the story of the farmers through their Instagram posts and other media easily accessible to roaster- customers.

Kopakama, a cooperative started in 1998, represented the oldest organization and farmer-owned-and-controlled business model. Kopakama holds a triple certification (Fair Trade, Rainforest Alliance, Organic) and most notably pursues "Lean at Origin" processes. This management philosophy is well-known in other industries, but is new to coffee. With it, Kopakama is moving towards more efficiency, in order to allow its employees to focus on growth, not every-day fire-fighting.

Sunday, April 14, 2019

Cupping Great Coffee at IWCA-SCA Cupping

April 14, 2019
Surprise! There really are enough fanatic roasters and cuppers at an SCA Expo to fill a large cupping room, even at 8:00am on a Sunday morning! At least 46 guests flocked to taste the over 70 samples from 10 countries, representing all three coffee-growing continents (Africa, Asia and Latin America) and 47 different female producers - all members of International Women's Coffee Alliance (IWCA) chapter members. Click here to see the list of all the coffees.

The IWCA hosts this annual cupping event with generous support from the Specialty Coffee Association (which donates the space), and Firedancers Consultants (which collects, carefully sample roasts all samples, and leads the cupping). This year the event boasted additional sponsors -- Joe Coffee Company of New York City and City Girl/Alakef Roasters in Duluth, MN sponsored the new cupping aprons with the IWCA logo. Thanks to all these sponsors for supporting women in coffee around the globe!

Friday, March 1, 2019

Cherry Price and Farmers' Benefits

Farmer Field School – Abichizahamwa group
March 1, 2019

Today marks the day the National Agricultural Export Development Board (NAEB) will formally meet with about 100 owners of washing station in Rwanda and announce the "opening" floor price for cherry. They are setting it at an astonishingly low 190 Rwf/Kg cherry. That converts to about $.62/lb green and it is 36% less than the 300 Rwf/kg cherry ($1.07/ lb green) shown to be needed by farmers to incentivize best practices for coffee cultivation.

Several large exporters, however, are heavily invested in selling low-grade, fully-washed coffee. This is a product for which Rwanda cannot compete on a global stage against competitors from Brazil, Colombia and Ethiopia. These exporters drag down the cherry price and retard the entrance of the entire Rwandan coffee sector into a new age where Rwandan coffee is recognized as the "Panama of Africa." 

The benefits to farmers are significant when exporters agree to pay a rational share of the FOB price as the cherry price. Artisan contracts require that farmers are paid at least 300 Rwf/Kg cherry, and we have documented the following benefits over the past year:

Farmer Field School – Abichizahamwa group: 6 men, 24 women
The Ejo Heza members in the FFS were asked if they remembered anything special that happened at the last general assembly. They remembered receiving the premium. Then the agronomist asked if anyone would like to share what they did with their premium. (Names changed.)

Rec’d 53,000 Frw (~ $60) premium from Artisan. She was able to buy 3 bags of cement and put pavement in the floor of one room - the dining room in her home. She wants to improve the taste of her coffee so that “we can continue to develop.”

Rec’d premium of 12,400 Frw (~ $14). She bought chickens and hired a person to help her weed the coffee and the beans that she grows. Got the money when it was a ‘bad situation’ (poverty and hunger) in our community. Helped my family very much.

Rec’d premium of 55,000 Frw (~$62). It helped her to buy another cow from which she can use the manure to fertilize her coffee organically.

These amounts of cash mentioned above can be verified in the list of 320 names showing that each woman signed for their premium on October 31, 2017. (A similar list is now available for the 2018 premium.) The premiums from roasters are impacting these women’s lives and motivating them when we explain new tasks and efforts we’d like them to try to improve quality and consistency, and avoid potato-taste defect.

Want to learn more about how powerful premiums are? Listen to one of two interviews with Bette UWIMANA - posted on-line in 2018:
Short one – CLICK HERE.
Long one – CLICK HERE.

