I asked Dutch coffee experts the challenging questions about the present and future of this daily treat, with the aim of launching a farmer-owned brand in the Netherlands.
The topics covered are:
- Some quick thoughts on flavor, taste and real coffee.
- The big picture – corporations and monopolies.
- The raise in income inequality and the motivation to invest in sustainability.
- A controversial example: Moyee Coffee.
- Beyond certification.
- Farmers must ‘comply’!
- Consumers suffer from cognitive dissonance.
- Is ‘Direct trade’ is becoming the new ‘Fairtrade’?
- What about farmer’s selling directly to consumers and capturing all the added-value?
- The opportunity.
A quick introduction.
These days everyone around here talks about development, sustainability and fairness. People in the coffee field, either get lost in the complex dynamics of the coffee value chain, or fully commit to the ideals of the organizations they work for (hint: both options are wrong). Their cooperation often results in too many ideas, which fail to materialize.
Farmer-ownership is not complicated. It’s challenging, and it requires us to give up our privileges. But it’s not complicated! Not if we just stop pretending that we know better, and that we can do better. We need to rethink, and maybe to downgrade our roles, when it comes to goods and problems that are alien to us.
Social-List: a farmer-owned brand
Farmers lose ownership of their coffee beans as soon as these leave the coops’ warehouse. In some cases, large coops own the supply chain until the beans are loaded into shipping containers. Either way, by the time the beans reach the final consumer the price of what they’ve become has gone up 10 times.
Old philosophy texts (e.g. by John Locke) that set the stage for capitalism, logically argue that goods whose natural conditions are transformed by a person, become this person’s individual property.
Coffee is grown on land in the property of farmers. The hands that first touch the seeds, trees, harvest and beans, are those of the farmers. The coffee is theirs. All the hipster crap we do with those beans, should not allow us to increase their value 10 times. The current economics are against the individual property rules of capitalism!
The increase in the Dutch consumption of local food and in projects of community supported agriculture (CSA), shows that consumers want to buy directly from farmers!
Local food movements in The Netherlands have been promoting this idea for some time. I support these movement’s values regarding sustainability, quality and fairness. Based on these I believe farmer ownership to be the only way for a truly fair relationship with the producers of our coffee.
If farmers can stay the owners of their products until these reach the consumers, they can get the full added-value!
How do we then build a system that allows farmers to keep the added-value of their harvest? The answer is, WE don’t! Farmers themselves need to build it. Any planning should only happen when the producers are at the table. From the beginning!
With this philosophy, I began learning and talking to farmers of tropical products. I discovered that many of them have entrepreneurial ambitions. Then a manager of a farmer coop suggested that I should talk to a Dutch guy called Pieter, who was supposedly on the same learning path as me, and who wanted to invest his own money into facilitating a farmer-owned business.
We were a good match; Pieter loves coffee and has some spare time and money due to his retirement. We both agreed that farmers should get more of the value from their products, so we partnered up and started on the journey of facilitating farmers in becoming owners of a Dutch coffee brand.
In the beginning, we just listened. Sure, we had opinions and own ideas around what’s fair. But we wanted to give the farmers the chance to choose what’s important to them.
We must admit it was not a surprise when many shared their desire to connect with the people who enjoy their beans. We realized this connection is only possible if they get the final products to the consumer themselves, by maintaining ownership throughout the chain.
Agreements were made with farmer cooperatives from Guatemala, Nicaragua and Ethiopia. Cooperatives of farmers are the new social enterprises, especially in origin countries.
Coops are democratic and set up only in response to low prices and the absence of markets, finance and services. Smallholders farmers in disadvantaged locations and socio-economic situations are increasingly organizing themselves into coops to bring their harvest on the market together. These farmers were our target group.
Through the coops, the farmers are the ones making the decisions and pocketing the money for their beans. The coops will be the ones to also own the sales point in the Netherlands, which we will help them open.
Now that you have an idea of WHAT we want to do, keep reading to find out WHY we want to do it, and what experts had to say about it.
Some quick thoughts on flavor, taste and real coffee.
