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#60 | Re:co Podcast – Taya Brown on Supporting Smallholder Entry into the Specialty Coffee Market (S2, Ep. 1)

Source: https://scanews.coffee/podcast/60/reco-podcast-taya-brown-on-supporting-smallholder-entry-into-the-specialty-coffee-market-s2-ep-1/

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

SCA Lead Scholar Taya Brown worked with many communities of smallholder coffee farmers in Yepocapa, Guatemala to better understand the obstacles they face in uptake of new technologies. Profitability was shown to be the main constraint, affecting nearly all facets of production, sale, and invention. Addressing low profitability, however, isn’t as straightforward as one may think. To gain true autonomy, farmers want more than just higher costs – they want to better understand how their particular field, harvest, and post-harvest management affects their coffee’s quality, value, and potential to reach higher-paying markets.  

Special Thanks to Toddy 

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy new cold brew systems have thrilled baristas, food critics, and regular folks alike. By extracting all of 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
2:20 Smallholder farmers aren’t profitable and are leaving the coffee business
5:15 Smallholder farmers have a lack of resources and that translates to a lack of confidence, which requires motivation, support and education to solve.
11:30 Introducing ECA Montellano, a Guatemalan cooperative, describing in their own words their hopes for the future, what motivates them and what education and support they need from the specialization community.
20:45 Outro

Full Episode Transcript

0:00 Introduction

Peter Giuliano: Hello everyone, I am 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 host 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 people who are driving specialty coffee ahead. Check out the show notes for links to our YouTube channel where you can find videos of those talks.

This episode of the Re:co Podcast is supported by Toddy. For more than 50 years, Toddy brand cold brew systems have thrilled baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of tea and coffee, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew centers that are ready to serve and enjoy. Find out More about Toddy in 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 launch – find us on social media or subscribe to our monthly newsletter to keep up-to-date with all our announcements.

Today, we’re very pleased to present the first episode of”Cost of Production and Profitability for Coffee Producers,” a session listed at Re:co Symposium this past April. Buyers and producers alike have to understand what it takes to create specialty coffee so that it could be produced sustainably. So we convened experts to ask: Do we really understand what specialty coffee costs?

SCA Lead Scholar Taya Brown worked with many communities of smallholder coffee farmers in Yepocapa, Guatemala to better understand the obstacles they face in uptake of new technologies. Profitability was found to be the primary constraint, affecting nearly all aspects of production, sale, and innovation. Addressing low profitability, however, isn’t as straightforward as one may think. To obtain true autonomy, farmers want more than just higher costs – they want to better understand how their particular area, harvest, and post-harvest direction affects their coffee’s quality, value, and capacity to achieve higher-paying markets.

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

2:20 Smallholder farmers are not profitable and are leaving the coffee business

Taya Brown: Good morning. So, as was mentioned in the introduction, I’ve been working with a few communities of smallholder coffee farmers. This has been for the greater part of the last 3 years at a region of Guatemala known as Yepocapa. If you’re acquainted with Antigua in Guatemala, imagine going from Antigua around to the other side of the Fuego volcano, and you will be in Yepocapa. Thus, we’ve been studying the obstacles to uptake of technologies within these smallholder coffee farming communities and unsurprisingly, what we found is that profitability is the major constraint that these farmers face and this is across the board which affects their capacity to innovate, sure, but it also affects your ability to perform pretty basic things like fertilize. Farmers are having to make decisions concerning the amount of fertilizer they’re using, about how often they fertilize, how often a year they fertilize and are they able to make these decisions and do this as often and as much as they want to in order to have healthy plants?

We do see that farmers are becoming disenchanted with this situation as costs continue to stay low and have been low now for a few years in this area and we do see the farmers have begun to leave coffee. So, these Yepocapa farmers are finding other crops or sending a relative outside of the area to the city or to another country to bring in an income to help sustain the family and that I had been asked to come here today and speak to you about this issue of profitability from the perspective of the smallholder farmer. And I had been thinking about that and what I could bring to this discussion that might be useful and I had been considering how we’re the specialty coffee market. This is the Specialty Coffee Association occasion. Thus, we can pay a higher price. I’m sure that many of you that are in the market now pay really reasonable prices for some of the coffee that you purchase. The issue is that the quality must be there, so the quality has to be there for the coffee to have the value for us to have the ability to pay the prices which may make coffee a little more profitable for the manufacturer. We have a real interest in supporting the smallholder farmer as they produce a significant quantity of the world’s coffee supply.

Consequently, they’re having a massive effect on our industry. But, in reverse, our sector, especially specialty coffee, can have a large effect on them.

5:15 Smallholder farmers have a lack of funds which translates to a lack of confidence, which requires motivation, support and education to solve.

Peter Giuliano: On display, a slide countries “Smallholder farmers produce 80% of the world’s coffee. ”

Taya Brown: So, many of these farmers, coffee manufacturers are dealing with all kinds of issues and to showcase this and bring this house we superimposed what we believe the international coffee belt where coffee is produced over three other worldwide belts.

Peter Giuliano: Taya has three maps of the world, flattened out and side by side. There are two horizontal lines running across the three maps. The southern line runs through Bolivia and Madagascar, while the northern line intersects Mexico and northern India. Everything involving these two lines is the coffee belt.  Taya’s map also reveals that the coffee belt intersects many countries facing major conflicts, hunger, and malaria.

Taya Brown:  Sothis is the conflict belt where civil war has been more recent oftentimes within the last 30 years. So, if you consider that and the average coffee farmer is 55 years old. That means that the average coffee farmer has lived through civil war in their lifetime. These other two maps are the world hunger map that’s showing where malnutrition and starvation are concentrated around the globe. There’s the malaria belt where communicable disease is more widespread on the planet. So, this is evidence. This is showing you how coffee producers are living and the lack of funds which can be found in these areas. One of the things that happens when you grow up with the lack of source is you have a lack of confidence. You’re not quite sure what your options are? You have limited choices, and if you want to do something more on your own, you’re not quite certain how to do this and this is something which I actually have personal experience with.

So, I’ll explain to you why I personally identify with the smallholder coffee farmer. I was raised in one parent, low income household in South Seattle. My mom was pretty preoccupied as I was growing up, I was left to figure things out, kind of on my own and without plenty of resources and I was watching my friends or my friends were just like me, you know, from broken homes, sometimes having drugs in the family background, low history of formal education and the household, low resources. We all just trying to determine what to do with ourselves in the situation we found ourselves in my own experience, and then watching the experience of people who I spent the most of my time with and have cared about. I’ve been really curious and paying attention to exactly what is it that causes somebody or what is it that enables somebody to bring themselves up when they’re in a situation where they have low funds. Thus, you can either have resources or you don’t and what do you do in the case that you don’t? So, what I’ve realized or what I’ve come to in my paying attention to this over the years is that these are the three variables which are involved when resources aren’t. There’s motivation, there’s support and there’s education. So, motivation will establish as a drive to do something more. This is an ambition that comes from within oneself and knowing that there is something greater than us and wanting to connect to that larger, greater thing.

Support. Support I will define as an effort made by someone else in your direction that helps you do something that you were unable to do otherwise because you lack the tools, lack the confidence or lack the know-how and so this is something which somebody else could give to you when you don’t have those things and I’ve received a lot of support within my life. I think people were able to see I had a good deal of motivation for a kid, that I was interested in science and art and these larger things and that I wasn’t going to have the resources I had to do something with that, with what was available in my context. So, people jumped in and gave me support and in some cases, this was grants or fellowships, monetary support that have helped me get through school. In some cases, this was only somebody lending me their ear to listen or a space. I recall in high school, I had an art teacher that I’d like to hang out in his room in my free periods, and that I managed to only do arts and speak to him about things and just sort of be me and have some self-expression from the art I was doing and that I didn’t have a good deal of spaces like that at that time in my life. That was a massive support to me.