To summarize, here are paraphrases of comments from Ejo Heza members Bette UWIMANA, Martha Uwiherewenimana and a comment from the male members of Kopakama:
* Bette says the women of Ejo Heza were very happy. She said that the primary uses of the extra money were school fees, purchase of small animals (goats, pigs, chickens), and the fee to be enrolled in “Mituel”, the national health insurance. 
It inspires young, ambitious farmers to invest deeper in coffee and take on leadership roles. Bette Uwimana and her husband are a good example of this. Bette is 28 years old. She and her husband have 2 children, 8 and 4 years old. They’ve benefited from coffee for over five years, but only last year (2017) decided to join Ejo Heza. I suspect seeing the women receive the premium was the “decision-maker” for Bette. She has been on the staff at Kopakama for several years, seeing how the Ejo Heza women improve their production, and then seeing the premium she finally decided to join. She and her husband have 1,650 trees. Thus the impact of the premium is both individual and community: capacity building for Bette and new, young leadership for the Ejo Heza group. 
*Speaking to Martha Uwiherewenimana, the new president of the Kopakama cooperative, she personally appreciated receiving the premium last October and knows that the Ejo Heza women were amazed to receive this extra money directly in their hands. She is confident that premium will do much to overcome any objections to testing some new practices Artisan is suggesting to improve quality, (e.g. floating cherry to separate out floaters before paying the farmers).
Appreciation - even from the men: When a group of male and female Kopakama farmers were asked (during a field school) whether conflicts or jealousy developed when the women of Ejo Heza received a premium, a male farmer answered. He said he was proud of his wife for being an Ejo Heza farmer, since that meant their household received a premium. If she had not been a member, the household wouldn’t have received any premium last year. (The cooperative normally pays a second-payment to all members in January, but in Jan. 2018 the members decided to pay down the loan they took out to build the dry mill.)

Sunday, February 10, 2019

Maceline and Mary Share Farmer Experiences

Feb. 10, 2019
During my visit to the Ruli Mountain washing station owned by Land of One Thousand Hills (LOTH), I had the delightful opportunity to interview two farmers. They belong to the approximate 1,200 farmers who deliver cherry to this washing station, which collected 451,000 Kg cherry in 2018.  Maceline (age 40) and Mary (age 36) were kind enough, through my interpreter, to accept an invitation from the washing station manager to be interviewed on the date of my visit. My objective was simply to provide a snapshot of "who is a farmer?" at one of LOTH's washing stations.

Maceline M:
Age: 40
# of Children: 3 - one of which was there for the interview. Charming "Mick."
# of coffee trees: 100 - shared ownership with husband. These trees were purchased in 2011.
Started coffee farming: 25 years ago with her family when she was a child.
% of income from coffee: 50%
Cherry price: In 2017 she remembers receiving 320 Rwf/Kg cherry.

She got the 100 seedlings she and her husband own from LOTH. Now coffee is a source of income and development for her family. They also grow beans, soya, maize, sweet potato, banana, casava and vegetables. She says she and her husband decide together about how to spend the income from coffee. Everyone in her family participates in delivering coffee cherry to the washing station.

Mary M:
Age 36
Children: 3
# of coffee trees: 840 total; 420 were planted 5 years ago; another 420 were planted just 3 years ago and so the very first harvest was 2018. She received the seedlings 3 years ago from a LOTH program.
Cherry price: in 2018 it was 280 Rwf/kg cherry. In 2017 it was 320.

They have found that good things come from coffee. Income to pay Mituel health insurance and solve other issues. The coffee money is a lot, but it spends quickly! Her family also grows bananas, casava, beans, vegetables and maize. She explained that is can be either her or her husband who comes to the washing station to receive the coffee payments. They hope that they can get 300 Rwf/kg cherry again this year. This would mean they earn a small profit.

We talked about the practices they are using on their coffee fields. When it came to the topic of mulch, they both complained about the high cost and the difficulty to access mulch. I asked them to help me understand what "expensive" means. They explained that first they often have to travel far away from the plot to find a place with mulch grasses growing. Then they are charged (for a swath of land they indicate with their hands) 80,000 rwf for the grass itself; 20,000 rwf for the labor (they do not do the cutting alone); 20,000 rwf to the land owner (service fee); and 20,000 rwf for transport. In total: 140,000 Rwf ($157) for that day's mulch delivery.

