#61 | Re:co Podcast – Panel Discussion: Alarms and Leadership Towards Change (S2, Ep. 2)

Today, we’re very happy to present the second episode of “Cost of Production and Profitability for Coffee Producers,” a session recorded at Re:co Symposium this past April. Buyers and producers alike need to understand what it takes to produce specialty coffee so that it can be produced sustainably, so we convened experts to ask: Do we really know what specialty coffee costs? If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

In today’s episode, Chad Trewick moderates a panel featuring Réne León Gómez, Herbert Peñalosa, Peter Dupont, and Michelle Bhattacharyya on the subject of farmer profitability. Beginning with the socio-economic impacts of lasting low coffee prices, the panel focuses on the further impacts of weakened and underutilized coffee processing infrastructure. Leaders–one producer and one roaster/retailer–tell of their own actions as businesses that drive toward positive change in spite of dominating free market forces that keep values for coffee low. Together, they conclude with an example of how the banana industry was able to feel safer engaging in critical dialogue that includes the entire value chain to address its challenges–which are parallel to our own in coffee.

Special Thanks to Toddy 

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

Related Links 

Table of Contents

0:00 Introduction
3:00 Introduction by Chad Trewick
6:00 René León Gómez of PROMOCAFE presents numbers showing vast economic inequalities between companies in coffee consuming countries and producers in coffee-producing countries. Despite all the wealth generation in coffee consuming countries, this low period of low prices are making coffee production unsustainable for coffee producers.
13:00 Herbert Peñalosa on how LaREB helps give producers better margin by taking out many middlemen by each side, roasters and producers, working smarter and taking on more responsibilities.
26:45 Peter DuPont of how Coffee Collective communicates to their consumers the prices they pay to their coffee producers.
36:30 Michelle Bhattacharyya on her experience with the World Banana Forum experience and how focusing on the living wage helped protect the banana sector from anti-trust laws.
47:00 Outro

Full Episode Transcript

0:00 Introduction

Peter Giuliano: Hello everybody, I’m Peter Giuliano, SCA’s Chief Research Officer. You’re listening to an episode of the Re:co Podcast, a series of the SCA Podcast. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, the SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. Check out the show notes for links to our YouTube channel where you can find videos of these talks.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

Today, we’re very happy to present the second episode of “Cost of Production and Profitability for Coffee Producers,” a session recorded at Re:co Symposium this past April. Buyers and producers alike need to understand what it takes to produce specialty coffee so that it can be produced sustainably, so we convened experts to ask: Do we really know what specialty coffee costs?

If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

In today’s episode, Chad Treweck moderates a panel featuring Réne León Gómez, Herbert Peñalosa, Peter Dupont, and Michelle Bhattacharyya on the subject of farmer profitability. Beginning with the socio-economic impacts of lasting low coffee prices, the panel focuses on the further impacts of weakened and under-utilized coffee processing infrastructure.

Leaders–one producer and one roaster/retailer–tell of their own actions as businesses that drive toward positive change in spite of dominating free market forces that keep values for coffee low. Together, they conclude with an example of how the banana industry was able to feel safer engaging in critical dialogue that includes the entire value chain to address its challenges–which are parallel to our own in coffee.

Also, to help you follow along in this podcast, I will chime in occasionally to help you visualize what you can’t see.

 

3:00 Introduction by Chad Trewick

Chad Trewick: Alright, Good almost afternoon. This has been a good morning so far. I think we’re broaching on some topics that are sorely needed addressing of in our industry and before we launch into a conversation, or rather, some example sharing of some best practices and some examples of leadership. I think it’s important to recognize that there is a little bit of personal shame in some of our roles in this industry and the things that we have been personally been able to take advantage of and gain benefit from, while another side of the value chain definitely hasn’t, and I know my personal experience as a buyer is that it took me 10 years before I realized that some of my own practices and actions and even the way I was remunerated based on my cost of goods achievements was contributing directly to some of the challenges. So I was confronting personally as I went to interact with my suppliers and my partnerships at Origin. It’s a really powerful thing to recognize, and it introduces, I think, an important vulnerability into our industry that we could all benefit from a little bit, and the other thing I want to say, and it’s been brought up a couple times here this morning is that here we are in a room. High ticket price for admission talking about a crisis that effects, whether it’s 12 1/2 or 25,000,000 livelihoods around the world. Many of those people most of those people, the giant majority list people can’t even dream of coming here and so I think it’s important to just sit with that for a second on DH and acknowledge that we need to as Rick and so many others have said include other voices in this dialogue. And speaking of other voices, I’m going to kick off this panel with Renee Leon Gomez from Promecafe and the reason that his information was selected is the Promecafe hosted an event called Cumbe del Arroyo in Mexico City last September. I attended and they were presenting all kinds of socioeconomic data related to the impacts that the coffee prices were having on the communities in the 10 countries that Promecafe represents. It occurred to me that it was strange that that information rarely made it to the specialty coffee industry audience and so, Rene will share with us a couple of points about Promecafe generally because it’s not a very well known organization in our industry and then some of those socioeconomic challenges. So Réne, por favor.