And the other element is education. Education is indestructible capacity. You cannot destruct this capacity. This is knowledge about things that help us to make more profound and more ranging and better choices and this is truly the trick to making us different. If we want to live in a different kind of a context, we need to be able to fit that context and in reverse as we change ourselves the circumstance around us changes also, and education is actually the secret to that, to getting different, to changing fundamentally who we are and to find that ripple effect in the world around us. And I don’t believe that my friends that I grew up with are no different from smallholder farmers around the world that are growing up without a lot of resources, but that want to attain something more with themselves.

11:30 Introducing ECA Montellano, a Guatemalan cooperative, describing in their own words their hopes for the future, what motivates them and what support and education they need from the specialty community.

Taya Brown: I would like to introduce you to one of the region’s or one of those communities that I work with. This is ECA Montellano. They can be found in a town named Hermogenes Montellano, which is right outside of Yepocapa. This is a combined or an organization of smallholder farmers who are 187 of these, 187 members. They’re about 32 years old. They farm java on what was a large finca up before the war and was re-appropriated to smallholder farmers. These people will come from four distinct parts of Guatemala to be here. Therefore, after the war they traveled to this area to set up camp and start java farming and there’s a small group of this membership that’s realizing that if they change a little bit of what they’do, they can have a product which the specialty marketplace may be interested in and so they’re forming this group and they’re trying to figure out what they have to do in order to have a coffee that might be worth, you know, might have more value and so last year they began selecting out some coffee that they picked really well. Consequently, they thought, you know, what’s the easiest thing for us to do? We can just try to select our coffee the best as possible, and we’ll have only adult beans, and that’ll be specialty coffee and what they’re beginning to realize in this process is that there’s a great deal for them to learn. So, picking is a great place to start, but there will be a lot more for them to learn. So, I’m going to let them introduce themselves to you.

Peter Giuliano: Taya is playing with a movie featuring ECA Montellano. Because they only speak Spanish and their videos have English subtitles, I will interpret some of what they’re saying.

Francisco Kelel: Buenos días. Mi nombre es Francisco Calel, el presidente de La Vigilancia La ECA Montellano… con todo gusto, saludo para toda ustedes.

Peter Giuliano: Francisco Kelel is president of vigilance at ECA Montellano.

Teresa Orosco: Buenos días. Mi nombre es Teresa Orozco y soy parte del Comité de Finanzas de la pequeña empresa campesina y trabajamos aquí hombres y mujeres.

Peter Giuliano: Teresa Orosco is part of the finance committee also says the organization consists of both men and women.

Manuel Tzorin: Mi nombre es Manuel Tzorin, de la comunidad.

Peter Giuliano: Manuel Tzorin is a member of this community.

Horacio Matzir: Buenas tardes. Mi nombre es Oración Mártir. Soy secretario de la ECA Montellano. Para mi es un gusto poder dirigir unas palabras a ustedes que nos pueden ver desde donde estén.

Peter Giuliano: Horacio Matzir is secretary of ECA Montellano and is happy he’s an opportunity to talk with you.

Teresa Orosco: Estamos en lucha para poder encontrar un mercado mejor.

Peter Giuliano: Teresa says they are in a fight to find a better market.

Francisco Kelel: Pues nosotros hemos luchaba para mejorar nuestro cafetal… también queremos ser más el café especial para que haya un buen precio.

Peter Giuliano: Francisco says they need to fight to improve their coffee, and are seeking to create more specialty coffee so they earn more income.

Teresa Orosco: Y lo que se está haciendo ahorita es tratar de cambiar la forma de cómo se recolecta el café mejorado para hacer un café especial.

Peter Giuliano: Teresa says they’re changing how they harvest to enhance their specialty coffees.

Horacio Matzir: … entonces a raíz de eso nosotros hoy en día estamos trabajando de otras formar para encontrar la manera de sostenernos, ser autosostenibles con nuestros gastos, con todo lo que lleva el proceso del café.

Peter Giuliano: Horacio says the organization is trying other ways to be self-sustaining to pay for their expenses.

Manuel Tzorin: Nos gustaría conseguir un mercado. Nos gustaría conseguir como exportar. Claro, claro estamos muy interesados, nuestra gente esta muy preocupada por el precio que está muy bajo. Y entonces estamos muy interesados en conseguir un mercado que sea mejor.

Peter Giuliano: Manuel says they are quite interested in finding an export market for their coffees. Everybody is very worried right now because prices are very low.

Taya Brown: So, I hope it’s apparent from this video just in the introduction that these people are motivated, these are prompted farmers. I think it’s also clear that they need a lot of instruction and support. So, as they were working with this little lot this last year, and they picked well, then they realized that they had to figure out how to pay their pickers better or incentivized picking mature beans over just picking by quantity. Consequently, they’d only paid a certain way in the past and they realized they had to fix that if they were going to get a different product. They then understood that there was this information that they needed to keep track of using the coffee, variety, elevation, the farmer, day it was chosen things like this. They hadn’t had this experience before, needing to keep track of information about small lots of java. Once that coffee was in the mill, they had to find out how to keep it separate in the mill and keep the data together with each lot. There was a lot of stuff that they’re realizing they’re going to need to learn how to doand they’re going to have to get better at if they would like to continue in this and grow their quantity. So, those are some of the things which I know about, that they’ve had to change and understand, and I wish to keep in this vein of having their voice here and having them explain their particular situation and so here’s another clip of them.

Francisco Kelel: Muchas veces nos vemos obligados a abandonar nuestro café. El precio, cuando vendemos no hay un buen precio, pero estamos luchando.

Peter Giuliano: Francisco claims that lots of times they need to abandon their farms. If they do sell their coffee, it is for a bad price. But still, they’re fighting.

Teresa Orosco: Queremos pues es ver en qué cosas más podemos mejorar. Principalmente las personas que tal vez nos vean atravez de este vídeo que ellos nos puedan decir más o menos qué clase de café en la que ellos les gusta comprar la que ellos necesiten entonces y cuáles son las características o qué trabajo tenemos que hacer nosotros para poder mejorar y lograr ese mercado.

Peter Giuliano: Teresa says they would like to learn what they have to do to improve. If there are buyers who view this video, she wants them to tell her what kind of coffee they are looking for and what work they should do to get there.

Francisco KelelSi, nosotros lo que necesitamos, o lo que nos cuesta, es el mercado, pero nosotros estamos dispuestos a cambiar muchas cosas, las cuestiónes del campo para hacer el café, para que salga un buen producto. Y en cuestión del beneficio, tal como el café especial, a nosotros nos gustaría hacer más volumen, tal como este año, pues es poco, pero es para empezar. Ahora nosotros lo que queremos es cambiar un poco el beneficio, lo que todo lo que necesiten, o cortar el café en la mata que sea bien maduro, y para tener un buen producto.

Peter Giuliano: Francisco says what they need is a marketplace for their coffees. They produced just a small amount of specialty coffee this year, but it is a start. They have questions around how to grow the right type of java and how to process it.

Manuel Tzorin: Estamos más contento todavía y la gente están más contento y están más con gan de sembrar más, trabajar más con el cafe, mas para tener un buen futuro.