Friday, December 7, 2018

What Transparent Trade Looks Like

Dec. 7, 2018
The new wave of roasters want more cost transparency to complement their relationships to the farmers who grow their coffee. That's what we offer at Artisan Coffee Imports in a way that other importers cannot. We offer a closer connection, a deeper relationship through cost transparency, to the coffees we source. (Click here for the last blog describing some of that connection at Kopakama.) Currently we focus on Rwanda, but soon we'll include other origins. As we expand, we plan to replicate the model we've developed in Rwanda:
  • Receipts tracking how the money got to the farmers. Artisan sent $7,290 in mid-November to pay the $.30/KG green second payment to Ejo Heza farmers. Kopakama sends to Artisan the receipts showing conversion of the $7,290 to RWF at a Forex office and the bank receipt confirming the funds are deposited in Ejo Heza's local (Mushubati) SACCO account.
  • Signatures of the farmers themselves on lists with their names. Kopkama also sends the lists, broken out by sub-groups, of the women who received their share of the $7,290 mentioned above, in their hands, on November 30, 2018, during their general assembly. Click here to see the previous blog with photos and video!
Pay day!

Farmer Compensation Revisited:
This works for the second-payment. The other, more important piece of a farmer's compensation is the first payment -- the payment received for cherry as it's delivered. For example in Rwanda, this base cherry price can range from 150 - 400 Rwf/Kg cherry. A second payment typically ranges from 10 - 35 RWF/Kg cherry. In percentages:
  • base cherry price = 90 - 100% of farmer's compensation for coffee (many farmers receive no 2nd payment)
  • second payment = 5 - 10% of farmer's compensation for coffee
Obviously, the most important piece of a farmer's compensation in Rwanda (and many E. African countries) is the base cherry price. How that cherry price is set is a critical question. Is it based on pure competition for cherry in the market? No, it's usually a mix of government regulations and competitive forces. In cultures with low tolerance and understanding of competition and market economics, the former, (government regulations), tends to be the more dominant determinant of the farmer's cherry price (see paper referenced below). Unfortunately, two major hurdles are frequently encountered in origin countries:
  1. Lack of market data
  2. Overly heavy influence of a few, oligarchic players
These two factors can both, independently, weaken the government's ability to design and implement effective regulations, even when the government's intentions towards the farming community are positive. A recent paper in the Journal of Rural Studies delves deep into this topic in Rwanda. 
Bette, one of Ejo Heza's leaders, meets Ritual's buyer, Aaron.

The New Wave Roasters: Junior's Roasted Coffee (JRC), Portland, OR, is an example of the trend we anticipate will continue. Daily Coffee News recently wrote about Mike Nelson's multi-year effort to bring deeper understanding of cost transparency to his coffee supply chain.

The picture that became clear to Nelson was that in order for JRC to purchase a grower's coffee at a price that allowed the farm to break even, a significant premium would have to be added to the going market price. "Given the longstanding relationship between the roaster and the producer, and that the coffee consistently cups up to Junior’s stringent standards, JRC was happy to pay more for the benefit of all involved, today and into the future."
“We were able to come up with a premium,” said Nelson. Nelson's importer was paying $3.25/lb. green to the farmer, and Nelson added an additional $.75 per pound green, to ensure break even on his coffee purchase." Thus, the producer in this case is receiving $4 per pound on this coffee. With the premium, the price JRC paid to the importer was $5.62 a pound. "Adding shipping, roast loss, labor, packaging, and everything else, this worked out to be an $8.10 per pound coffee [for Junior’s].” 

JRC's roasted coffee (consumer-facing) label says: 
"Coffee is traded as a commodity, trading for as low as $1.00/lb during the 2017/2018 season. This season, it cost the [producer name] $2.87/lb [green] to produce this coffee. We paid $4.00 /lb [green] directly to the [producer name] family to cover production costs and to help ensure future production."
JRC is making their support for covering cost of production not only a clear priority of the company, it's seems to be a value. It's a little like telling airline customers exactly how much you, as the airline operator, have included as a carbon credit in the price of the ticket. You're making sure you cover the real costs of production, and you're ensuring sustainability of your industry. [Story credit to Howard Bryman, 10/1/2018, Daily Coffee News, published by Roast Magazine.]

Charlotte (Kopa), Ruth Ann (Artisan) and Dominique (Kopa)
Importer's Role: a final note here about the role of JRC's importer. One might ask why JRC had to go to all this trouble to find out the producer's cost of production? And more trouble to arrange a way to make the producer whole? It appears JRC's importer pays the producer a price that is either at or below the farmer's cost of production. In this happy case, a roaster came along to ensure not only costs are covered, but there is profit for the farmer to reinvest. At Artisan Coffee Imports, we assure all our roaster customers that farmers who grew the coffee we sell are paid a price that covers cost of production and a profit margin. For the base price, (before any second-payment), our minimum is 300 RWF/Kg cherry, well above the average cost of production in Rwanda of 177 RWF/Kg cherry. Not surprisingly, we check the cooperative's records to ensure this price was paid, and 'spot check' with farmers, too.
Welcome to transparently traded coffee!