 

6:00 René León Gómez of PROMOCAFE presents numbers showing vast economic inequalities between companies in coffee consuming countries and producers in coffee-producing countries. Despite all the wealth generation in coffee consuming countries, this low period of low prices are making coffee production unsustainable for coffee producers. 

For a transcript in Spanish of this section, please scroll down. 

Réne León Gómez: Thank you very much, Chad. Good morning to everyone. I am going to talk about the situation of coffee producers currently living in our region. As it was said this morning, it is a critical situation. Ric said it. “A heart attack situation.”

Peter Giuliano: Rene is sharing a slide that shows all 10 countries that Promocafe represents.

Réne León Gómez: Promecafe represents ten countries in the region – from Mexico, every Central American country, Panama, Peru, Dominican Republic, and Jamaica. A substantial production of coffee. Around 34 million bags, 2.3 million hectares, 5 million people live directly from coffee in our region. Mainly small producers who have between 2 and 3 hectares, and who generate around twenty-five percent of Arabica coffee that is consumed in the world. Coffee is very important in our region for income generation. Our countries’ economies significantly depends on coffee and we are facing big challenges. Producers are facing big challenges. And I would put at the top of the list, the challenge of economics.

Peter Giuliano: A new slide is on screen, titled “Coffee production has lost its value.” It lists three reasons why – inflation, increased demands of producers, and challenges, which include climate change, the aging farming population etc. In big letters, the slide reads: “The Actual Crisis equals NO Economic Sustainability for Producers.”

Réne León Gómez: Coffee production over the years has lost its value. Today it was mentioned, prices haven’t changed in 40 years. Nevertheless, the purchasing power the producer had has dropped greatly over the time. This is related to inflation. Parallel to this, we have more demands on the coffee producer every day, which they are facing alone. Climate change. We now see an absence of a new generation of young people who are interested in producing coffee. It leads us wonder who will produce the coffee in the future? Who will produce that quality coffee that characterizes our region?

That is to say, this economic crisis represents, for producers, complete economic instability. I’ll give some examples showing the inequality of the coffee chain. Think of the coffee value chain as individual links in a physical chain – I believe that the link of the producer is a very thin link, like an oxidized wire. And we have a sizeable industry depending on such a fine wire.

So, examples we can see here: the government of an importing country, in this case the United States, received more money from taxes related to the coffee trade in the United States than the overall value received by the 25 million producers world-wide. In other words, in just one importing country, we saw the revenue generated from taxes at a higher amount to what every producer in the world received.

The re-export of coffee from importing countries generated more than twice of what the producers received. And one very interesting example, when purchasing a coffee at a coffee shop, we easily leave our change – a quarter. That represents probably more than ten times of what the producer is receiving for the green coffee that made that cup of coffee possible. Along those lines, our friends from Guatemala left a small card that illustrates that example in several places.

Only two cents of that cup, of the total value of the cup of coffee we drank, is received by that coffee producer. What impact has this crisis had on our producers? A big impact. The economy totally deteriorated. Migration has increased. It’s clear that most of these migrants come from Central American countries. Fifty percent of the population in Central America is extremely poor, and sixty to seventy percent cannot meet their basic food needs. What impact will this have on the industry?

And here, we draw the attention of the industry: We can expect a reduction in supplies. We have examples of countries with an already low supplying capacity not making full use of it– El Salvador is at thirty percent capacity; Costa Rica, fifty percent – and there are already projections for a decrease in Honduras’ harvest. All this is causing poor management at the farm level. It represents a loss in quality. A matter I want to draw your attention to, as we expect it will happen and it should cause the industry concern, is the behavior of the coffee consumer when they find out how their coffee is being produced and how the coffee is being managed.

We feel that the [consumer] may finally reject this product once they find out the way the producer of the cup that they consume is being treated. I leave you with that, Chad, thank you.

Peter Giuliano: Chad is asking Rene in Spanish whether he’s considered how this information can be delivered to consumers.

Réne León-Gómez: Chad, we feel that the consumer is increasingly interested in knowing what they are drinking, and also, at this time, the producers are thinking about giving more information to the final consumer. This information, the transparency seen during the commercialization processes, will be very important to create a change in behavior.

The final consumer, once they learn where their production comes from, and the way it’s being negotiated with the coffee producers, may have an important reaction. We feel that the industry must consider this element, and that they must be worried, so it doesn’t happen like it has happened in other productive sectors where consumers have rejected a product.