Peter Giuliano: Manuel says the community is happy to keep working together with coffee and looks forward to a better future.

Taya Brown: So, that was Teresa, Francisco, Horacio and Manuel describing to you their hopes for the future, describing to you a little bit about their motivation, what motivates them and explaining to you some of the support and education that they know they’re going to need to continue to succeed in coffee production. So, I want to ask two things of this audience. We’re planning to make pledges tomorrow but I’m going to go ahead and talk about it now, and I would like you guys to do two things. One is to consider this issue of profitability in these terms. Consider information and not only price and consider what we in this area, some of the most experienced and successful individuals in the specialty coffee sector have that we can share with producers. These farmers don’t understand anything about specialty, but they need to know. They wish to know what it means. They want to learn how to assess it. They want to know how they could produce it. They wish to know what types they need to plant. They want to understand how they need to manage their subjects and their post-harvest control of their coffee. That’s information that we have that we can share together. So, that’s number one to take into consideration the information issue, and number two is to make a pledge to share information over this next year with someone who hasn’t had it. You’ll notice people that have this actual motivation and you’ll find them looking at this situation and see what you can do and what you can add in the shape of support or instruction to help that individual do something more with themselves. I have personal experience with this. I know that it works. Thank you.

20:45 Outro

Peter Giuliano: That was Taya Brown at Re:co Symposium this past April.

Don’t forget to check out our show notes to locate a link to the YouTube video of this talk, a complete 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 launch – find us on social media or subscribe to our monthly newsletter to keep up-to-date with our announcements.

This was 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.

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#57 | Re:co Podcast – Vanusia Nogueira on The World Coffee Producers Forum: What to Expect (S1, Ep. 2)

Source: https://scanews.coffee/podcast/57/reco-podcast-vanusia-noguiera-on-the-world-coffee-producers-forum-what-to-expect-s1-ep-2/

Today, we’re very happy to present the second episode of this”Macroeconomic Dysfunction at the Coffee Trade,” a session listed at Re:co Symposium this past April. This session convened experts to understand the challenges and functions of the java system accountable for the volatile shifts in the coffee industry. If you haven’t listened to the previous episodes in this series, we strongly advise going back to listen before you continue with this event.

On this episode of the Re:co Podcast, we are very happy to welcome Vanusia Nogueira, Executive Director of the Brazilian Specialty Coffee Association, who explains the motives behind the first World Coffee Producers Forum event, the organization of the Forum’s committee, and what they’ve achieved over the past 18 months of work. She also sets expectations for their next event, happening July 10-11 in Campinas, Brazil, and for the future.

Special Thanks to Toddy

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy new cold brew systems have thrilled baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of tea and coffee, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves to 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
2:15 Producers need a fair price to be economically sustainable, which then permits them to be environmentally and socially responsible. However, roasters want their coffee to have a high cup grade, be environmentally and socially sustainable but want to pay the lowest amount they can
10:00 Producers continue investing in technology, education, and quality. But the cost is unsustainably low. Even trade shows disadvantage coffee manufacturers because they’re created by consuming countries with agendas driven by consuming states.
12:45 Producing groups started the World Coffee Producers Forum to resolve this imbalance. The Forum’s Committee intends to bring industry celebrities together as collaborators, find ways to increase coffee consumption and create a neutral study about the financial sustainability of the coffee producing sector.
18:00 The next World Coffee Producers Forum is happening in July 2019 in Brazil. Coffee manufacturers will be looking for alternatives to provide dignity to everyone who works from seed to cup.
20:00 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 this Re:co Podcast, a series of the SCA Podcast. The Re:co host is dedicated to new thinking, discussion, and leadership in Specialty Coffee, including 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 ahead. Check out the show notes for links to our YouTube channel where you can find videos of those talks.

This episode of the Re:co Podcast is encouraged by Toddy. For more than 50 years, Toddy new cold brew systems have thrilled baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of tea and coffee, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves to fresh cold brew centers that are ready to serve and enjoy. Find out 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. Do not miss the coming early-bird ticket launch – find us on social media or subscribe to our monthly newsletter to keep up-to-date with all our statements.

Today, we’re very happy to present the second episode of the”Macroeconomic Dysfunction in the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the functions and challenges of the coffee system responsible for the volatile shifts in the coffee industry. When you haven’t listened to the previous episodes in this series, we strongly advise going back to listen before you continue with this event.

On this episode of the Re:co Podcast, we’re very happy to welcome Vanusia Nogueira, Executive Director of the Brazilian Specialty Coffee Association, who explains the motives behind the first World Coffee Producers Forum occasion, the organization of the Forum’s committee, and what they have achieved over the past 18 months of work. She also sets expectations for their next event, happening this week in Campinas, Brazil, and for the future.

Also, to help you follow along with this podcast, I will chime in occasionally to help you imagine what you can not see.

2:15 Producers need a reasonable price to be economically sustainable, which then permits them to be socially and environmentally responsible. But, roasters want their coffee to have a top cup grade, be environmentally and socially sustainable but want to pay the lowest amount they can

Vanusia Nogueira: Good morning, everybody. It’s a pleasure to be here with you all and as Ric said, I’m here to talk with you on behalf of the all the manufacturers in the world. A number of them are here with us. Some of them or many of them are unable to be here during the Re:co and even throughout the expo because they don’t have money to come to US for this expo, for this large show that we have here.

Peter Giuliano: Vanúsia has a map of the world with a lot of the countries slightly above and below the equator coloured in purple or green.

Vanusia Nogueira: Here we have the world coffee production. All the colors which you can see they’re in purple, in green are countries, are regions that we’re producing coffee nowadays.

According to the ICO, we have six countries, not the five that Ric said, six nations are responsible for 80 percent of the coffee that we are producing global nowadays.

Peter Giuliano: The countries coloured in purple – the top six coffee producing countries – are Honduras, Colombia, Brazil, Ethiopia, Vietnam, and Indonesia.

But there’s a very big issue on that. We used to be organized as a group until three decades ago. We did everything separately inside of the countries and also collectively as state manufacturers. On the other hand, we’ve got the customer market consolidation.

Peter Giuliano: There’s a picture of a pie graph showing consumer market consolidation. JAB and Nestle consume nearly half the pie each and the rest of the little sliver is Lavazza.

Vanusia Nogueira: As you can see, this is the consolidation of the market. This is the consolidation that we’re facing in the industry during the last two decades and they’re very well organized globally. They are very good companies and they are working together and they’re globally organized and they are globally asking for their suppliers, asking for their products not only in many of the situations, not only for coffee, but also for cacao, for tea, for many other beverages. And then, almost 3 years ago we chose as the leaderships of the coffee manufacturing countries to begin to reflect about in this market as manufacturers. Not together at that moment, not together with the business or not with all the other links off this chain and then what we realized, what are the producers always searching for? We are searching for good products, we are looking for money, we are searching for sustainability, social sustainability, ecological sustainability. But in which way? We’re looking for the better product that we can offer to our clients. Even for the business markets it’s all into the specialty markets but we will need to have a fair price for that. Why? Since the fair price will give us the financial sustainability and if we have the financial sustainability we can care, and we love to care. The social responsibility, the social sustainability and also the environmental sustainability but to start with, we need the economic sustainability as producers.

