Our latest podcast featured a question surrounding direct trade vs using importers, which made us reach back and grab this article from last year and push it straight to the front of the blog. It's by the amazing Noah Namowicz of Cafe Imports, and is a great read for anyone interested in green coffee importing and the concept of "direct trade." Enjoy. -C&C
I have the opportunity to be in a position in the coffee industry which is intertwined with the coffee producing and coffee roasting world in an extremely unique way. As a green-coffee importer, I see the good and bad, the inspiring and disheartening, and the rewarding and discouraging ways that green coffee is bought globally.
Cafe Imports and a handful of other solid companies are finding, partnering, developing, and bringing to market some really exceptional coffees. For a long time (and probably still by some today), the importer was viewed as “the man,” a person to try and cut out or avoid. When I hear those radio commercials for Shane Company Diamonds, and hear him talking about “direct diamond importing” and “cutting out the middleman”, I have to give it to him; it's an easy sell. I am thinking to myself, “Hell yeah, why pay all these extra markups if I can do direct to the source?” Then suddenly, for no apparent reason, I NEED diamonds. That pinkie ring is looking super attractive right now. But Tom Shane, how do you do this? And why I am so lucky to benefit?
Well, a similar thing can be true in coffee marketing to consumers. As a coffee roaster, and a coffee roaster selling a premium product to discerning consumers, the message that you are connected to the products you sell is increasingly crucial. Some consumers just come for a delicious drink, but others come to drink your coffee because of how that product’s soul makes them feel. It’s the whole package more often than not; that coffee has to have some integrity behind it. I have yet to hear a radio commercial from a coffee roaster talking about selling cheap coffee because they go direct, but the general tone of the marketing seems similar to me. “Why buy from that other guy, when you can buy from us because we did this thing ourselves, no middlemen, this is our direct trade”
I wholeheartedly believe that, when possible, coffee roasters should be connected to the coffee they buy, in a way that allows them to strengthen a sustainable supply chain. They should be taking steps to bolster their supply of excellent coffees in a world where we face global threats like roya and more financially lucrative crops because...hell, we are. So the question is, how does direct trade accomplish that, and what can be done to continue to improve it?
For me, when I look at the way we at Cafe Imports buy coffee, versus other buying strategies we have seen, the problem is the combination of infrastructure-improvement requests, cherry-picking of lots, and unmet expectations within a given relationship year after year.
Generally, we see buyers who will buy a portion of coffee (microlot) from a producer at a very high price one year in a direct scenario, only to leave that producer with the remainder of their crop to be sold at the prevailing market level - and next year, all bets are off...good luck, buddy. That producer won the lottery that first year for a small portion of his crop, and now he holds the expectation that he should be getting that price for all his coffee, and that arrangement should continue forever. Who wouldn’t want that?
However, with coffee, its a difficult scenario for smaller buyers to commit to anything beyond what is in front of them, even if that is what the producer really wants. Our partners have told us time and time again that they want some stability in their lives. Some of their coffee can be great, some coffee can be very good, and a portion is just going to be flat-out bad from any given farm. We see unmet expectations all the time regarding what will actually be purchased. Coffee growers are hoping for long-term relationships, and too often (but not always), the direct trade claims by roasters are more like a snapshot of what I like to call “direct selection.”
Let’s look at this mathematically. Direct trade buyer approaches this one producer with this:
- Producer X is asked to build elevated drying beds: $5,000
- Producer X is asked to use different fertilizer: $8000
- Producer X is asked to selectively harvest better (more labor, more hours): $5000
- Producer X is asked to slow down their drying time, leaving less room on his patios: $5,000
-This producer is basically asked to invest $23,000 in this scenario in order to produce the coffee this buyer wants.
-Lets say he produces 37,500 lbs of coffee in the year. A full container.
-The market right now is at $1.50: This is roughly the rate at which the farmer’s commercial coffee will sell.
(If this producer sold his whole harvest without the infrastructure investments at this market level commercially, he would make $56,250 in revenue)
But lets say he does the investments, and produces 10,000 lbs of microlot-quality coffee 88+ points this buyer wants, and sells those for $3.50/lb, then sells the remainder at the prevailing market level. Follow me here:
- 10,000lbs * $3.50 = $35,000
- 27,500lbs * $1.50 = $41,250
- Total revenue: $76,250
- Additional investments: - $23,000
Total revenue minus investments: $53,250
WHY THE HELL WOULD HE DO THIS? He would make more revenue by not investing and selling everything commercially. More work, more risk, less revenue, and increasingly they are seeing less loyalty year over year with this “direct selection” mentality.
That is the question that every coffee producer faces, and the challenge every coffee buyer deals with...how do we make this scenario make sense for the people growing coffee, while also allowing us access to the best possible coffee that can be produced from them? How does this become mutually beneficial?