[ESPAÑOL]

René León Gómez: Muchas gracias, Chad. Buenos días a todos. Yo le podía hablar sobre la situación que están viviendo los productores de café en nuestra región. Yo le manejo en nuestra región. Como hoy se mencionó en la mañana una situación crítica, lo dijo Rick una situación de infarto. Representamos Promecafe representa diez países de la región desde México todos los países centroamericanos Panama, Peru, la República Dominicana y Jamaica. Una producción importante de café alredor de 34 millones de sacos, 2.3 millones de hectáreas, 5 millones de personas viven directamente del café en nuestra región, principalmente pequeños productores que están entre dos y tres hectáreas. Y estos generan alrededor del veinticinco por ciento del café Arabico que se consume en el mundo. Muy importante el café en nuestra región para la generación de divisas. La economía de nuestros países depende grandemente el café. En nuestra región estamos enfrentando grandes retos. Los productores están enfrentando grandes retos y lo pondría en primer lugar el reto económico. La producción de café a través de los años ha perdido su valor. Hoy se mencionó los precios nominales se mantienen hace 40 años. Sin embargo, el poder adquisitivo que tenía el productor ha caído grandemente a través del tiempo esto relacionado con la inflación y paralelo a esto tenemos cada vez mayores demandas al productor de café. Productor de café está enfrentando de forma son grandes demandas el cambio climático. Vemos ahora una ausencia de una generación nueva de jóvenes interesados en producir café. Nos llama a pensar quién va a producir el café en el future, quien va a producir ese café de calidad que caracteriza nuestra región. Es decir, esta crisis económica representa en términos generales para el productor cero sostenibilidad económica. Algunos ejemplos para explicar la disparidad, la inequidad que hay en la cadena del café. Hoy se mencionaba que la cadena imaginada como eslabones y me gusta pensar que el eslabón del productor es un eslabón muy delgadito, como un alambre oxidado ya y tenemos esa industria esta importante dependiendo ese eslabón tan delgado. Algunos ejemplos podemos ver aquí que el gobierno de un país importador. En este caso Estados Unidos recibió una cifra superior producto de los impuestos que se pagaron relacionados con la industria del café en Estados Unidos, superior al valor que recibieron los veinticinco millones de productores en el mundo. Sólo en un país importador se generó producto de impuestos un valor mayor que lo que recibieron todos los productores del mundo. Las re- exportaciones de café por parte de países importadores generaron más del doble de lo que recibieron los productores. Y un ejemplo muy interesante cuando vamos a tomar una taza de café a ún coffee shop con facilidad, dejamos un quarter. Eso representa de repente más de diez veces de lo que el productor está recibiendo por el café que dio lugar a esa tasa. En ese sentido, llamó la atención que hoy nuestros amigos de Guatemala dejaron en cada uno de sus lugares una tarjetita que ilustres ejemplo. Apenas dos centavos de esa tasa del valor de esa taza de café que nos tomamos está siendo recibida pro el productor de café. Qué impacto ha tenido esta actriz y a nuestros productores un impacto muy grande, totalmente deteriora la economía. La inmigración se ha incrementado no de extrañar que la mayoría de estos inmigrantes vienen de los países Centroamericanos. 50% de la población en Centroamérica está sumamente empobrecida y el 60 al 70% no consiguen suplir ni siquiera las necesidades de alimentación. Qué impacto puede tener esto para la industria,aquí queremos llamar la atención del industria. Podemos esperar falta de abastecimiento de café. Tenemos ejemplos de países que y su capacidad de procesamiento está muy baja. El Salvador con 30%, Costa Rica con 50% y utilización de su capacidad de procesamiento y hay proyecciones ya de una disminución de la cosecha en Honduras. Todo esto está generando un mal manejo en la finca. Eso representa al final una pérdida en la calidad y un tema que quiero llamar la atención y que esperamos, que puede ocurrir y que es una preocupación para la industria es cuál va a ser el comportamiento del consumidor final. Una vez que se entere, si tan solo supiera cómo se está produciendo y como se está manejando el café. Sentimos que el productor puede llegar a rechazar este producto al enterarse de la forma en que se está tratando al productor de café que da lugar a esa tasa que consume. Me quedo por la dicha. Gracias.

Chad Trewick: Bueno, gracias Rene, uno consultita para usted. Usted menciono cuando estábamos preparando para esta panel que ustedes han pensado en cómo puede llegar a los consumidores este tipo de información, los tactos. ¿Qué han pensado en este tema porque todavía no ha llegado esta información a los consumidores por ejemplo?

René León Gómez: Chad sentimos que cada vez más el consumidor está interesado en saber qué lo que está tomando y también en este momento los productores estamos considerando  hacer se lo saber mas, mejor al consumidor final. Esta información, la transparencia que se está dando ahora en los procesos de comercialización va a ser muy importante para un cambio de comportamiento. El consumidor final, al enterarse de dónde viene su producción y la forma en que se está negociando con los productores de café, puede tener una reacción importante y sentimos que la industria debe considerar ese elemento y que debe preocuparle para que no nos pase igual que ha pasado en otros sectores productivos donde habido un rechazo hacia ese product.

Chad Trewick: Okay. Listo Gracias Rene. Eso fue como nuestra base de información para nuestro panel.

[END ESPAÑOL]

 

13:00 Herbert Peñalosa on how LaREB helps give producers better margin by taking out many middlemen by each side, roasters and producers, working smarter and taking on more responsibilities.

Chad Trewick: Now, I’m going to switch to Herbert Peñaloza from 575 Cafe, and his business model is a different business model that I think is refreshing in the sense that it is producer driven and taking and managing all of the different roles that typically different value chain actors are playing and doing it all internally. So, Herbert tell us a little bit about it.