On the other hand, we’ve got the industry. What is the industry searching for? The attributes, it’s exactly the same. They are the same. They’re looking for products, cost, societal sustainability, economic sustainability and storytelling. They would love to show the compelling stories to the world. We would love to depart the stories that are compelling, we don’t like, we don’t must demonstrate these compelling stories to the world. However, the problem that we have here, it’s the equilibrium of these attributes. They are looking for the industry, the current market, the buyers. They are looking for the better quality they want to have for attaining their clients, their marketplace but they would like to pay the lowest price they can, the lowest price as possible for the good quality that you want to have and they asked for us, they needed us to demonstrate the social responsibility, the ecological sustainability and to construct, to build the fantastic stories for them.

This is the point. This is the way that we as producers, we’re thinking of this market. We were thinking of the market three years ago and then for us who is the weaker of our perspective as producers? Who is the weaker of this?

Peter Giuliano: Vanùsia has four pictures up on display – a person working on drying beds, a coffee picker, a person raking coffee parchment, a roaster, and a Nestle factory

Vanusia Nogueira: We are many smaller producers in the world nowadays. We estimate that we’re around 25,000,000 producers in the world. That is an estimate that is shown to us and they simply wanted to research this is not a correct the number. The number of the manufacturers nowadays it’s 50 percent of this, it’s 12 and a half million manufacturers, it doesn’t matter. If we were talking about 25,000,000 producers we’re talking and average of 6.7 bags per producer every year. If you can talk about the half of the producers, we will speak about 13 bags per producer annually in average. Yes, we have many big producers, larger manufacturers, mainly in my country, in Brazil. We have many manufacturers in Brazil that are producing tens of thousands of bags but this means that if they are producing thousands of luggage, there are manufacturers, there are millions of manufacturers, thousands, millions of manufacturers which are producing two bags, three bags and then you will need to leave with this and even for those producers, the biggest producers that produce thousands off totes in Brazil, they’re very small if we compare with the big industries that purchase millions of bags.

10:30 Producers continue investing in technology, education, and quality. But the price is unsustainably low. Even trade shows disadvantage coffee manufacturers because they’re created by consuming countries with agendas driven by consuming countries.

Vanusia Nogueira: This is the connection that we’re talking about but as far as we could, we’re doing our homework. We are as manufacturers investing in our properties. We’re investing in infrastructure, we are investing in new technologies, we are investing in new varietals. We’re trying to find which are the varietal which will replace the Geisha, we’re trying to handle mainly things at this moment because we’re investing even when we have all these difficulties. We’re investing in training and how our producers nowadays they can talk to the buyers about the physical classification, about sensory skills. We’re investing in new classes. We are investing new coaching and you know how. So, we’re investing in fermentation. We’re investing in many things as manufacturers and we’re also investing in our communities. Why are we investing in our communities? Because we must make and to educate our new generations and we also have to handle the gender equity. We will need to work with all of these items and we’re investing in each of these things to provide the highest quality possible to the marketplace. But we think we deserve a reasonable income. This is our purpose. This was our stage, our decision almost three years ago after which we decided to examine the global events and we realized that the majority of the international events, coffee events that we have, conventions, expos etc. are organized and realized by customer countries with agendas driven by consumer countries.

12:45 Producing groups began the World Coffee Producers Forum to fix this imbalance. The Forum’s Committee aims to bring business actors together as collaborators, find ways to increase coffee consumption and generate a neutral study about the economic sustainability of the coffee producing industry.

Vanusia Nogueira: So, we decided to organize our first major meeting as producers and we organize as Ric stated in 2017. in Medellin. Our first World Coffee Producers Forum. We decided to do that with a very good and very important agenda which was our agenda for this moment. We talked about economic sustainability, climate change and social responsibility. We asked and we invited all of the people to be there with us, together join forces to act not as a competitors but as collaborators trying to find answers for the problems that we’re discussing now again and we decided to talk together. We chose to show to the press our dilemma. We decided to consider ways to find this point to the new generation of customers. These were our points, our main points in this seminar, this forum which we had in Medellin and as an outcome of this first forum we had four particular decisions. The first one was we needed to be together. We had to go forward as a group of producers and then we made a committee.

Now we have a World Coffee Producers Forum Committee. In the first moment, it was composed solely by representatives of all the areas of coffee and then some months later we invited some people from the market, from the institution ’s off the business and now we have representatives of SCA and CA, the Japanese Coffee Association, the Swiss Roaster Association. We have many people that are together with us and we’re meeting, and we are talking very frequently. This was our first point, our initial conclusion. The second conclusion was that we needed to find ways to increase the consumption. We will need to research this and we need to find ways to boost the consumption because we realized three years ago or two years ago and many years ago that one of the issues of the market is this demand. We need this equilibrium of demand, demand and supply and we will need to go look for it. We will need to address this kind of point.

The next one was we had to get a neutral study about our economic feasibility as a business and then we contracted the professor Jeffery Sachs from the Columbia University and his team to prepare this is research for us. They are finishing this study and we will present this study to the marketplace in three months. And finally, we determined that that forum was really, really very good and we couldn’t stop in our initial forum and we decided to have the second forum and the next forum will be exactly in three months in Brazil at Campinas.

18:45 The second World Coffee Producers Forum is taking place in July 2019 in Brazil. Coffee producers will be looking for alternatives to offer dignity to everyone who works from seed to cup.

Vanusia Nogueira: We are preparing the next forum, World Coffee Producers forum to be there. Why Campinas and July in Brazil?  Because July we’ll be in the exact middle of our harvest year. Campinas is a city which has a very good structure. We’ll be very well accommodated there, and it’s very close to many points of coffee productions and then if the people would love to see several farms, some arrangements that we have in Brazil, they can go before or after the forum. And also, just after the discussion, the forum we’ll address during this forum the agenda will be price and price and price again as we’re doing here today and tomorrow. But just after the forum we’ll have the announcement that it is the event organized by SCA that will be held at Poços de Caldas and we will have the chance to work, to speak and to talk about the newest links, the other pillars of this novelty also in Poços de Caldas from Friday to Sunday. [Avance is now being held in Campinas, Brazil. For more information, click here. ]

What do we expect from this second forum? Let’s open our minds, this is the point. We will need to search for new alternatives for this business, for the coffee business. As Ric said, there’s no one answer, there’s no one solution. If the problem was actually we found the. We didn’t find it because you have many points that we need to take care of that, and we will need to find alternatives. Does this chain need all the links that we have today or not? All the business that we’re doing, we’re doing the correct way or not? That is what we expect to continue the dialogue that we’re sighting here now in tomorrow and we can continue with this discussion in Campinas in 3 months and then here it’s an invitation, to all of you. Join us in Campinas. Our keyword is dignity. We’re looking for dignity for all the people that are working in our sector, from seed to cup, not from seed to cup. There’s nobody that is inferior or superior on that and if the seed doesn’t endure the cup won’t survive too. Thank you.

20:00 Outro

Peter Giuliano: That was Vanusia Nogueira at Re:co Symposium this past April.

Remember to check out our show notes to locate a link to the YouTube video of this talk, a complete 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. Do not miss the forthcoming early-bird ticket launch – find us on social media or subscribe to our monthly newsletter to stay up-to-date with all our statements.

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.

Read More
Articles 

#58 | Re:co Podcast – Jeff Glassie on Prices and Antitrust Law: Where’s the Line? (S1, Ep. 3)

Source: https://scanews.coffee/podcast/58/reco-podcast-jeff-glassie-on-prices-and-antitrust-law-wheres-the-line-s1-ep-3/

Today, we’re very pleased to present the third episode of”Macroeconomic Dysfunction at the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the challenges and functions of the coffee system accountable for the volatile shifts in the coffee industry. When you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode. 