We don’t consume coffee in the same way that we consume rice, corn or milk. Buying these tropical products usually fulfills a need such as getting more energy or tasting something that we really like. However, coffee is considered a commodity, which by definition is capable to be substituted for one another.
The way in which most of the coffee beans are processed today doesn’t take into account their distinct flavors. If a passionate company knows how to highlight the beans’ flavors, all the other ingredients in the final products you buy at the supermarket or in a café, are not necessary. No, not even milk!
If you are not a fan of strong tastes, just take a look at this official coffee beans ‘Taste Wheel’ and you’ll see that in it you’ll find the sweet, fruity, caramelly taste that you like. Even the beans that many in the field call ‘bulk’ or ‘commercial’ coffee, can have distinct flavors.
What the general public knows as ‘coffee’ is full of sugar and other ingredients, which hide the taste of the beans. Products such as Douwe Egberts, Illy, Segafredo, Jacobs, and others from AH, Lidl or Aldi are bought, appreciated and even loved by many. I believe this can, and should change, because we all like sophisticated flavors.
My question to experts was:
What is your advice to coffee drinkers when it comes to taste and quality? How can they start enjoying good coffee?
The big picture – corporations and monopolies.
Let’s start with the (very) big picture. The organization Global Financial Integrity and the Norwegian School of Economics published a report showing capital flows between developing countries, and the rich, developed countries. I need to mention that separate authors highlighted that the methodology might have inflated the numbers, but that the problems are real and still significant.
The report placed capital flows in the balance, including: aid, foreign investments, trade flows, debt cancelation, interest payments and most importantly trade misinvoicing (and the use of tax havens). The results show that net resource outflows from developing countries sum up to $3 trillion per year. The aid given by the rich countries is only $125 million per year, 24 times less.
The companies trading soft commodities such as coffee, are some of the main offenders. Three companies – ECOM, Neumann and Volcafe – control 50% of the $81 billion global coffee trade, and 10 roasters – including Nestle and Jacobs Douwe Egberts – process almost 40% of the coffee consumed worldwide. Economic theory tells us that this reduces competitiveness and creates economic and power inequality. This is easy to prove, if we consider this stat together with this one: the large majority of the world’s 25 million coffee farmers and workers live at or below the poverty line of $2 per day.
My question to experts was:
Do you think that buying the same coffee found in supermarkets today, will ever lead to coffee farmers earning a fair income?
The raise in income inequality and the motivation to invest in sustainability.
The graph below shows the increase in income inequality between the top 5%, the top 20%, and the rest of the population, split also in groups. Since 1985, while the rich are getting richer, the poor are getting poorer. This is a statistic used often by Joseph Stiglitz, Noble prize winner in economics, to show that capitalism is failing.
For me however this graph proves that most of the efforts and sustainability claims are naive. So many years later only marginal socio-economic impact has been achieved at farm-level. For example, the International Coffee Organization showed that ‘coffee production is not economically sustainable for many producers’ and ‘the living conditions of millions of coffee farmers are deteriorating’.
It is inside this capitalist system that corporations, large traders and manufacturers, are implementing corporate social responsibility projects. Also within capitalism, ‘social enterprises’ are operating and trying to place impact before profits.
Projects are failing to transform markets and the bigger trend is still worrying.
My question to experts was:
Isn’t the goal of securing future supply, the most important one for companies who invest in sustainability? Do you think that any of the projects with claims of improving livelihoods (e.g. focused on agronomy, business, services, etc) are addressing the root causes of inequality?
A controversial example: Moyee Coffee.
This is a company that most Dutch consumer consider ‘sustainable’ and ‘fair’. To get down and dirty a bit, with the risk of upsetting many people, I took a critical perspective. I base it however on logical arguments, but the experts were able to correct me below.
Moyee Coffee is a ‘social enterprise’ which claims to equally share the value they add to the coffee beans sourced in Ethiopia. This East-African country is the birthplace of coffee and still produces some of the most appreciated flavors in the world.