Herbert Peñalosa: Well, 575 is part of my farms and local association we have and we’re part of this bigger collective, which is, in little words and agreement built on disagreements. Disagreements with who? With the people that’s been not representing our coffees right or we don’t feel that they’re representing them right. It’s probably not just about price, but about the type of conversations that these people were having with our final clients, with roasters and with consumers. So, a little bit of what we build and it sounds kind of obvious when you see the diagram.

Peter Giuliano: Herbert is showing a diagram of all value chain roles, but organized in a different way to what we usually see. First of all, Herbert’s company – LaREB – is in the middle. To the left, are circles indicating roasters and consumers. To the right, there’s a stack of circles representing production, harvesting, quality assurance, preparation, and exporting. All of these are circled in arrows indicating a “closed loop.”

Herbert Peñalosa but we just took everything to those one on one conversations. So, everything from production, harvesting I divided both because, well, there’s something about this model is that it just works for us right now in Colombia due to the thing that there’s a lot of micro mills and still on each farms, so we post-harvest much of our coffees, all the QA, the dry milling and the exporting. So, we take all of that into the collective, us like producers that we’re part of the collective take charge of that way. We go to the dry mill ourselves, we do the exporting logistics ourselves, and we deal with roasters one on one. We even have financing, we call it crowdfunding, but it’s not really public. It’s amongst people we know which help us and they’re roasters in the US helping us importing the coffees.

So, you can call it like virtual until realization, but we don’t see it that way. It’s a little bit just us taking control of how we sell our coffees and how we move our coffees. There’s a thing about the collective. The collective is called The Real Botanical Expedition. It is based on an old project in Colombian in 18th and 19th century. We don’t consider ourselves a trading company. We’re not an importer, we’re not an exporter. We’re not a centralized mill. We’re not an NGO. I mean, we don’t work in that. We told you we’re in agreement, but an agreement on what? That’s the main question is that we’re in agreement on honesty and transparency. We’re in agreement on truth, being good or being bad or being ugly. It’s like we work with quality and on any step, on any point of the collective – I’m going to show you in the next slide – but on any point of the collective, we tell things how they are. So, if the coffee is not good enough for export, we give a reason why. If my coffee is not good enough, the collective gives me a reason why I need to find out what to do with it. It’s not built on probably one of the paradigms of coffee, specialty as well. It’s not built on the excess of producers and what you do to just scheme that part, that the top part and take that and move it to specialty and then leave the rest behind, is that no, we need to figure out a way to move our coffees. We need to be responsible for what we produce, but at the same time we need to figure out a way how to bring that responsibility we’re having in our farms to the final consumer.

So, that’s what I talk about when I talk about honesty and truth. It’s just agreement saying I’m not going to cross you, you’re not going to do the project of the collective any wrong and we’re all going to try our best. Our best from the production to post harvesting to the dry mill itself and we’re looking all those overlooked steps in the industry. Dry mill, for example, being one of biggest places, we’ve learned a lot, and that has allowed us to generate more income to the collective itself.

Peter Giuliano: A new slide is up, titled “collective sourcing.” It is a flowchart that moves left to right, identifying key players of LaREB’s collective sourcing model and their associated responsibilities.  At the very left are “Producers” and “Associations.” In the center, “Collective.” What’s important to note here is that there are more tasks for the collective than for the producers or associations. On the right, there are two boxes – one for “Roaster” and one for “Consumer”, both of whom are tasked with paying a correct price. Roasters are expected to feedback to producers too.

Herbert Peñalosa: So, this is a little bit of how we see it. Basically, we think and I think, personally that producers then crave for price for the sake of it. Probably price is not the discussion. How I see it, it’s more of our assertiveness. It’s more about thinking what I need to do from the moment I start growing coffee to the moment I sell it, to the best possible from a revenue for my efforts. It’s not just, like I said, a price for the sake of it. But there’s something we have to consider is that we probably have the least prepared people in our countries to do one of the most complex tasks, which is grow coffee. Farming is not easy at all. It’s not…It’s not one of those things, it’s probably way more complicated that all of you here today think. If you read about nutrition and plants, you have to read from thermodynamics to endobotanical issues and that includes a lot and trying to put that burden on a producer is just too much. So that’s gone of the part, and that’s the initial stage of the collective is that we have to be responsible for production. We need to know how to process, and that brings on other things. Like what it’s what is it to know how to process? So there’s a couple leading farms within the collective mine is one of them, and there’s six of us. We’re not traditional coffee growers. We are city people. Honestly, we’re not. We weren’t born in the farm. Just one of us comes from a coffee-growing family and we’re in a position in Colombian society in which we have two choices. We can keep increasing our status in our position, just like probably elevated or we can use that position as leverage to help our peers and our communities and that’s two choices you can make.