There is a lot of discussion about java markets these days, and a desire to discuss both the micro- and macro-economic consequences. However, antitrust laws impose significant liability for impermissible agreements on prices, boycotts, or allocations of markets. Today’s speaker, Jeff Glassie, is a lawyer for trade and professional membership associations, which must regularly take care of the antitrust laws. In today’s episode, he addresses legal concepts to help guide conversations and actions that are important for the industry with the goal of avoiding illegal conduct and ensuring pro-competitive action.

Special Thanks to Toddy 

This talk from Re:co Boston is supported by Toddy. For more than 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the delicious and natural flavors of tea and coffee, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into refreshing 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
2:20 The US has antitrust legislation to protect the free market system.
8:30 Groups of companies can potentially violate antitrust laws in three major ways: price fixing, boycotting other companies and allocating markets between themselves.
12:20 How do you specify an antitrust violating arrangement from a legal standpoint?
17:15 Ways the specialty coffee industry can handle the conversation around costs without violating antitrust laws
21:00 Outro

Full Episode Transcript

0:00 Introduction

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

This episode of the Re:co Podcast is encouraged by Toddy. For more than 50 years, Toddy new cold brew systems have thrilled 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 centers that are ready to serve and enjoy. Learn more about Toddy in 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 launch – find us on social media or subscribe to our monthly newsletter to keep up-to-date with all our announcements.

These days, we’re very pleased to present the third installment of”Macroeconomic Dysfunction at the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the challenges and functions of the coffee system responsible for the volatile shifts in the coffee industry. 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.

There is a whole lot of discussion about java markets these days, and a desire to discuss both the micro- and macro-economic consequences. But, antitrust laws impose considerable liability for impermissible agreements on prices, boycotts, or allocations of markets. Today’s speaker, Jeff Glassie, is a lawyer for commerce and professional membership associations, which must regularly deal with these antitrust laws. In the current episode, he addresses legal theories to help guide conversations and actions that are important for the industry with the objective of avoiding illegal conduct and ensuring pro-competitive action.

2:20 The US has antitrust legislation to protect the free market system.

Jeff Glassie: So, 11 weeks ago today, January 23rd I was walking down the steps in my house and I got down to the final step and I thought well I’m down right and I got distracted and I wasn’t down there. Snap! I thought it was a bone, I fell on the floor. I thought this can’t be great. I tore my quadriceps tendon, which turns out to be a really important part of your leg. It takes a while to heal. I was in a lock straight brace for six weeks. I just got to push a few days ago. So, it’s coming along and there’s a lesson there for everybody. I’ve been telling everybody this. Don’t get distracted on the measures. No checking Instagram or Facebook, your email or something on the steps. I just saw the guy the other day standing on one of the steps looking at his mobile phone. I thought, please be cautious. But then I was thinking about this issue that you are having, and I thought, well, you know, perhaps there’s some type of course that way too but the economics and the situation that we find ourselves in and if you watch my walk, it’s like not exactly, you know, harmonious. It’s a little bit out of sync, you know, it’s kind of not that effective. It’s not that effective and so economies can get to be that way too and from what Ric says and what I know I’m not an expert in java.

There are issues you need to deal with but there’s also limits in the law at the ways that we can talk about matters such as costs and competition and so you can kind of get out of sync with that, also, to maybe make a music analogy. You know you can be out of harmony with the conversation you’re supposed to be having or not supposed to be having. You can get out of sync with the antitrust laws and I try to think about things as simply as I can. So, allow me to give you a few concepts. In many ways, the antitrust laws are our friends, it’s the friends of the free market system. So, the authorities, the federal government, of the United States got involved in embracing these antitrust legislation back in the 1880s/1890s. There are a number of conglomerates, the coal, the steel, the sugar, the salt conglomerates, monopolist groups of companies that got together and did things that sort of skewed the free market system and they have been known as trusts and Teddy Roosevelt came in from the early 1900s.

Remember he was called the trust buster and he didn’t not believe in capitalism but he did think that trusts could do harm to society and hence the government got involved. The Sherman Antitrust Act came into play, was adopted in 1890 and there’s the later years that the Federal Trade Commission Act, the Robinson Patman Act, the Clayton Act and all this stuff gets really complicated because it’s sort of analyzing the legislation in light of economic factors. So, it may get very intricate and monopolies or trusts can skew the economic, the financial system but so can impermissible arrangements on price. So can arrangements to boycott or refuse to do business with competitors. So can agreements to allocate markets and what we’re really trying to do with antitrust legislation is shield our free market system and there’s a lot of discussion. Ric has been talking about that you’re talking about costs and everything a lot, but you know how it goes. The quantity and the price. If there’s a great deal of quantity, price goes down, etc.. So, in many ways that the antitrust laws are really just intended to protect the free market system and associations in particular can get in trouble because of groups of competitors and they can talk about things that get outside of permissible conversations which may tend to visit other areas. But obviously, businesses can chat about things I mean legally it goes away back to 1925. It was called the Maple Flooring Case. The Supreme Court said yes, businesses can exchange information. There’s kind of a self-policing factor to this. Businesses are not going to give all their secrets away to the competitors. You know they’re not going to say things that they don’t want others to hear particularly their competitors, but sometimes the push to talk about matters can lead into regions that adversely impact the free market system. But associations, in particular, can do plenty of doing and talking about matters that are exchanging information, education, training. Here’s how you do this. Here’s how you developed that. Standard setting, certification, guidelines, lobbying together. So, groups of opponents, groups of people who kind of are competing can still do a lot of good things together. That’s fine.

8:30 Groups of businesses can potentially violate antitrust laws in three main ways: price fixing, boycotting other companies and allocating markets between themselves.

Jeff Glassie: But let’s talk about a couple of ways that, three ways in particular, besides being a monopolist. If you are a monopolist then you’ve got problems and you don’t need an agreement. There doesn’t must be an agreement to possess impermissible monopolistic behaviour. Thus, let’s talk about a couple things. Price fixing, concerted refusals to deal or boycotts and allocation of markets. Therefore, when it gets to price fixing, there has to be an agreement of two or more persons or businesses on costs or prices or wages or any other price related aspects and it doesn’t have to be only for a maximum cost or a minimum cost. It can be either. If there’s any sort of agreement on costs, that’s what they call per se illegal under the antitrust laws. Feb se. Per se means the government doesn’t have to reveal, the plaintiffs don’t have to show that there was any specific damage that was caused. They just have to demonstrate that there was an agreement on prices. It’s also true that encouraging high rates. There have been cases with leaders and associations of institutions and other you know, we need a higher price for this, we are in need of a higher price for this in a way that has been viewed as anti-competitive and encouraging, impermissible agreements on price.

The second place, concerted refusals is to cope also known as boycotts when two or more businesses, a couple of people but companies probably get together and say, let’s not conduct business with that guy. We can drive him out of business. That rival or even that supplier. Those are also per se violations of the antitrust laws. So, in case you have an agreement not to do business for any competitive persons reasons then can be a violation of the antitrust laws. I mean, you could always decide yourself, your company, which ’s the way the system is truly set up. You always have the option to make whatever decisions you desire. You don’t need to work with everybody on earth. You don’t have to work with that guy or that company but if you have an agreement again, it kind of skews the system. It places the song using that music analogy again, puts that song kind of out of tune. It doesn’t quite go right.

