By Suzie, Morten and Jamie
We published our first origin transparency report with price data from Rwanda today. We are very proud, and just the tiniest bit nervous for our numbers as they go out into the world.
We stand behind our numbers, we know we pay our farmers and producers well in the context of coffee prices in the origins where we work.
So why are we just the tiniest bit nervous? Because, well, transparency is extremely complicated. We have spent several months debating the best way to balance the complexity of our work at origin with the need to communicate something simple to digest for our time-poor roasters.
The reality is, there are many steps involved to transform coffee cherries to green coffee, bagged and ready to export. There are many points where value is added and risk is borne. Understanding the price data, when it is presented this way, requires knowledge of immensely elaborate structures and the numerous people who form part of the value chain in an origin, and with a particular supplier.
In seeking the middle ground, we decided to trust our roasters. Rather than oversimplifying complex systems and risk misrepresenting the data, we are asking you to do some work. Spend some time, dive into the value chain at each origin and get your head around the conversions from cherry to green and from local currency to USD. Get to know the context before jumping to the numbers.
Here are some notes to get you started:
We have chosen a format that reflects reality, and it’s not always pretty
There are many different ways to display numbers and define farm gate price. For example, we have seen reports which include coffees from large vertically integrated farmers, meaning people who cultivate, harvest, process, dry, mill and export their own coffee. Some reports state that the FOB is what this farmer receives, and display this figure in the same column as a price paid to a farmer who delivers cherries to a washing station. To us, this is comparing apples to oranges.
What would also look pretty is for us to add the premiums going back to the farmers as a second payment to the numbers in our report. Unfortunately these payments are not well documented and we can not always verify this data, so we have decided to leave these numbers out.
We understand the motivation behind presenting the largest possible figure, no one wants to be criticised for paying too little. We know Nordic Approach pays well in the context of the market in every origin we buy and we are proud of these prices, but our motivation in publishing transparency data is not to make ourselves look good. We are publishing these numbers as a first step to improve our industry, to recognise where value is added, and to create an independent price discovery mechanism.
For that reason, we are trying to structure the data in a way that compares apples to apples (or cherries to cherries). Read more about this in Morten’s blog post, Being Transparent About Transparency.
This structure is possibly not as flattering to us or our roasters, but we think it better reflects the reality.
#2: African value chains are more complex
There are the same number of steps to transform cherry to export-ready green in every country, but who does which step varies from origin to origin. In general, farmers in Africa cultivate, harvest and sell cherry. Washing stations transform that cherry to parchment. In these cases, washing stations are the producers.
In Latin America, most farmers are also producers. They cultivate and harvest cherry, then process and dry the coffee to a very high standard on their own farms. Therefore, on paper, farmers in Latin America earn more money because they cover two steps in the value chain. But while the price they earn is higher than your average farmer in Africa, so is their investment and risk.
#3: Our Rwandan buying strategy is focused on smallholders
Buying coffee is not a simple business, but it is much simpler to buy from a bigger, well-established farmer than a smallholder. They have more resources. They often speak English. They are usually vertically integrated, with capacity to process, mill and export their own coffee. They also look really good on a transparency report. They take on almost all the investment and risk, so they take home almost all the money paid for the coffee. But that does not mean they make more money overall.
We have a few long-standing relationships with large vertically integrated producers in different origins, but the majority of our coffees come from small farms. Working with smallholders is more challenging for many reasons, not least to deliver fair prices for the work and value they contribute, but we think it is worth the effort. In our opinion, many of the best coffees in the world come from smallholder communities, and the quality premiums we pay can make a very big difference to a larger number of people.
But on paper the prices paid to smallholders can seem like a small percentage of the FOB. Many of these farmers simply grow and sell small amounts of cherries with minimal risk and investment in post harvest processing.
#4: Price is so much more complex than a table of numbers can communicate
The price for cherries will depend on so many factors, most of them beyond our control, like the crop size of that year, the C-market, local politics and the competition in the area. There is also the currency exchange rate at the time of cherry purchase as all cherries are paid for in local currency. A difference in the USD price from year to year could be simply movement in the local currency value, rather than a change in the price paid to the farmer.
There is also so much value that simply isn’t reflected in financial data. For example, in Rwanda we contract coffees early in the season. That means our counterparts, the exporters, can pre-finance the washing stations at the beginning of the harvest. This finance is working capital for the washing stations, enabling them to buy cherries and manage the post-harvest processing. This leads to a more consistent income for smallholder coffee growers.
Additionally, our partners offer education programs for their farmers to help them increase yield and improve quality, which means higher premiums for future harvests. They also run social programs, like Gitesi’s cow project. Low-income farmers are given a cow to give them an additional income stream and improve the family’s nutrition. If the cow produces a calf, it must be passed on to another farmer in need. These improvements in individual farmer’s lives can not be expressed in a simple transparency table.
#5: Farmers should earn more
Even with the premiums we pay and the higher prices we secure for farmers and producers, the numbers are still simply not good enough. We hope by releasing this data we begin the process, as an industry, of creating sustainable prices that will give farmers an income that not only sustains them, but enables them to create a future for themselves and their family.
We are proud of our prices
We believe our origin transparency reports represent the reality of the origins where we work, and we hope the numbers published in these transparency reports will do things. First, we hope they explain value chain as it is today, and the amount paid to different players based on their level of investment and risk. Second, we hope they help us, as an industry, determine what we want these numbers to look like in the future. Then we can begin working together to make those future numbers a reality.
What do you think?
We want to hear from you. Let’s talk about the realities of the value chain in Rwanda and begin working towards sustainable and dignified prices for farmers.