So, we decided for the other, for the elated one and we move those tools and the knowledge just to raise the bar, to teach that everyone within the collective how to be better. And how do you guarantee that goal? Transferring knowledge. You’ve got to teach them all. There has to be no secrets. You got to tell it all. There has to be no egos. All is one inside the collective. It’s not just you, giving the input, putting your brand in the thing. That’s why we chose that brand it’s un-registerable, it’s something that was done in Colombia many years ago. We can’t put any copyright on that brand, and that makes a lot of sense in what we do and, yeah, that’s basically the agreement. So that’s what the collective do. I think you can see it on the slide, and that brings us to one of the case studies.

Peter Giuliano: Herbert’s new slide shows the price a roaster is willing to pay per pound for this specific farm’s coffee – US$3.92 – and then what that translates to in terms of farm level income after LaREB’s involvement, which is US$2.175 per pound.

Herbert Peñalosa: This is actually a coffee we sold through the collective to a client that’s here today in the audience funny enough. It’s just a washed from one or one of our leading farms, it was actually my business partner and the collective director and she’s been growing coffee, well her family has been growing coffee for more than 70 years, and they’re still living on the money they made in the seventies and eighties which is funny enough. But through the collective, through just increasing the quality a little bit and having a little bit more awareness on the dry mill, on the final preparation, they made 179% more than they would make on the local market. It’s not, I don’t know that number’s good or bad honestly. We just got their numbers on costs. So, their profit it’s around 25 to 30% counting everything that comes underneath. So, a little bit of an explanation.

All of our numbers comes straight from what the client is willing to pay. We take away important warehousing costs, sales and marketing, shipment, what we pay for taxes to the FNC, operational within the project like local warehousing, QA at the offices. So, my company provides that service of the operational part of it. Some of it is done by some of the producers themselves within the collective. There was another slide that explained how everyone can earn some more money within the chain then we add local shipping within Columbia, farm level assistance that depends on each region and the financing that is provided by the third parties I told you about. the local liaison is not there because, well, it’s her farm so she absorbs that cost of coffee gathering and sending it to the warehouse and the last part, it’s just what she earns well, what they earn from financing from the percentage of the total revenue of the volume. So, each export is a volume that it has its own numbers and its own revenue. What do they earn for the exchange rate surplus? So, what that last part means is basically that at the end of each export, we take all the revenue we take everything that export made and just distribute ones again. So, in that it and says we can be probably, we have no profit on that. We as a company and the collective itself, that’s basically how it works.

Chad Trewick: So, you guys are taking a lot of these roles that are played by other value chain actors in more typical situations and doing it yourselves and realizing that there’s a lot of efficiencies that you can gain that way and value that then stays with the producers and with the collective and can I ask a question.

Herbert Peñalosa: Yes

Chad Trewick: So, as we were preparing, we’re talking about not every farmer is ready, suited or interested in selling coffee and engaging with the market in this different way. In your collective has it been hard too convince people that this extra effort and more attention to quality and processing because it’s more difficult every day to sell coffee and make a living as a producer because you have to have a certification and process a different way and blah, blah, blah. How’s that working?

Herbert Peñalosa: Well, there’s an undeniable truth that the world is changing for everyone. But in our case it’s coffee Somebody, a couple talks ago, they were saying that a lot of coffee growers have been leaving coffee for the last 40 years. That means that they had a very good period on the seventies and eighties. Everyone within the producing side tends to think that the world of coffee is still the same. So, you need little effort to sell coffee at good price, and that’s not going to happen anymore. So, I give you an example. Anna’s dad, he’s been around coffee for 60 years. He’s a surgeon. He has education, a lot of things. He doesn’t live off coffee. Their farm is subsidized by his work, so he’s in a different educational level than many producers. And he doesn’t understand it. So, it was like well, you guys are too complicated. That’s what he says. He’s like, you’re bringing a lot of complex things to coffee that weren’t here four years ago and the basic answer is like this is not the same coffee as it was 40 years ago.

Chad Trewick: It’s different.

Herbert Peñalosa: So either we change or we die. But the thing is that, yeah, it’s resilience. That’s everywhere… Everyone is going to be resilient because nobody wants to give up to their position. But you have to do it. Somebody has to do it.

26:45 Peter DuPont of how Coffee Collective communicates to their consumers the prices they pay to their coffee producers.

Chad Trewick: Speaking of changing and difficult, complicated conversations, I want to turn the conversation Peter Dupont from Coffee Collective in Denmark, and the work that they’ve done to really ensure that traceability and transparency and this notion of price and how farmers are remunerated has been embedded into their brand ethos. So, Peter…

Peter DuPont: Well, thank you.

Peter Giuliano: Peter is showing an infographic published in Issue 2 of the SCA’s quarterly magazine, 25. At the top, five graphs show the coffee output of Mexico, Guatemala, Costa Rica, El Salvador, and Kenya. All of them show a steep downward trend, with only Kenya bouncing back slightly around the 2015 mark.

His slide also reveals how washed arabicas have fallen from 44% of total coffee production in 1990 to an expected 21% in 2030.