The third area of potential per se violations of the antitrust laws are allocation of markets. You may ’t just get together with a group of opponents and say okay, you take that state, I’ll take this aspect of the river, you take that side of the river and choose how you’re going to allocate it. That’s again skewing the market. So, allocation of markets can be per se. violations of the antitrust laws. We’re mainly concerned, I believe, with the price conversation. But I wanted to just sort of give you the basic principles of a number of these antitrust violations and you can see again that they’re supposed to be protective and increase the free market system by encouraging individuals to do what they need to do but not really allowing behavior where individuals and businesses are coming together to skew the market.

12:20 How do you specify an antitrust violating arrangement from a legal standpoint?

Jeff Glassie: But we’ve talked a lot about arrangements. So, what’s an arrangement? And this is why the lawyers can get a little bit excited and sensitive about this is because do you believe that there would ever be a written agreement that could state, “in consideration of mutual promises and blah, blah, blah, blah, blah we hereby agree all of us firms listed below to set prices signed…” No, there’s not going to be that agreement.

So how do you know whether there’s an arrangement? Well, it could be an oral agreement, could be evidence of an oral agreement. Implied agreement. How about a nod and a wink. That can be an agreement. Therefore, you don’t even have to, I mean there’s never going to be actual. There may be today with emails. So, that’s one thing that can happen but there’s usually not going to be absolute evidence of an agreement on setting prices or boycott behavior. But there can be signs of implied agreements. Also, you can be found liable and there could be a liability for, and antitrust violation based on which ’s called parallel conduct. So, a group of folks get together and it may be a telephone call, it could be a meeting, it might be that they were seen together. what have you. No evidence of an agreement but they go out and they do the exact same thing.

It was a case, a famous case involving real estate agents who met together at Congressional Country Club not too far away from where I live in Washington DC and they’re all like we must get that rate up from 6 to 7 percent on residential sales okay. It wasn’t evidence of an actual agreement, but they all went out and people started raising their rate separately and people did go to jail for that one. So, the lawyers are going to be concerned and rightfully so about antitrust issues in talking about costs, since there is this type of slippery slope. If everyone is allowed to talk about costs, well, where’s the line and when are they going to not, how can you establish that they didn’t discuss setting a price and plaintiffs’ lawyers will try to find that inference that there’s been some type of an agreement. That’s why institutions like SCA generally do have, it is very common, it’s the best practice, it’s advisable to have antitrust compliance policies and what do they say? They say we agree with the antitrust laws. No violating the antitrust laws, no price fixing, no allocation of markets, no boycotts. But they also very often say no discussion about costs or price or salaries because it’s a slippery slope again and you’ll be able to get down to where you shouldn’t be quite quickly.

So, it’s sort of a prophylactic measure by institutions to not be liable for any trust issues because the lawsuit, any trust litigation believe me is brutal. You’ve got the Department of Justice, the Federal Trade Commission, the State Attorney Generals who can bring action. You’ve got personal claims that can be brought by competitors or others who were harmed. Damages are tripled. They’re called treble damages in an antitrust case. So the stakes are very, very high in regards to anti antitrust problems and I think it’s ’s important to just sort of understand the facets of the antitrust laws which are intended to protect us and the components that are debatable and then you can sort of go from there because it is the case that you will need to be able to talk about issues. Associations are the ideal places to do that. They’re set up to have conversations about issues facing the industry and they may be dealt with education and training and standards and lobbying and plenty of other things like that where you’re working together where in many, many ways the majority of the things you do aren’t likely to be antitrust issues.

Certainly, one thing to mention is that there’s an exception to the antitrust laws for lobbying since the courts have said free speech trumps the antitrust laws but that’s got to be lobbying. You’re moving to the Legislature, you’re hoping to propose a bill, that type of thing. This ’s permissible.

17:15 Ways the specialty coffee industry can handle the conversation around prices without violating antitrust laws

Jeff Glassie: However there are things which you can do in order to have permissible conversation, and I’m only going to record a couple of them because I don’t understand the whole industry and I don’t know about everything that people want to discuss, but you can definitely talk about markets. Ric sent me a couple of posts, very detailed discussion about prices in various countries and all the factors which are involved, and he was up here talking about markets and just overall markets to get information so you can do your business better. You can have discussions about how to understand and analyze pricing and prices. By way of example, we’ve got a client. It’s an actuarial society. What do actuaries do? They set premiums for insurance firms. Well, how do you do that? I don’t know, but they must learn how to do that.

So, whenever one of our customers had a course called rate making, which, in the event that you told a lawyer about that, they might say, Oh, my God, that’s a price fixing. Well, no, that’s learning how to set premiums. There’s a lot that goes into it. You need to be educated. You can, of course, act independently for your organization and try to learn how to set prices. How does just like you said costs and wages, how do you determine salaries? You’d have to look into this. You need people who understand how to run the budget and figure that out. The sort of educational courses about things like pricing so that you can learn about how things affect one another. The last bullet is about surveys and this is a little bit in the weeds, but it shows you how badly the authorities authorities take this. The Department of Justice and the Federal Trade Commission have a collection of safety zones started out for healthcare about how you are able to conduct price related polls. Surveys that are not related to cost, that’s fine but surveys related to price, if you meet these conditions then it’s okay, it’s assumed okay. The polls managed by a third party, for example, an association. The info is old enough. Three months old is not that old. It’s past data and then number three. There at least five providers reporting data no people data is greater than 25% and the data is aggregated to protect against understanding where the information came from.

So, I mean, what I’m really trying to say is you’re able to make independent business decisions for yourself, and that’s actually the golden rule of competition in light of the antitrust laws. Know about the problems that could come from impermissible conversations. Read the institution ’s antitrust compliance policy. Talk with counsel. You don’t want to wind up in a serious problem because people do go to jail for violation of the antitrust laws but what I’m saying is institutions are really a fantastic forum for taking proactive steps that are legal but only watch where those lines are, and you can address the problems on your industry, or you can attempt to, like I’m trying to solve this thing with my leg and trying to get back in tune and get back into a harmonious position.

So, thanks very much. This ’s what I must say. Thank you.

21:00 Outro

Peter Giuliano: That was Jeff Glassie in Re:co Symposium this past April.

Don’t forget to check out our show notes to locate a link to the YouTube video of the talk, a complete 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. Do not miss the coming early-bird ticket release – find us on social networking or subscribe to our monthly newsletter to keep up-to-date with all our statements.

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.

Read More
Articles 

#59 | Re:co Podcast – Dr. Janina Grabs on Overcoming the Single Exit Fallacy (S1, Ep. 4)

Source: https://scanews.coffee/podcast/59/reco-podcast-dr-janina-grabs-on-overcoming-the-single-exit-fallacy-s1-ep-4/

Today, we’re very pleased to present the fourth and final episode of”Macroeconomic Dysfunction in the Coffee Trade,” a session recorded at Re:co Symposium this past April. This session convened experts to understand the challenges and functions of the coffee system responsible for the volatile shifts in the coffee market. When you haven’t listened to the previous episodes in this collection, we strongly recommend going back to listen before you continue with this event. 

Despite the best efforts of business actors and producing-country governments over the past decades, the coffee industry continues to suffer from recurring crises that impact the livelihoods of millions of smallholder producers. Why are our solutions not functioning as intended? In the current episode, Dr. Janina Grabs of the University of Munster and visiting researcher at Yale University, argues that there’s a need to closely look at the scale at which different initiatives may create positive change. In particular, scaling up initiatives which are based on differentiation, or on productivity increases, is likely to have counterproductive results unless carefully handled. Along with such solutions that may work well in niche markets or neighborhood settings, there is a need to fundamentally rethink the systemic issues of the sector, such as the cyclical volatility of the free market system, and rethink the possibility of systemic solutions.

