…or The (Supply) Chain Will Keep Us Together
Between 2008 and 2015, I lost weeks of my life to layovers and time zone changes travelling between the United States and coffee farms in Brazil and East Africa. It was 100% worth the time I can’t have back: the opportunity to meet and speak with international coffee professionals and to experience coffee farming and processing first hand provided invaluable depth to my knowledge and love for the product.
The face-to-face meetings were critical to mutual understanding of the quality of coffee I sought to purchase, and helped establish a direct point of contact for financial transparency. The personal relationships I built spilled over from coffee work into life; I still maintain contact with many of the people I met during those years.
There are many advantages to knowing your producer: quality collaboration, sustainable mutual growth, financial transparency and security, and supply chain management are all achievable goals with tangible benefits to both sides of the business relationship equation.
But understanding and managing the supply chain is a more complicated matter than it might appear on its surface. In coffee, it is inexorably linked to changes in the physical state of the raw product and to means of transportation. The number of people involved in growing, processing, importing, and exporting coffee (see my article on human hands in the supply chain in Colombia) can number in the thousands. Below, I’m going to focus on delineating specific paths of coffee transactions, and the potential impact made by direct relationships at various points of contact along the way.
Ignoring the development and dissemination of seeds and fertilizer, the farmer is the start of a coffee’s journey to the cup. Farmers have immediate impact on initial quality potential – cultivar selections, plant health, and ripeness of harvest each set the base level of quality for what must be altered and preserved down the line.
Collaboration with the farmer on their impact on initial quality can help a coffee buyer select a particular variety of coffee (heirloom Bourbon, or Geisha, for example), and can provide feedback on sensorial data such as whether the coffee was sufficiently ripe when picked or whether a particular parcel of the farm consistently tastes better than others, for example.
Rarely are coffee buyers are also educated botanists; in my opinion it tends to be in our best interests on the far side of the supply chain to defer to a farmer’s knowledge base on most of these topics. However, the farmer’s practices may be improved by encouragement to seek professional advice from local agricultural support organizations or by seeking the counsel of an agronomist. Additionally, well-informed buyers may be able to share experiences from other origins, introducing the idea of post-fermentation soaking or raised beds for drying in Latin America, for example.
Farmers’ plot sizes may range from hundreds or thousands of hectares on macro farms to just a few trees planted in a garden. Regardless of farm size, once the coffee is harvested, it must be rushed to a wet mill (or dried in the sun, if dry-process). Though not always the case, moving raw cherry to its next stage of processing often involves a transaction that effectively ends the farmer’s involvement in the supply chain.
The Wet Miller
The wet mill (or beneficio, washing station, pulpery, central pulping unit, factory, etc.) provides a number of services to raw coffee. All coffee must pass through some form of machinery to remove its skin and part/all of its fruit. For fully washed, and hybrid process coffees (like pulped naturals or honeys, e.g.) this happens at a wet mill.
Time, temperature, and humidity are the main quality concerns at the wet mill – cherries must be processed soon after picking, fermentation may take longer in cooler weather, drying coffee may take longer in humid conditions, etc.
As farm size increases, so does the likelihood that the farmer will have access to means of production post-harvest. Most large farms have a wet mill on-site, so there is good control of the supply chain from raw cherry to dried parchment. This makes the farmer-buyer relationship especially fruitful (excuse the pun): the two parties can converse about pre- and post-harvest concerns simultaneously.
Some smallholders will process their own coffee, either with a micro mill (as is common in Colombia) or by “home processing” (typically sun-drying cherries in the whole, but occasionally depulping with a hand-crank machine). This, however, is the exception rather than the rule for most specialty coffee.
Farmers may simply sell their unprocessed coffee outright either directly to an independent wet mill (some estates will buy local smallholder cherries as well) or to an intermediary – a private broker (a true middleman, sometimes called coyotes, crocodiles, or other derogatory terms) who will then resell the coffee to a wet mill or dry mill. These middlemen do serve some supply-chain purpose, usually associated with transportation. Becoming the defacto middleman could be as simple as being the only guy with a truck in the neighborhood. However, these intermediaries also tend to scoop up the majority of any potential profit the farmer might otherwise make by a direct sale, and can raise the price of the coffee for all buyers down the line, as they have total control of the supply.
