The Opportunities and Challenges of Direct Trade Coffee - Imbibe Magazine Subscribe + Save

The Opportunities and Challenges of Direct Trade Coffee

The Direct Effect - May/June 2014

From coffee shops to grocery aisles, the way we buy coffee has been changing. Long viewed as a large-scale commodity much like sugar, cotton or wheat, coffee has been undergoing a massive shift in perception. And while much of today’s coffee still finds its way to supermarkets via long-established mass-market routes, coffee drinkers are increasingly searching for beans that follow a less-traveled path—one that puts a premium on quality and sustainability. But getting fairly priced, sustainably produced, high-quality coffee all the way to a cup isn’t easy.

For decades, the notion (and certification) of fair trade has been applied to numerous goods, including coffee, and today—with the participation of brands like Starbucks—fair-trade coffee has gained a notable market share. But critics say fair trade has fallen short on quality assurance, and some specialty roasters felt compelled to find their own way of ensuring fair pay and stellar quality. And that was the impetus for the “direct trade” movement. “It came out of frustration with an inability to find exceptional quality consistently,” says Geoff Watts, who, in his well-traveled tenure as a green-coffee buyer at Intelligentsia Coffee in Chicago, is widely credited as the originator of the term “direct trade.”

Peter Giuliano—another direct-trade pioneer from his time at Counter Culture Coffee (he’s now director of the Specialty Coffee Association of America’s annual Symposium)—says the shift also grew from a series of questions that he, Watts and other roasters were asking themselves around the turn of the millennium. “The questions were obvious,” Giuliano says. “What if we took the idea of ‘buy local’ global? What if we treated coffee farmers like we think of farmers at the farmers market? Could this increase prosperity and quality at the same time?”

The direct trade moniker—which hasn’t yet been adopted as a formal, certifiable designation within the coffee industry—grew from a set of principles hashed out over countless trips to coffee-growing origins and (doubtlessly late-night) buyer-to-buyer conversations in the late ’90s and early 2000s. As leaders of then-emerging specialty roasters, Watts and Giuliano were central among these conversations (along with another roaster, Stumptown’s Duane Sorenson), and Watts describes the term’s genesis in words that would come to more or less constitute its working definition. “Direct trade was conceived as a way that would allow us to build a reliable supply chain of coffee, where quality was always going to be the major goal,” Watts says. “We could grow together with farmers who we’d chosen to work with, in a way where we were both essentially sharing the risk that’s inherent in trading coffee, and in agriculture in general.”

Guided by these ideals, Intelligentsia, Stumptown and Counter Culture implemented buying models based on the then-tricky proposition to farmers that building long-term trading relationships was indeed viable. They also needed to demonstrate to farmers that these quality standards were worth pursuing. “In the beginning, nothing was possible, because we didn’t even know who had grown the coffee,” says Watts from his home in Los Angeles, on a brief break between trips to Honduras and Africa. “Coffee changed hands so many times that even the importers we were buying coffee from didn’t know where it came from…and sometimes the exporters didn’t even know! There was really no way to have any kind of influence at that point.”

In these early years, roasters like Stumptown and Intelligentsia were just beginning to grow—and they had a hunch that it was the missing “quality” piece of improved trade relations that would be the catalyst. But to build a new trade model, roasters and green buyers would first need to figure out everything from who grew what coffee where, and how to reach them, to what conditions on the farm could actually be changed and how to arrange transport of the coffee. They were essentially writing the rulebook from scratch. “Once we punched through that layer, the biggest challenge to have any kind of influence at the farm level was being in a position to make promises to specific growers—to the ones who actually had the ability to affect the outcome of what’s happening in the coffee,” Watts says. Intelligentsia would begin using “Direct Trade” as an unregistered trademark in 2002.

Once a roaster with some financial resources found the source of a coffee and determined its greater potential at the farm level—by using a sort of gut-instinct assessment of the farm’s growing conditions and the apparent dedication of the farmer—that’s where the trust proposition came in. A roaster may have found a farmer who wanted to sell them their coffee, but how could the roaster demonstrate for the farmer the long-term benefits of changes to their processes? Money is persuasive, but is it persuasive enough to strive for price incentives that hinge upon coffee ratings from tasters who are using a method of evaluating coffees (cupping) that most farmers a decade ago didn’t practice themselves? “Financial reasons can be a bit abstract,” Watts says. The challenge, Watts says, is making a connection for the grower between all of the growing and handling processes that take place on their farm to the score assigned to that coffee by professional tasters. “Because it has these characteristics, now all of a sudden it’s worth 30 cents more [per pound]?” Watts says.