Saturday, December 1, 2018

Ejo Heza Women Celebrate and say "Thank you!"

Ejo Heza General Assembly at KOPAKAMA Mushubati station, Nov. 30, 2018
Nov. 30 was the one of the best days of the year for 320 coffee farmers and their families in Mushubati cell, Rutsiro district, Western Province, Rwanda. Yesterday was the date of the annual general assembly for the Ejo Heza group of women, which is a sub-group of the well-established Kopakama cooperative. Perched on top of a mountain, in the building that doubles as meeting room and coffee warehouse, (depending on the season), the members of Ejo Heza gathered. Three of their officers led the proceedings: chairperson Therese UWIMANA, vice-chair Beatrice TUYISABE, and secretary Olive NYIRAGAHIGIRWA.

Each woman received $.136/lb green coffee sold by Artisan Coffee Imports. They receive cash in their hand, calculated based on two factors:
1. the KG of cherry they delivered from their "own trees" from near their home, and
2. their share, according to the days of work they contributed to the Ejo Heza cooperative plots of land.

This 'second payment' comes on top of the $1.078/lb green they receive as the 'first payment' or base price for their cherry. In other words, roasters who buy Ejo Heza helped those farmers have 13% bonus, a total of  $1.214/lb green. For this, they are grateful, as you can see in this video of them dancing and singing!

The 'first payment' the farmer receives is the larger of the two and an important signal to the farmers of how much the washing station is willing to pay to attract the farmer's loyalty, and also a signal of what quality level the washing station requires. Washing stations that expect more selective sorting prior to delivering cherry will pay more than those stations that don't care and buy everything.
Farmers bring cherry to the washing station to sell - usually transporting by foot.
Weighing cherry - preferably within 6 hours of it being picked from the tree.

A farmer watches as her Kgs of cherry and the corresponding price are recorded.

For Ejo Heza farmers, the process of bringing cherry to the washing station is part of what solidifies their unity and strengthens the sense of belonging for each woman. Ejo Heza cherry is only collected on one, sometimes two, specified days of the week. This allows the washing station to keep the "women's coffee" separate from the rest and sell it as women's coffee. So the women know when they bring their cherry that they are contributing to this specially selected batch, and this brings a sense of honor and duty. Their coffee won 8th place in Rwanda's Cup of Excellence in 2018!
Ejo Heza members sort cherry harvested from their community field on a Tuesday - the day for women's coffee.

The second payment from a cooperative is solidifies the loyalty of the farmers, and is the way the cooperatives shares it's 'profits' after costs and revenues for the year have been finalized. The timing of the payments can be a benefit to farming households as they come 6 months after the season has ended, when cash may be low.
Proceedings at the Ejo Heza general assembly, 2018.
We don't have the lists and other details from last week's meeting yet, but in August 2018, Artisan's Ruth Ann Church visited one of the farmer field schools (FFSs) with 24 Ejo Heza members (and 6 of the cooperative's male members). Church asked and a few of the women were willing to share what they did with the premium they received the year before. There among the coffee trees, they quietly stood and shared these short stories, firmly and with pride. (Names have been changed.)

Received 53,000 Frw (~ $60) premium from Artisan. "I was able to buy three bags of cement and put pavement in the floor of one room - the dining room of my home. ...I want to improve the taste of our coffee so that we can continue to develop.”

Received premium of 12,400 Frw (~ $14). "I bought chickens and hired a person to help me weed the coffee (and the beans?). I got the money when it was a ‘bad situation’ (poverty and hunger) in our community. It helped my family very much."

Received premium of 55,000 Frw (~$62). "It helped me to buy another cow from which I can use the manure to fertilize coffee."

These amounts of cash mentioned above can be verified in the list of 320 names showing that each woman signed for their premium on October 31, 2017. (Click here to request the list.) The premium from every roaster is impacting these women’s lives. They are motivated to work with us as we explain new tasks and efforts we’d like them to try to improve quality and consistency...and avoid potato-taste defect.