An effective alternative to the intermediary is the cooperative model. A group of smallholders may band together to form self-governing cooperatives or associations, who may lease or own and operate milling facilities.
Because the smallholder rescinds production control over their harvest at this stage, the direct relationship of a coffee buyer to a smallholder farmer will result in minimal qualitative impact post-harvest. Thus, the buyer must seek direct relationships farther down the supply chain with the cooperative or private wet mill owner/operators if they wish to speak to the preservation of quality post-harvest. For the wet miller, working closely together with a buyer during this stage can help mutual understanding of expectations in final flavor profiles, as small changes in the amount of fruit allowed to cling to the parchment, for example, can have a dramatic impact on the cup. Strong Washer-Farmer relationships will result in better raw product availability at the Wet Mill, and will improve transparency back to the top of the supply chain.
The Dry Miller
Once coffee finishes drying it must be prepared for export. This includes steps that take place in the dry mill, including hulling, size, defect, and density sorting, and bagging. In many cases, fresh coffee will rest in parchment until it is sold before dry milling.
Micromilling farmers very rarely operate their own dry mill. Rather, they must sell their dried coffee to the mill. Some large private estates will have a small-scale dry mill on site, but even this is relatively uncommon. Cooperatives and independent millers exist, but in many cases an exporter will also operate the dry mill. Because there is a transaction typically associated with the movement of coffee from the wet mill to the dry mill, there is the opportunity for independent intermediaries here as well, further muddling an already complex supply chain.
Buyers seeking relationships with dry mills may expect to have conversations about physical specs (bean size or defect count, e.g.) or about milling lots together and/or keeping small lots separate for individual runs through the dry mill. This can cause complications, as the microlots frequently associated with Direct Trade models are often smaller than the recommended minimum batch size for a mill, and can slow production.
The importance of this phase of the Direct Trade model cannot be understated, despite traditionally being overlooked by many roasters. It is therefore often left to the exporter or importer to manage the smaller batch and/or relationship coffees through the dry mill.
Any and all outgoing coffee from a country of origin must be processed by an Exporter. The exporter’s role may include dry milling, and in some cases even wet milling, but predominantly they are the origin-based corollary to the importer.
Exporters facilitate logistics, provide quality analysis and control, file paperwork with regulatory agencies, provide insurance and financing, warehouse and trade coffee. In this sense, they may also be seen as intermediaries. However, unlike the independent coffee cherry broker who buys from a farmer and sells to a wet mill, the exporter’s role is a critical one. Without exporters, coffee could not be loaded onto containers, much less cross borders. It would sit idle in dry or wet mill warehouses without qualitative value assignment, it would be uninsured against accidents or quality loss. Perhaps most importantly, coffee most certainly could not be bought by a roaster, for even if the financial transaction were possible, paperwork must still be filed and ships must sail.
In rare cases, some private estates may perform their own export functions. So may some cooperatives; dry mill ownership become more feasible as size (and financial access) increase, so typically the largest cooperatives and estates will own and operate these facilities. Equally common are independent export agencies who buy dried coffee (or in the case of wet-hulled coffee, partially dried coffee) and resell to a buyer on the other side of an ocean. Some exporters may have sister-companies operating as importers; regulations on these types of organizations tend to be more restrictive, and even companies operating under a singular ownership must frequently segregate their export and import services into subsidiaries.
Coffee buyers entering into relationships with exporters will find many services at their disposal, not the least of which being coffee farmer and washing station discovery and introductions upstream along the supply chain. Exporters will have good insights into the lay of the land in terms of where and when to source particular coffees, and will be the most well equipped to host cuppings in countries of origin. The timing and route of export, in tandem with the importer, may also be discussed.
Typically the last step before reaching a roaster is the importer. All coffee coming into the United States (and most other places), regardless of how direct a relationship is, will pass through an importer.
