How businesses trade with farmers matters to their profitability and can contribute to farmer livelihoods and resilience. Mark Lundy from CIAT works with a wide range of coffee stakeholders, noting that just as there are many types of farmers, there is differentiation on the business side as well in terms of the quality and quantity pursued and the value offered to farmers. Different types of companies can provide signals that can change behaviors and incentives for many actors in the value chain. The key lays in building trust, knowing your farmers and their goals, and identifying where your leverage as a company can help to build resilience in different types of farmers.
We asked Michael Sheridan of Intelligentsia, Jan von Enden of Hanns R. Neumann Stiftung (HRNS), and Sara Mason of Shift Social Impact to discuss how their approaches to build resilience across the coffee sector.
HRNS: The business case for coffee has several dimensions: short, medium and long-term. Many of the long-term challenges aren’t being tackled by the private sector. Instead, many NGOs are taking up these issues. But, family companies are also particularly positioned to take on these types of challenges as they have greater flexibility for long term planning.
“It’s important to have long-term views on resilience. A 3-year plan is not enough.” von Enden talks about the Coffee&Climate (c&c) Initiative, founded by family-owned coffee companies that saw resilience as a long-term challenge that needed to be addressed. c&c is able to tackle bigger picture issues in a way that most individual companies cannot. For instance, he notes that currently, 70% of coffee is produced by 30% of farmers (this is who most companies work with). c&c works in part to reach the large amount of farmers at the bottom of the pyramid using their c&c toolbox, which they hope will help to minimize the looming supply shortage. They see these farmers as the future of coffee, whereas many companies do not see them at all.
HRNS also leads USAID’s Feed the Future Alliance for Resilience Coffee, which brings together seven NGOs and research institutions to develop decision-making tools and implement practical climate adaptation training for extension agents and farmers.
Inteligentsia: Quality is determined by the green bean, so Intelligentsia started traveling to find the highest quality of bean and engaging in direct trade with over 50 partners, which they visit at least once per year to build quality from the ground up. The extended direct contact helps give clear signals about the market demand. Sheridan identifies 4 types of risk: price, market, climate, and foreign exchange. Viewing farmers as their partners, Inteligentsia attempts to mitigate those risks by building long-term relationships with large and small growers, being patient while their investment in quality comes to bear fruit (quite literally in some cases) and providing transparent incentives including pricing that matches the coffee quality. For example, the commitment within the direct trade relationships to fixed quality based pricing helps insulate farmers from the risk of market volatility and supports farmers in long-term planning and investment. Inteligentsia is there every step of the way and attempts to close every contract with multiple grades of coffee, not just skimming the highest grades off the top and leaving the rest behind, creating a truly mutually beneficial partnership.
Shift Social Impact, works with national-level coffee companies under the reality that “to be truly sustainable, an initiative has to be commercially viable.” There’s a demand for sustainability, but there’s not an equivalent change in coffee prices. Their ID Coffees program bases price on the value of coffee in a transparent way, recognizing risk and variability, instead of setting the price from the end of the value chain. This model hopes to help de-risk farming, clarify market signals for farmers, and unlock value addition.
Business models matter
This panel discussed the role that business models can play in building resilience in coffee. That of course farmers are diverse, as are companies, so there is no one right approach. But to make the investments needed for mitigation and climate resilience, farmers often need access to technical support, access to financial, access to capable cooperatives as business entities, and more. Finally, the way trade is done, the business models of buyers, matters because farmers are more likely to invest—particularly long-term investments around things like tree renovation – when the costs and risks are shared. Business models that help “de-risk” farmer investments include:
- Clear market signals about the products needed (e.g. quality grades)
- Longer term trading relationships that build farmer confidence that the market will be there
- More stable pricing to reduce risks from commodity price volatility
- Product value addition such as quality, traceability, sustainability
- And finally a good return on investment.
So while there is no one approach that will work for companies, the opportunities are there for buyers to help share in the costs and risks and enable greater long term farm level investment and therefore greater resilience and sustainability.