Even once a mutual trust was established—the farmer’s trust in the roaster’s fair evaluation of their coffee, and the roaster’s trust in the farmer’s commitment to improving quality—it could still be a tough system to make work. Ultimately, both sides of the relationship need to balance whether the upgrades and incentives are worth it—if that extra 30 cents per pound is enough to cover the costs required to boost the coffee’s score. “You set a goal, and you might have a strategy that ends up being a losing proposition for the farmer,” Watts says.

A Path Forward
Direct-trade programs began to roll out in the early to mid 2000s, and it quickly became clear that as coffee growers began to have more options, their empowerment was paving new roads—sometimes literally.

Paul Thornton, director of coffee and roastmaster for Farmer Brothers of Portland, remembers the earliest days of this kind of trading model as being about creating a sense of opportunity for farmers. “It comes down to, let’s try and create more options for growers,” he says. “In one way, why would a roaster want to create more options for a producer? If I want a producer to sell to me, I’ll make my option the best option for him.”

Of course, Watts and his contemporaries weren’t the first to come up with an idea like this. Roasters (including Thornton’s company at the time, Coffee Bean International, now part of Farmer Brothers) have long known the value of building a personal connection with farmers. But the direct traders were the first to push the quality piece forward, and make it public. “I think you have to look at a company like Peet’s, who was out at least trying to establish contact at the farm level, even in the ’70s, ’80s and ’90s,” says Aleco Chigounis of California’s Red Fox Coffee Merchants. Chigounis worked out of Stumptown’s Portland headquarters as a coffee buyer for five years.

Chigounis sees one of the biggest pieces in the direct-trade model as a new way of recognizing, and honoring, farmers. “This newer set of coffee roasters started appearing on the map—Stumptown, Intelligentsia and so forth—and there was this desire to connect even further with the producers,” giving them greater public recognition for their work, Chigounis says.

While roasters like Peet’s were already exploring the potential of going directly to growers and working with them on long-term financial incentives to boost quality, pairing these financial promises with transparency of supply chain and recognition of the growers differentiated direct trade. This helped make the term more marketable—which has been both of benefit and detriment to direct trade, as its definition remained loose. “The openness of the term was one of its advantages early on, because it allowed a loosely affiliated group to express multiple versions of an idea without having to compromise or build consensus,” says Kim Elena Ionescu, coffee buyer and sustainability manager at Counter Culture Coffee. “The tradeoff is that nowadays I see the term used in ways that don’t feel true to me. I imagine some of the early adopters feel the same way, but what right do we have to draw lines?”

And there’s the rub. Direct trade’s model was founded on benevolent terms, and it’s an idea that’s become increasingly attractive to microroasters—but is it hazardous to direct trade’s fundamentals to keep the definition so free and easy, and without formal certification standards? While Counter Culture has implemented its own Direct Trade Certification guidelines, including an external audit and an annual transparency report, most other users of the term have not been so stringent. “Looking at some of the more recent adopters of the language, it seems like some roasters trust the importers they work with and feel comfortable applying the term ‘direct trade’ to coffees they buy from the offering sheet of an importer with strong relationships,” says Ionescu.

Yet sticking to the (sometimes fuzzy) principles of direct trade may feel limiting to a roaster. Customers don’t really know what the term always means, either, and in some cases, there are exceptions to direct-trade structures that may still result in great benefits to farmers as well as roasters. “The reason I don’t like to use terms like ‘direct trade’ is that they don’t describe how coffee is traded, they don’t necessarily mean the trade is transparent, and they are not explaining to customers the whole story,” says Tim Wendelboe, whose eponymous roasting company in Oslo, Norway, shies away from the designation. “Buying coffee is a complex trade, and the purchasing models and logistical models are different from origin to origin.”