Peter DuPont: I chose to start with this slide because to me, as a coffee roaster with coffee shops working with specialty coffee, with high-quality coffee, it’s worrying me that we see five primary countries that are producing really good coffee. You see the development since 1990, 2016 how the total exports is falling in the same time as we from our end of the world have seen a second and a third wave of specialty coffee rolling over. That clearly shows to me that there’s a big disconnection in the market. The market is not working. We value this money, these coffees, but the producer stops producing this. So, since we started the Coffee Collective in 2007, we have been working from the basic principle that we want to reach out to the consumers because we think they are a very important part of this market. We want to work with transparency. We believe, I have that from my own experience as a barista when I started in 1998 as barista that the consumers, they do care about how the farmers are paid. At least it’s a positive, preference for the consumers if they know the farmer has become better off. So, that’s something we try to work with from the beginning. How can we find a tangible element, transparent element that will show the way we work and how that is giving better conditions for the farmers and looking at these pictures from the phone one from one of our coffee shops.

Peter Giuliano: Peter is now showing a photograph of a busy coffee shop, titled “consumers and transparency?”

Peter DuPont: You see consumers have many things on the agenda. They come into the shop, they want to get that good cup of coffee. They have the kid they need to talk to or they have a friend they need to talk to or whatever. They have very limited time in listening to us. So how is it possible for us to talk about financial transparency to the consumer at the same time?

Peter Giuliano: Peter is showing some of these conversation starters. They are graphs showing how much Coffee Collective paid to specific farms. This price is contrasted with the market price and the fair trade price. In all cases the bottom bar, “our price to farmer,” is at least double that of the “Fair Trade” price.

Peter DuPont: I’ve put up a few examples of what we have tried over the years. We’ve been making this kind of in store posters to have it up as a conversation piece in our coffee shops showing for four different producers were working with what the market price was, the fair trade price at the time of our purchase and the price that we paid to the farmer. That has been a good conversation piece on even though I must admit we didn’t get as many reactions as we want directly from it but there was a little bit of a misunderstanding with these grafts that some people, they thought that it was how much more expensive we were as a business. But anyway, then we had a piece to pick up on and make a conversation, and our baristas could engage in the talk.

Peter Giuliano: This new slide has three photos: on the left, a customer holding up a Coffee Collective cup with a round, purple sticker with white text in Danish; in the middle, paper origami fortune tellers rest on a wooden stool outside the coffee shop; on the right, a quote reflected in one of the shop’s windows. Translated, it reads, “You may not realize it, but while you enjoy your coffee, you’re helping create financial stability for the farmers we work with.”

Peter DuPont: We just recently made this campaign, running for two weeks, looking back at 2018, trying to present to the consumer, saying thank you for being part of this way of doing business, presenting exact numbers. You see the purple sticker that we put on our to-go cups. This is an example from the Cooperative Kieni that we work within in Kenya. We put in nominal terms, the quality bonus we have been able to pay to them in 2018 because they produce such a good coffee that our customers willing to pay a good price for and enjoy. So, that was an attempt to try and dive into that positive preference that we believe the consumers have, for seeing the farmer better off. Also, just on the small chair there is this I think it’s called origami game or something. Flip flop we call it in Danish, trying to have that was lying around on the tables in the coffee shops where we had also this information lying there but in a little more of a playful way. So, engaging people in this way it didn’t have, like, created a lot of conversations but we got a lot of good feedback from the people who engaged with it.

But next year we’ll try to kind of turn up the volume a little bit because maybe we’re a little bit too subtle in the conversations because it was actually very positive, the conversations we did have on the topic.

Peter Giuliano: On the screen, there are three iterations of the Coffee Collective’s retail bags. On one of the newer bags, a section is highlighted and the text has been translated so that you can read, “we have paid 286% above the market price for the high quality.”

Peter DuPont: Then just finally since we started in 2007, you see your first bag over in the right corner there, We started working with transparency in the way that we use the term direct trait and we put that on the back of coffee when we could guarantee that we have paid at least 25% above the market price through the producer and that we have visited the producer that year. But we wanted to have on the particular bag because when the consumer buys a bag of coffee, they should have transparency of what they’re buying. Not just that they have a general story off how we do our business, but how is this particular coffee I’m buying? How is that bought? So, that was how we started in 2007. In 2013 we had the white bag. We still do have that, but we put it as you can see on the text we put the exact FOP price we’ve paid on the bag because at that time already direct trade was getting to be used for many different business models so we wanted to be real transparent. So we put the actual FOP price on the label for the consumer to see and since this is a rather technical number, the FOP price which have to also have this percentage above the market price. But we have paid to have that in the text there. That’s something we have had a good response on and now we’ll develop into the new label you see we’ll be launching in a few months. We will focus on this percentage above the market price as a quality, bonus and try to communicate that more clearly.

Chad Trewick: So, thank you, Peter. I think it’s great to see I mean both hearing from Herbert and Peter that there are different ways to engage with this traditional thing, this coffee value chain in ways that are innovative and pushing toward more and more information value, capture and transparency. Peter, just quickly before we move on to Michelle. How is the team engaged with this information because in my personal experience, sometimes it’s hard to get people to want to talk about this because it’s hard to interrupt a consumer’s day and all of that. How does that work in your store?