Special Thanks to Toddy 

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

Related Links 
Table of Contents

0:00 Introduction
2:40 The more coffee manufacturers across the world try to differentiate themselves by developing higher quality coffees, the less money they will all ultimately make.
5:00 Coffee manufacturers respond to high prices by planting coffee, fueling long price troughs. There has also been downward trend in inflation-adjusted coffee prices over the past 50 years while prices have risen.
8:30 The guarantee and shortfalls of private sustainability criteria
13:00 How specialty coffee can prevent the”burning theater” snare by targeting under-privileged producer groups and supplying sustainable and transparent prices for larger quantities of coffee
16:00 We want an honest conversation on the scalability of a model built on diversification, for both environmental and economic reasons.
20:50 Outro

Full Episode Transcript

0:00 Introduction

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

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy new cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all of the natural and delicious flavors of tea and coffee, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates that are prepared to serve and enjoy. Find out More about Toddy in 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 coming early-bird ticket launch – find us on social media or sign up for our monthly newsletter to stay up-to-date with our announcements.

These days, we’re very pleased to present the fourth and final installment of”Macroeconomic Dysfunction at the Coffee Trade,” a session listed at Re:co Symposium this past April. This session convened experts to understand the functions and challenges of the java system accountable for the volatile shifts in the coffee market. If you haven’t listened to the previous episodes in this series, we strongly advise going back to listen before you continue with this event.

Despite the best efforts of business celebrities and producing-country governments over the past decades, the coffee sector continues to suffer from recurring disasters that impact the livelihoods of millions of smallholder producers. Why are our solutions not working as we intended?

In this episode, Dr. Janina Grabs of the University of Münster and visiting researcher at Yale University, argues that there’s a need to closely look at the scale at which different initiatives may create positive change. Specifically, scaling up initiatives that are based on differentiation, or on productivity increases, is very likely to have counterproductive results unless carefully managed. In addition to these solutions, that may work well in niche markets or local settings, there’s a need to fundamentally reconsider the systemic problems of this sector, such as the cyclical volatility of the free market system, and rethink the possibility of systemic solutions.

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

2:40 The more coffee producers throughout the world try to distinguish themselves by growing higher quality coffees, the less money they will all ultimately make.

Janina Grabs: Good morning, everyone and thank you so much for having me. I would like to start with a parable that’s a story that tells us something about the world. My parable is called “The Fallacy of the Single Exit. ” Imagine you’re in a crowded theater with thousands of chairs and a fire breaks out. Everybody looks around panicked, searching for a way out. The good news is that there’s an emergency exit, the bad news that there’s only one. As everyone scrambles towards it the very first person closest to the exit gets out unscathed as does the second and the third. But how about the one hundredth? How about the individual at the very opposite end of the room? The more people storm the exit, the more crowded it becomes and clogged and the less useful it’s to latecomers. In commodity markets, we all know the parable of the single exit very well. It is the elusive objective of differentiating oneself from the mainstream, of being unique in the marketplace of interchangeable goods.

Yet, more frequently than not, this quest for differentiation by following short term tendencies just leads us to seem all the more equally, not unlike the quintessential hipster. This is bad enough for brands that continuously need to innovate. It is worse for producers working hard to meet the novel demands the supply chain passes down to them. Fulfilling such demands frequently creates high costs, frequently upfront as manufacturers change how they grow and process their coffee. They do this due to the expectation of higher costs and privileged market access yet the more producers follow the same exit from the commodity market, the less value the strategy often brings to them. As the officially differentiated product gets more mainstream, premiums erode, and the cycle starts anew. Rather than moving up to a higher level of value aggregation, they find themselves right where they began as if they’d tried to move up a descending escalator.

Peter Giuliano: On screen is a picture of two escalators, one bringing people up, down the other. The caption reads “going up the wrong escalator.”

5:00 Coffee producers react to high prices by planting coffee, fueling long price troughs. There has also been downward trend in inflation-adjusted coffee prices over the last 50 years while prices have risen.

Janina Grabs: Understanding this dynamic creates a special responsibility for buyers, development specialists and researchers such as myself to closely consider the benefits and drawbacks of differentiation strategies and a question, at which point we need more systemic solutions to our sustainability problems. By drawing on my study on personal sustainability standards and drawing parallels to the current wave of quality differentiation I want to encourage us to reflect on three important points when considering ways to assist farmers differentiate themselves. First given that there is a first mover advantage differentiation, that is, the first person benefits more than the past. Whom are we targeting and helping first and will we make those decisions in a more strategic and equitable way? Secondly, given that differentiation frequently creates upfront costs for farmers, how do we make market signs of future demand more clear, honest and long-term to allow farmers to recoup those costs? And third, given that upscaling risks diluting the benefits for many, how many farmers can we help before alternatives stop working as planned.

I wish to start off with showing two graphs, which have also been revealed before, which describe a broad challenge. In our parable, we could call this the burning theater.

Peter Giuliano: Janina’s chart is titled”The Burning Theater.” The graphs shows that, over the last 50 years, there have been five short sharp peaks of high prices and many long stretches of lower prices.

Janina Grabs: This first one is the long run development of ICO indicator prices. We can clearly understand the volatility and, more importantly, the brief peaks and long valleys of cost development. This is typical for perennial crops such as coffee or cocoa, which is tree crops or grown over many years. Planting decisions in one-year lock farmers into producing 10 to 15 decades of output on exactly the identical production surface unless they want to rip their trees out before those attain maximum productivity. Hence, if farmers react to peak price signals by planting more coffee this may result in long-run overproduction and low prices until demand and supply align again. In the second graph, I used the very same data but corrected it to inflation.

Peter Giuliano: The identical chart has become flattened, with a clear downward trend. It shows the very long term inflation-adjusted price for coffee has more than halved since the 1960s.

Janina Grabs: Consumer prices have been rising at steady rates for the vast majority of goods. Indeed, in america, the consumer price for coffee has risen sevenfold since the 1960s and inflation is also a central concern for consumer prices and producing countries as well as input and labour costs. According to ICO estimates generation cost at source increase between 3% to 8% each year. Yet, green coffee costs do not follow the same trend. If we adjust them to inflation, then we could observe a steady downward trend in the real price of green coffee through the years. Hence, along with volatility, we really must consider how to lift prices, long duration to more sustainable levels.

8:30 The promise and shortfalls of private sustainability standards

Janina Grabs: That is even more important if we also care about the ecological and social sustainability of coffee production. Indeed, improving sustainable practices on the ground has been a major focus of my research over the last 3 years. It enabled me and my colleagues in the University of Münster to survey over 1900 farmers in Costa Rica, Columbia, and Honduras. We did this to understand the intricate decisions a farmer should make day by day so as to be sustainable. Through it, I learned that environmental protection and social welfare measures can only be obtained if a farmer can afford to do so and indeed, many sustainable practices produce higher price for farmers, ranging from shade production, overpaying fair wages that lie above regional averages into acquiring personal protection equipment and protecting on farm ecosystems.

This is why I became interested in the capacity of personal sustainability standards to raise the value added in the farmer level.

Peter Giuliano: Janina’s slide shows different personal sustainability standards, such as Fairtrade, USDA Organic, Rainforest Alliance, UTZ, 4C, Starbucks C.A.F.E. Practices and the Nespresso AAA Sustainable Quality Programme.