Yes, being a coffee buyer is sexy: It’s sexy to hashtag #directtrade, and it’s sexy to plaster photos of yourself next to your favorite producer on Instagram and in your shop, but honestly, if you are cherry-picking their lots and not developing a sustainable buying model and partnership for THEM first, you second, what does that direct trade even mean beyond those Insta-likes? Will there be more selfies in your future?
At Cafe Imports, we approach this a little bit differently, and this is where we return back to what “the man” can mean in these relationships when that man is a company that is independently owned, operates with integrity, and has the funding that, quite simply, most roasters do not have. The “middlemen” in high-end specialty coffee are much more than people just buying and selling a product. Sure, there are big importers that do this, but high-end specialty coffee by its nature takes a much more involved and invested buying approach. We are often villainized because it’s easy. Even Oliver Stand in this article states that direct trade opens up coffees “jealously guarded” by these nefarious middlemen (importers). But does that tell the whole story?
So lets look at what’s really done behind the scenes…
In many cases, we are pre-financing coffee for projects, producers, and groups with whom we have close partnerships. We could be paying that $23,000 ahead of harvest, before coffee is picked, so they can invest properly and still feed their families. We are cupping through over 5,000 coffees annually to give detailed feedback to our partners on what is working and what isn’t. We’re buying sample roasters for them and offering sample-roasting training to bolster our partners’ own sensory efforts. We are committing to buy crops year over year at fixed prices and offering trading support in terms of hedging coffee on behalf of our partners. We are willing to import and take the quality risk on small microlots. The amount of paperwork on one microlot in a container is about equal to the paperwork for a whole container, so most view it as a nuisance. We could write a whole additional blog post on what happens when we pay a premium for a microlot and it arrives below 85 points for any reason...but the short answer is we lose money (which unfortunately happens often), but we are willing to take that risk.
Finally, we are developing stratified buying models that throws the cherry-picking model of late on its head.
Let’s look at this stratified buying model, and now, this is the important part...
YES, we want every teeny tiny lot of amazing unique delicious coffee from a given producer, and YES we will pay very well for that quality. We are competing with handfuls of other buyers and need to pay farmers the best for their quality. Our goal is to find the most amazing coffees on the planet: That is why we are in this business, the unending curiosity of coffee’s potential. But, we also want that coffee from this producer that most cherry-picking buyers would discard, which is still above 84 points and delicious, for the sake of the sustainability of the relationship. Ideally, we want to have a home for every possible specialty grade coffee (within our own quality standards), and that wider scope gives a new home to coffees that would have been sold in the commercial market or internal market for these coffee growers. This is the only way that makes sense to us, and what our partners have told us would benefit them. They want to sell more coffee for better prices. I can say based on the amazing quality of coffees we have been seeing year over year from these projects and the loyalty of those partnerships, something is working in this model.
Lets go back to the drawing board:
- Farmer produces 10,000 lbs of microlots and sells for $3.50 = $35,000
- Farmer also produces 17,500 lbs of solid 84+ coffee and sells for $2.50 = $43,750
- Farmer sells 10,000 of sub-80 point coffee internally at $1.50 = $10,500
- Total revenue: $89,250
- Less investments: -$23,000
Total revenue minus investments: $66,250
2nd year revenue: $75,000 since they won’t have to build beds again + hopefully more 88+
3rd year: $80,000?
This scenario is looking a little more attractive now to the producer. We are basically trying to say that we want all of their coffee to eventually be over 88 points, but we also want to reward those lots where they tried their best, but didn’t quite hit the mark. We need to make this a partnership and honor the fact that we asked them to do something for us, asked them to make investments for our own greedy desire to taste something delicious, so now we need to put our money where our mouths are.
The challenge here is: Can roasters also address this need in their business models? Are roasters who only sell the top of the top and have no homes for their partners’ other, yet still delicious coffees, going to continue to be attractive partners? I think that is the challenge we all need to ask ourselves as specialty coffee becomes harder to produce, and as we try to get more producers to plant more coffee and invest in producing truly exceptional coffees. We need them to know we are in this with them. We buy coffee from our solid partners if a bad year hits, but do you? How valuable is “the man” to helping this thing keep going when we deal in an extremely volatile agricultural product that we deem either worthy or not based on taste? Does that small or medium-size roaster have the means to do this? Again, what does that direct trade sticker mean for the partnership? Is that nefarious middleman hurting or helping the system when it comes time to make those hard buying decisions that have long term impact?
So let’s get real about why we do this and understand that seeking the most delicious things in the world and building sustainable partnerships do not have to be mutually exclusive. As a roaster, buy in to projects that make sense long term when possible, and make sure that structure addresses your partner’s needs. In fact, when it doesn’t, the entire coffee industry suffers, and suddenly all that delicious coffee we want may increasingly look more look like burden than a livelihood to those growing it.
And if anyone has a line on that pinkie ring and knows Tom Shane, shoot me his details.
xoxo - Noah Namowicz, Cafe Imports