Peter DuPont: I think that the way we generally think of it is that the  consumer should be able to get go into our coffee shops and just get that good cup of coffee that they are primarily there for but we also want to have these different, kind off transparent information there, where we can engage in conversations when people are ready to do it and I think that’s a little bit of a challenge because on a daily basis we don’t get as many conversations about these things as what we really would hope to but we still see the effect off it because we have been building slow the brand of being the transparent coffee company in Denmark Way have researchers wanting to study what we do, our business model. We have enough students who wants to do their master these about how we do and so on.

Chad Trewick: Even the Department of Labor wants your coffee or something right?

Peter DuPont: Yeah, the Danish Institute of Human Rights. They want our coffee, and that’s something that I’m very proud of that it shows that we are really reaching out to people who cares about these issues and I think that’s fundamental for us because in the end, we’re working with quality coffee and a free condition for quality coffee is financial sustainability for the farmer. So, so we need to help that process happening.

 

36:30 Michelle Bhattacharyya on her experience with the World Banana Forum experience and how focusing on the living wage helped protect the banana sector from anti-trust laws.

Chad Trewick: Great, great. So, we heard from Rene about data from a cafe house about the country’s represents. We heard from Herbert about an innovative and value chain sort of revision, and we’ve heard from Peter. Michelle Bhattacharyya works for her own consultancy called On-Up, but she has experience working with the World Banana Forum and since we’ve heard from the attorneys about the dangers and the illegality of discussing price and collusion and price-fixing and anything that would result in negative pricing impacts on consumers, I thought it would be important to hear about the world banana form experience and how they got to a place where, as a sector, it felt safer to have these conversations?

Michelle Bhattacharyya: Yep, absolutely. So, you know, just to give you a little sense of the engagement with World Banana Form and why that’s important for coffee is because it gives us another industry to talk about, to go through exactly what they’ve dealt with, feel little bit safer in that conversation and understand how we can get to a point where we’re actually talking about the price that is necessary to cover sustainable cost of production because, really, that’s what we’re all getting down to. So, what they’ve done, or what I’ve been doing with them for several years is working on deciding on one issue. The one issue that can take this conversation forward and the one issue that we’ve been working on is living wages. Living wages are a strong issue because they cover so many of the issues that are faced throughout the supply chain when you’re looking at producers and making sure you’re going to have workers having a decent living, making sure that you understand that the economic sustainability exists because there’s enough there to achieve a decent standard of living. It creates a more secure market over a long time.

Peter Giuliano: Michelle is sharing a slide that describes the living wage and how it’s calculated.

Michelle Bhattacharyya: and really what you’re seeing in this slide is that definition of a living wage and what goes into a living wage calculation. It’s a very basic thing. It’s a cost of food at a basic, nutritious diet. It’s a cost of housing at a basic level of decency, meaning it’s safe and it’s healthy. We’re not talking about living in a mansion, and I’ll show you a picture later of what that actually looks like. It’s a cost of other essential leads like clothing and personal care and the health care and education, and it’s the cost of a small margin for unforeseen events. If one thing happens, is that going to drive you into deep poverty? You know you want to be able to avoid that and be able to absorb some little shocks.

So, we find that in banana – and this reason I put this out as an example is because – we started saying we should have a living wage and I used to manage the work of the Global Living Wage Coalition, which is made up of standard systems like Fairtrade International.  Rainforest Alliance, UTZ, now Rainforest Alliance and several others. And really, they have already put in to their standards this sort of methodology, which is the anchor methodology of calculating a living wage in producing countries. And they’ve said, okay, we should work towards payment of a living wage, right? And so, I went to the banana producers and I said, look, we should be paying a living wage and everyone threw up their hands and said, the gap is here. Our profit margin is here. How is that physically possible? How is it even there? Literally the gap from what is currently being paid to workers to what would be needed for a living wage would eat every bit of profit that a producer is having, plus money that doesn’t even exist. And so, that sort of began a conversation that goes back to what happened this morning, which is saying, okay, we need a supply chain where all the links are strong, and that means you can’t go to producers and say pay a living wage to your workers and we’re going to force you to do that when the capability isn’t there. That means engaging the entirety of the supply chain. So what the world banana form did was start looking at living wages and a way to engage from retailers and buyers down to producers and everyone that is involved in the value chain and say let’s just talk about this issue. They put together a working group that’s a fair distribution of value and talked about that and that working group once we started to look at studies and data about the gaps in that industry, from current wages to a living wage. That working group realized that we have to talk about price.