Janina Grabs: Such tags emerged as niche initiatives targeting a very narrow segment of conscientious consumers. But, over time it was soon recognized that for widespread sustainable change to occur, many farmers had to have the ability to afford practices that could protect their forests and streams, protect their workers and supply their children with safe home and a fantastic education. Hence, standards have aimed to upscale and enter the mainstream and this is where the parable of ” The Single Exit” becomes especially relevant. Farmers that engaged in sustainability standards are promised higher costs and improved market access.

Certification schemes do this in two ways. The first option is to regulate price premiums and floors straight as done in the fair trade model. The second option, pursued by all other sustainability criteria, is to use market-based premiums. This means that premiums are negotiated right for every single contract based on prevailing market power and the demand and supply of certified goods. What neither system attempted to do was to manage supply to meet demand, for example, by restricting the entry of new producers. Rather, they’re optimistic forecasts of future demand based on projections and the guarantee to increase demand at the same time as expanding output. Thus, in the early 2000s certificate was seen as the exit out of the commodity market and sold to producers as such. Buyers were creating promising obligations, the premiums were large, and the demanded practices were often quite pricey, held the potential to increase farm and community resilience too and so it was for several years. But as more farmers joined these strategies making upfront investments and considerable efforts to acquire certified benefits began to diminish.

Peter Giuliano: Janina’s graph shows coffee production and java sales of different sustainability schemes. The point to note is that supply is obviously higher than demand. Supply has been growing year on year throughout the 2010s, and growing much faster than need. However, in 2017, supply decreases for the first time.

Janina Grabs: Today only, 22 to 42% of certified products also get sold under a tag in each category. This has led to battle for producers to access markets, the erosion of market-based premiums and a high degree of disenchantment in the producer level in keeping up the costly practices. Indeed, we can see that in 2017 it’s the first year that the general supply of certified product is decreasing for a number of strategies and even before that, the turnover rate for some schemes continues to be quite high, as motivated new producer groups replaced those who dropped out because of the perception of insufficient benefits.

13:00 How specialty coffee can prevent the”burning theater” trap by targeting under-privileged producer groups and offering sustainable and transparent prices for larger quantities of coffee

Janina Grabs:  So, what’s next? From what I hear on the floor, pursuing quality improvements is the next secret sauce to leave the commodity market and access specialized demand. So, quality now is where certifications were in the first to thousands, with confirmed consumer interest in the niche, high hopes for its growth and an almost singular focus on value aggregation at the producer level. I want to argue that lessons learned in the area of sustainability criteria are highly applicable to the future of specialty coffee also.

Let us return to the three points I mentioned in the start. Whom are we targeting and helping first? How can we make signs of future need more clear, honest and long-term and the number of farmers can we help before solutions stop working as intended. We now that the advantages of differentiation are skewed towards the early mover. In certification this has often meant farms which are relatively larger, farmers with a higher degree of education and professionalization and those producer groups that had made connections and spent in international market access. As stragglers have attempted to replicate these strategies they find themselves in a double bind because rewards are decreasing while they need to work even harder to access these markets. In specialty coffee, we have a special opportunity to be selective in sourcing and also to create long-term relationships with relatively underprivileged farmer groups. Being conscious of the long term consequences of who we start working with and making an extra effort early on to connect with manufacturers who haven’t had access to global markets yet can go a long way in creating specialty coffee more equitable.

Second, we need to think more about how to convey demand in a manner that is clear, honest and fair to producers who make upfront investments to meet this requirement. In certification, sourcing responsibilities have been obscure. They’ve frequently been specific to criteria or geographic regions, allowing buyers to move in and out of roots and leave certified producers in the lurch.

Peter Giuliano: Janina’s graph shows coffee sales of the major sustainability criteria – Rainforest Alliance, 4C, UTZ, Fair-trade and USDA Organic. The point to notice is that the most popular schemes amongst coffee buyers are those that give the smallest premiums back to manufacturers.

Janina Grabs: And as we can see in this chart, over time demand has trended to those schemes which pay the lowest premiums and don’t support price floors. This, clearly, is most economical for buyers, but it also brings the lowest amount of benefits to producers.

16:00 We want an honest conversation about the scalability of a model built on diversification, for both economic and environmental factors.

Janina Grabs: In specialty coffee, we’re well on our way to delink price discovery from the C market and set new price flows depending on the expense of sustainable production at origin through the use of long-term contracting. I highly applaud and encourage this practice, yet the transparent transaction guide shows that still then the costs payed for larger lots are much nearer to the C level than those paid for smaller quantities.

The next step then has to be to construct medium level scaling solution into the model itself. One great example of this is using multi-tiered contracting and direct commerce, which expands the amount of coffees directly traded down the standard pyramid by placing fixed prices for separate quality tiers sourced from the same manufacturer group or combined. Such contracts, particularly if they’re kept over many years and at stable prices, irrespective of where the C is at, allow the search for excellence in the next best unicorn when providing stable support for producers. Most of all, they provide the consistency and demand signs that manufacturers need to plan ahead and make investments that have a fantastic idea of the future pay off. Third, I think that we will need to have an honest conversation about the general scalability of a model built on differentiation. The oversupply on certified coffee now, I think, can be traced back to two sources. The first is that manufacturers and traders anticipated a higher demand than there turned out to be and were uncoordinated in their upfront preparations to meet this requirement. This may be connected back to the weak demand signs. The second, however, is that certified producers, once they’re from the system, are often encouraged to increase productivity, both to create sourcing easier and to increase their farms profitability. But, there are trade-offs involved. First, the sign locks early movers, making it relatively harder for latecomers to get these very same markets.

Secondly, it drives down costs for all as the product moves from scarce to more widely accessible and next, they’re negative environmental effects that can come from encouraging farmers to intensify specifically with regard to shade creation and the implementation of agroforestry. Hence, I think there’s a need to talk about sustainable intensification both from an environmental, but also from an economic perspective as well. Let us not forget that one of the main reasons for the present coffee price crisis is oversupply in the mainstream marketplace caused by Brazil’s record yields. Even in emerging alternative markets such a specialty coffee rising supply too fast, for instance, by adding in high numbers of manufacturers or by indiscriminately encouraging intensification can lead to oversupply, price decreases, and producer dropout much like we now experience in sustainable coffees.

How do we guard against this? My first recommendation is, to be honest in identifying where an effort to scale makes sense and where it might dilute solutions which have been working well in the niche. This meets hard conversations about how many people we can help to differentiate themselves and even harder ones as noted about who these people are. Yet pursuing niche approaches in a long term fashion that allows for planning certainty in itself is an important part of sustainability and in my eyes might be better than scaling up so fast that promised benefits may not materialize. Finally, the efforts made in the specialty coffee world, particularly in appreciating the sustainable cost of manufacturing at various sources and endeavoring to cover it need to spill over into the mainstream market as well. The tough reality is that prices like these do not work even for the most productive origins, such as Brazil or Vietnam and frequently leave environmental and social sustainability on the table. Pricing these in again must be performed at scale. We need to tackle the macroeconomic fire if we will, a holistic sprinkler system rather than a single exit. Doing this will require the collaboration of producing and consuming country actors in hitherto unprecedented ways and I look forward to many conversations over the next two days on how to do this in practice. Thank you so much for your attention.

20:50 Outro

Peter Giuliano: That was Dr. Janina Grabs in Re:co Symposium this past April.

Remember to check out our show notes to find a link to the YouTube video of the talk, a complete 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 coming early-bird ticket launch – find us on social media or subscribe to our monthly newsletter to keep up-to-date with our statements.

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.

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