Wendelboe makes a point that nearly every roaster will agree on: buying coffee in Costa Rica is not the same as buying coffee in Rwanda. Furthermore, there are some cases where intermediaries—indirect traders—might be a good thing. “In some countries, the ‘middle men,’ who people think are all just greedy people who exploit coffee farmers, are doing a great job in terms of financing farm inputs, training farmers in good agricultural practices, and also finding customers for the farmers and connecting the farmers with the buyers,” Weldelboe says. “This is a service that is sometimes vital in order to get good-quality coffee, and should not be looked down upon. It is also a service I am willing to pay for.”

Promise And Possibilities
Ultimately, the demand for better coffee by an audience that’s willing to pay for it has improved the potential for coffee quality worldwide, whether it’s being traded under the direct-trade rubric or not. The principles behind direct trade have caught on—with nanoroasters and major purchasers alike, such as Target and Nespresso (the latter operates a program called the Nespresso AAA Sustainable Quality™ Program—a name no one is likely to knock off or misuse).

Thornton, whose parent company Farmer Brothers roasts coffee for Target’s in-house brand, Archer Farms, is proud of the transparency of the large retailer’s direct-trade offerings. “The only [Archer Farms coffees] we will call direct trade are the ones that we pay a quality premium to after vetting individual deliveries, and have a fully transparent portfolio with them,” he says. “It’s probably the biggest brand in the U.S. that supports direct trade, using our principles. It is such an awesome concept, even the big guys are going after it.”

For the formerly smaller roasters who popularized the term, trading has gotten easier as well, as the rising tide of their own segment of the industry has given them more muscle in the market. “For us, it’s a very clear way forward, and that way is quality,” says Adam McClellan, coffee buyer for Stumptown. McClellan points to recent capital investments in Stumptown and in San Francisco’s Blue Bottle as having the potential to improve incentives to farmers, such as tiered, long-term contract pricing structures that guarantee a farmer that a buyer won’t just purchase a small portion of the farm’s production of the highest-rated coffee—the buyer will purchase a broader range, as well, for different uses. “Now that we’re at this size, we can use more of the farm’s production,” McClellan says. “As we’ve grown, we’ve seen our farmer partners also grow, with an ability to produce higher volumes of the quality levels we are looking for.”

Financial growth on the roaster side has certainly helped the ease of trading, as have technology innovations: 10 years ago, it was rare, if not impossible, for a remotely located direct-relationship coffee farmer to email a buyer about crop conditions, or be reachable via cell phone. But above all, Watts attributes the model’s current success to a decade of having proved itself.

Take the current epidemic of “roya,” or leaf rust—a devastating plant fungus that can destroy a farm’s harvest. Though the fungus has spread widely through Central America, Watts notes that farms he’s worked directly with for years have remained resilient in its wake, even during a particularly virulent outbreak in 2013. “It’s been an amazing validation and proof positive that the approach we’ve taken is working,” he says. “I was driving around in Honduras last week and you see, in every direction, farms that are devastated. But the farm that we work with was in really great shape,” which he attributes to the continued benefits of their direct-trade relationship.

“You look at this farm, and it’s vibrant, healthy and productive, and it’s not because they’re spraying all kinds of fungicides on them,” Watts adds. “It’s because they’re taking care of all of the nutritional needs of the trees—replacing the old ones, monitoring soil quality and pruning them very deliberately to allow the right combination of airflow and sunlight in. By doing these things, they are able to combat leaf rust.”

As successful as the first decade of direct trade feels, it’s clear the model still has plenty of room for improvement. Many would like to see more transparency; others, more collaboration industrywide. But moving forward—whether it’s under the “direct trade” designation or not—the roasters who strive for quality coffees agree that a continued shift in consumer and global markets is essential.

For quality-focused farms to thrive, these roasters say, more separation between the commodity-coffee market and its specialty subset is necessary. “The more the specialty market can differentiate itself and grow, and demonstrate that there’s a different way of valuing coffee that’s as disconnected as it can possibly get from the commodities market—that’s what will constitute big change,” Watts says. “But it has to start at the consumer level. Most people I meet are willing to spend $3 on a bottle of water, and not $3 on a cup of coffee.”

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