At the end of the day, there’s not enough money. We have to talk about price. How can we do that? How can we do that safely? The way that they do that is they started a subgroup on sustainable cost of production. It’s not a pricing subgroup. It is a cost of production subgroup and said we are all publicly going to make a statement to commit and this is including multiple value chain actors, not just one group, to publicly make a statement to commit to moving towards a living wage and to do that we have to figure out where what is the current distribution of value and who should take what proportion to cover a move towards the living wage if we understand a general gap. So, we’re never talking about setting a price. We are simply looking at the reality of here’s the gap to a living wage. Here’s the proportional distribution of value throughout the value chain and so really, this is the role that each party has to play throughout. So, I think that that creates a model. That, that is an important one that coffee can also use. It’s also being used in tea and it’s moving forward in other industries, but it’s really exciting to see those conversations are moving forward in banana and they’re and they’re getting somewhere and they’re engaging more people and putting out a public statement meant that more and more and more of the industry had to sign on. They got the sense that, that leadership that there was a move to follow and I think there’s an opportunity to a specialty coffee to be that leadership that the rest of coffee can start to follow that starts to say we have to be a part of this as well, and it is simple. Living wage is a very good issue to focus on because it’s clear the amount you can move on beyond that to the next category.

Peter Giuliano: A map of the world is up on the screen, showing different Global Living Wage studies and their stage of completion. It shows that studies have been released for Nicaragua, Guatemala, the Dominican Republic, Costa Rica, Brazil, Ghana, Ethiopia, Kenya, and Vietnam. It also shows that a study in Ecuador will be released soon, once validated, and that another is underway in Colombia.

Michelle Bhattacharyya: So, I just wanted to reference the Global Living Wage Coalition that I mentioned before. They’ve been doing living wage studies around the world, and I highlighted some of those that covered coffee-producing areas so that you get a good sense that you could actually measure the gap now. You don’t have to do all the research from scratch. Some of it exists. You can look at what is the difference between what wages are happening and what wages we have to get to make this really economically sustainable and then we have real figures to talk about where we can say okay, what is everybody’s role in getting to that goal?

Chad Trewick: Great. Thank you. So, Michelle, you said a couple times during your slides here that one of the things that we need to see is broader sector participation in these dialogues to really try and tackle some of these challenges. How much did consumers factor into that conversation? Because, I mean, we have promo cafes saying consumers may need to hear and understand a little bit more about the realities behind their cup of coffee. We have Peter engaging consumers, and know that’s a part of the value proposition for you Herbert. How much did consumers have to get into the conversation?

Michelle Bhattacharyya: So, you know, I think in the case of the World Banana Forum there are a number of groups that are engaging with consumers, but it is not as much that they were a huge part of the conversation from that case. What I would say, though, is one of the values of using living wage as an issue to put this conversation is that some of what you said earlier that you know, consumers are confused. oh, you’re just more expensive than everyone else. There’s a there’s a communication issue. Yet when you talk about no, we want to make sure everyone earns a living wage, this is a hot topic around the world in every country. I’m right now working on a U. S. based living wage certification to say can we make sure that all workers that are here are earning a living wage because they’re not. If people are getting the sense of what a living wage means so, focusing on we’re trying to make sure that all the coffee we purchase or all the coffee that we are contributing to is ensuring that a living wage can be earned by all workers. That is a huge tool for communicating to consumers and I think it’s not being used enough.

Chad Trewick: Great. Great. Well, I see this timer clicking down and a red light flashing and so, I think that we could all talk for a long time about our different approaches on ideas and experiences, I really, I like the innovations that you all are representing, and I’ll just say one, I have one more slide. It was a picture of Michelle’s that exemplified what a decent living condition was.

Peter Giuliano: The photo now up on the screen shows an older Nicaraguan woman cooking in her kitchen. Her concrete kitchen walls are covered in soot, and she’s cooking on a wood fire contained in a concrete “stove” of sorts.

Chad Trewick: And, there you go. It’s not fancy. It is a dignified, decent, I mean, you speak to it if you…

Michelle Bhattacharyya: Yeah. I mean, this is we did a living wage study in Nicaragua. and this was one of the photos of someone. She was the wealthiest person in her community and this kitchen was one of the few that we could find in the community that met the standard of acceptable under a decent standard. Almost everyone else didn’t. So, they were all below this standard. So, when you think about this, this is the reality, and this is not sustainable. This is all we’re trying to do is get people. when we talk about living wage up to this level, that’s it. Basic decency. So, you know, I think sometimes people put in their head that you’re trying to make everyone rich. No, we’re trying to get everyone up to just basic decency, being able to have the right tools.

Chad Trewick: Great. Well, again thank you so much, and I really appreciate Rene you sharing this information, and may you share more and more loudly and stronger and may consumers get to understand it and Herbert and Peter for your leadership and innovation and Michelle for telling us a good example to not be so scared.

Michelle Bhattacharyya: Yes. Thank you.

Chad Trewick: Thank you.

 

47:00 Outro   

Peter Giuliano: That was Chad Trewick, Réne León Gómez, Herbert Peñalosa, Peter Dupont, and Michelle Bhattacharyya at Re:co Symposium this past April. Remember to check out our show notes to find a link to the YouTube video of this talk, a full episode transcript, and a link to speaker bios on the Re:co website.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

This has been an episode of the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

Subscribe to the #SCApodcast on iTunes, Stitcher, Soundcloud, Pocket Casts, or RadioPublic.