In their impact report Moyee actually reveals that a large farm from which they source a significant amount of coffee, is owned by Dutch and Ethiopian businessmen. Processing the beans in Ethiopia, to keep some of the added-value in this developing country, is also done at a Moyee-owned facility. Who is making money then?
Smallholder farmers are not the main beneficiaries of the value being added to their beans. As Marx would say: ‘workers must own the means of production!’.
My questions to experts were:
Do you think Moyee Coffee is a transparent company who gives the public the right information? Does their business model create ENOUGH impact at farm-level?
- Beyond certification.
Positive results reported by Fairtrade and other organizations behind the labels, are the effects of investments of time and money from companies, NGOs, funds and governments. Many farmers see certification itself as an extra expense and a set of burdensome requirements.
Many times, farmers in Fairtrade supply chains get only a small part of the premiums. Most of it is invested in projects with common benefits (e.g. education, health, etc). Sometimes farmers choose these options, but this doesn’t mean the cash received should still keep individuals in poverty.
If we want that coffee so much, then we should just cover the costs of governmental failures. We want to trade with other persons, with costs and needs, and form humane relationships.
Fairtrade did great in terms of awareness, and almost all Dutch consumers know them, but the downside of this is that Fairtrade needs to promote only the emotional stories of success. However, in recent years many studies show the limitations of certification and outright see through all the fancy claims.
A four-year long study by SOAS, University of London, found that ‘Fairtrade fails the poorest workers in Ethiopia and Uganda’. When Fairtrade reacted to the research, the authors responded: ‘The findings on lower wages held true even after the effects of scale and other differences across workers and sites were taken into account in detailed statistical analysis, contrary to the claims made in the Fairtrade Foundation’s own statement about this research.’
Professor Cramer said: “The British public has been led to believe that by paying extra for Fairtrade certified coffee, tea and flowers they will ‘make a difference’ to the lives of poor Africans. Careful fieldwork and analysis in this four-year project leads to the conclusion that in our research sites Fairtrade has not been an effective mechanism for improving the lives of wage workers, the poorest rural people.’ But this study is not the exception!
Another study showed that UTZ certified cocoa farmers in Ivory Coast do not earn much more than non-certified and control group farmers. A 10% increase is far from the 400% increase that’s needed according to living income studies.
BBC reported on Rainforest Alliance certified tea plantations (e.g. Twinings, Liptons): ‘Living and working conditions are so bad, and wages so low, that tea workers and their families are left malnourished and vulnerable to fatal illnesses.’
The list of studies can go on, but the idea is that certification is not enough. In fact, I would argue that it makes people confused and content. For this reason, it should transform or die.
My questions to experts were:
Do you think consumers should make purchase decisions based only on Fairtrade or other similar labels?
Farmers must ‘comply’!
There is a serious rhetorical problem in North-South trade relations. Many organizations claim to try to ‘end slavery’, promote ‘farming as a business’, demand certain agronomic practices, declare that they’re only able to offer market prices (maybe with a little premium), and impose all kinds of other top-down conditions, creating a sphere of influence over producers.
The patronizing attitude is seen also at nonprofits who are implementing social or environmental projects using standards and certification.
Consider this example: in some Dutch jobs, young people earn as less as one third of an adult’s wage, for the same work. Nobody is imposing changes to this, and for sure it helps companies to have a cheaper labor force. For young people working on coffee farms however, many rules were made in complete discrepancy with local traditions. Some consider these rules progress, and they might be right, but the rules are nonetheless condescending and if someone would tell Dutch supermarkets to pay teenagers equal wages, a big scandal would undoubtedly emerge.
The same goes for efforts to increase farm productivity. Wouldn’t you be able to improve your job productivity, if you’d take some evening courses and learn to master standard financial, Excel or any other skills/procedures needed in your tasks? We could all produce more, but this doesn’t mean we should receive salaries based on the wages of the most productive geniuses in our fields.
My question to experts was:
If organizations (commercial or nonprofits) try to create positive impact for farmers, shouldn’t they start by listening to the farmers? Isn’t certification doing the exact opposite of listening?
Consumers suffer from cognitive dissonance.
The number of people who buy either local, organic, or other labelled products is growing. However, their confusion regarding coffee is also increasing, and it’s being called more professionally ‘cognitive dissonance’: the mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas or values at the same time.
The most often-met contradictory ideas are those regarding the price to pay for food. What is stronger: the compassion for the food producer, or the assurance that enough money is saved on food, for rent, expenses and even a much-needed holiday? Well, if you could easily see that the farmer behind your favorite coffee lives in a hut and can’t afford a dentist, you would choose to save some money on a more luxurious purchase. But you don’t trust that the money will reach the farmer and therefore you’re stuck with this mental discomfort called cognitive dissonance.
I am designing an approach to reduce this mental ‘suffering’ and to connect Dutch people directly with coffee producers. This connection can be based on the same values that people who buy local Dutch products are holding.
My question to experts was:
What do you think about the idea of Dutch local food movement, from farmers to consumers, forming relationships with coffee farmers? Is a structure similar to a Community Supported Agriculture (CSA) project feasible?
Is ‘Direct trade’ becoming the new ‘Fairtrade’?
In recent years, a more direct trade is being encouraged, to eliminate profit seeking actors, and to allow consumers with the right values to act on them. But the ‘social enterprises’ claiming to practice direct trade can in fact be the ones clogging the space between farmers and consumers. They are creating confusion with many of their sustainability claims.
Two main categories of social enterprises can be distinguished. I will use an example for each of them, to highlight the characteristics of ‘direct trade’ in practice:
- This Side Up Coffee facilitates direct trade relationships between specialty coffee farmers and roasters. It developed a ‘fully visible trade process’ and it imports only from smallholder farmers in African, Latin American and South-East Asian countries.
- Moyee Coffee also knows exactly where its specialty coffee comes from (although it took them a few years to find out due to Ethiopia’s Coffee Exchange system of anonymous farmers), and visits them regularly. Moyee tries to own its coffee in all stages from farm to cup.
Choosing where to source from is a complex process and can differentiate direct-trade companies. Besides forming direct relationships, ‘direct trade’ often involves a large focus on quality. Some companies, such as This Side Up, guide their choice for sources using beans’ flavor, while other companies, such as Moyee, choose based on development needs.
This doesn’t mean that either company does not make great efforts in both quality and development! However, there is a difference in how they approach the quality aspects. Perhaps they will explain it below.
Another difference between the companies is reflected in the answer to the question: ‘direct trade between who?’ Moyee aims to connect farmers directly with consumers. This Side Up’s version of ‘direct trade’ is to connect farmers with roasters.
Price-setting is another very complex process, but direct trade relationships allow a buyer to discuss the farmer’s costs and needs, for coming to an agreement together on a fair price. This Side Up finds the best flavors and agrees on prices disregarding the market price. Depending on the origin country, it pays between 50-100% over market prices (2,27 times more than the Fair Trade base price).
Moyee’s approach to setting prices is much more linked with the (historically low) market prices. Its main principle is to pay 20% over market prices. An interesting fact about Moyee is that transparency for them doesn’t go as far as disclosing the prices paid. They just say they paid 20% over market prices, but no price breakdown is mentioned.
‘Direct trade’ claims are increasingly made by larger companies as well, who can use advanced traceability systems to track where every bag of beans comes from. However, the motivation to choose farmers to buy from, the quality-price connections, and the ‘direct relationships’ (not ‘trade’), should always distinguish smaller, more socially oriented companies.
My questions to experts were:
What do you think ‘direct trade’ is, and how is it different from other business models? Is there a risk that it dissolves in the same capitalist, profit-seeking system, similarly to other initially admirable ideas such as certification?
What about farmer’s selling directly to consumers and capturing all the added-value?
Farmers who are shareholders in a company which adds value to the farm products, have four main advantages (Koninklijk Instituut voor de Tropen, Bulletin 390, 2009):
- Influencing company governance and negotiating prices;
- Sharing benefits from the profit, either as reinvestment or as dividends;
- Access to credits and other services;
- Binding farmers to a marketing company, assuring quality control in the value chain.
Farmer-owned companies had the chance to gather support and compete with corporations a long time ago. The attempts made were mostly very successful but unfortunately, they were not replicated. The ‘buying from farmers’ idea never won against the marketing of corporations.
Perhaps it was not the right time, as in the early 2000s’ positive, uplifting stories could not go ‘viral’ so easily. But vertical integration, the taking on of activities up the value chain, is an established strategy. I blame capitalism and private interests of people in developed countries, for the limited vertical integration beyond the borders of the producing countries.
Here are some examples (not only from the coffee sector): Divine Chocolate was started in 1998 by the farmer union Kuapa Kokoo from Ghana, and Twin, an UK NGO. The Body Shop, Christian Aid and Comic Relief were important partners from the beginning, owning part of the shares, marketing and distributing the chocolate.
Kuapa Kokoo owns 44% of the shares. The company had its highest turnover in 2014-15, paying 25% of profits (approximately EUR 60.000) in dividends. Over $2 million have also been invested in development projects, empowering women and improving agricultural practices.
The Kuapa Kokoo union has 80.000 farmer members, and thus a lot of their cocoa is sold to other buyers. A smaller farmer group, using more of their cocoa for their own chocolate, would thus benefit much more from the dividends.
We can also find an example of a (previously) farmer-owned brand in the Netherlands: Kuyichi jeans (started by Solidaridad). The company was taken over in 2016 by Dutch television host Floortje Dessing and her friends, and I’m not sure what their intentions on farmer-ownership are.
Kuyichi was innovative in designing a ‘waiting room’ for aspiring shareholders. Farmers who still had to prove that they can be good business partners, was placed in a three-stage program. They had to provide high-quality and enough volume of beans for one year, they had to use organic cotton, and they had to get SA 8000 certification. It’s important to mention that the motivation to become a shareholder had to come from each farmer.
But there are two new initiatives, which so far show promising results. It is the positive media attention received by these two, that made me pay attention to the concept of farmer-ownership.
Pachamama is a US-based coffee cooperative owned in turn by farmer cooperatives in five South American and African countries. Their farmers are able to keep 78% of the US market value of their coffee. One kilogram is sold for $26,5, of which $20,8 is the farmer-owned gross profit margin. Pachamama won over its US coffee-drinkers by promoting their ‘Community Supported Agriculture’ approach.
Thrive Farmers enables their coffee farmers in Costa Rica to keep ownership of their coffee until it is sold on the US market. Farmers don’t own shares in the company. An innovative revenue sharing models is used instead.
The 5000 Thrive farmers are able to retain profits ‘up to 10 times higher than farmers in conventional markets’, by retaining 50% to 75% of the sales of finished products. Thrive grew 8000 percent since its 2012 launch, to over $20 million in revenue.
Except Pachamama, in all the farmer-owned examples mentioned above it, the partnership between the private investors, NGOs and the farmer groups, was extremely important in taking over the high risks faced by startups. Crowdfunding however can secure the initial demand (and the finance), and is thus an extremely important tool. It was not available in the 90s and 2000s, but it is now!
My questions to experts were:
Have the farmers you worked with so far ever express interest in vertical integration? What do you think are some benefits, limitations and risks, of farmer-ownership over the whole value chain?
There is an opportunity for coffee professionals and other people involved in the local food movements to contribute significantly at driving change in the socio-economic situation of the millions of farmers most in need. All that is needed is the recognition of the systemic problems and an enthusiastic attitude for mutually beneficial partnerships with farmers.
As global citizens, we must act responsibly in order to correct the historically prejudicial trade relations. Farmer-ownership is the term we must get used to.
People in coffee producing countries have been militarily enslaved by our ancestors. Unfortunately, our current economic system allows corporations to keep them enslaved, this time economically. And so far, ‘social enterprises’ in developed countries seem to still be part of the same economic system. Let’s recognize a truly fair solution: farmers as shareholders!
My question to experts was:
Do you see opportunities in working together towards making Social-List a success?