The import license allows goods produced in a foreign location to enter the country. Importers also tend to provide a much wider array of functions including brokering coffee trade (both buying from producers and exporters and selling to roasters and distributors), warehousing, administrating quality control, and facilitating logistics support (both oversea from port to port and overland from warehouse to warehouse). Additionally, the importer often acts a bit like a bank, providing financing, hedging, and insurance options for the coffee, themselves, and their clients.
Importers frequently officially take possession of coffee once it passes the bridge of the ship at the port of origin (FOB, in Incoterms), but in many cases they have “direct” relationships that extend beyond the exporter. Specialty importers like Royal are in the habit of developing their own partnerships with farmers and mills for access to particular lots. In many cases, these types of relationships also involve a particular roaster who is interested in the farmer relationship and immediate access and “first right of refusal” to the coffee.
Other benefits of good roaster-importer relations include consolidation, wherein a roaster will preselect a given amount of coffee from a particular origin. The importer will then work to fill the rest of the shipping container with similar coffee destined to be sold elsewhere, thereby lowering the overall logistics expense for the roaster.
Since the advent of Direct Trade, importers have often been maligned as “middlemen.” There is truth to the fact that importers come in between the farmer and the roaster, though they are hardly the only kink in a long and winding supply chain, as we’ve seen.
Case Studies in Tanzania
In so many cases, there are unique exceptions to supply chain movement. Let’s look at two contrasting examples from Tanzania, two coffees Royal imported this season from contacts I helped develop in the country.
The Path of Least Resistance
In the North, not far from Mt. Kilimanjaro and the border with Kenya, the Vohora family run two coffee plantations, Edelweiss and its sister Finagro. Each estate has its own wet mill on-site, so all the coffee finishes drying at the farms. The Vohoras also own and operate a separate export business in the town of Arusha, about 3 hours drive away. They export coffee from their neighbors as well as their own produce, so Royal was able to observe full traceability back to the farm very easily.
This is a best-case, path of least resistance scenario. Communication along the full supply chain is easy, and the family is involved in the entire process all the way from planting the trees to loading the container onto the ship at port. It’s a win-win for transparency and supply chain control.
Convoluted but Transparent
In the South, an exporting company called Tembo is based in the agricultural district of Mbeya. The region is rural and most farmers there are smallholders, owning just a hectare or two of land. They either home process, sell to independent Central Pulping Units or CPUs, or organize loosely as informal “Farmer-Producer Groups” or FPGs. (Formally organized cooperatives are taxed to the tune of $3000 per year in Tanzania, and therefore rarely seen.)
To further complicate Tembo’s mission and convolute the supply chain, Tanzania has implemented a number of unique restrictions. It is illegal to buy raw coffee cherry; rather CPUs must “advance” cash based on expected parchment weights to contributing farmers. Tembo pre-finances these “advances” but does not own or operate any CPUs because to do so is also illegal – a single company cannot export green coffee and process coffee cherry, a stipulation that helps prevent supply chain monopolies.
In addition to pre-financing coffee cherry pulping expenses, Tembo offers low-interest loans and pre-financing options for farmers. Tembo cups their coffee and sells coffee above 83 points at a premium and passes the profits back to the farmer or FPG. Field agents and on-staff agronomists regularly visit the producers, and the company facilitates export logistics through a complicated local and state bureaucracy that can be restrictive and corrupt. Tembo operates under an umbrella organization that also includes an import business, based in the UK.
Despite the immensely complicated supply chain, to Tembo’s credit the company has made a commitment to transparency. With no direct access to rural smallholder farmers or their washing stations, Royal’s purchase was negotiated directly with Tembo.
Supply chain management is a critical business strategy in any industry. For specialty coffee, the chain is particularly complex, making understanding and transparency of increased importance. Overdependence or neglect to any single step in the process is detrimental both to cup quality and to the quality of a relationship.
Our work at Royal is multifaceted in this regard: in addition to the day to day business of importing (like managing logistics, warehousing, insuring, financing, and trading coffee), we actively engage in a number of long-term Direct Trade relationships throughout various levels of the supply chain across the globe. We’ll readily point you towards some of our favorites, but we also are happy to simply take a back seat and gently guide your special selections from the farm (or wet mill, or dry mill, or exporter) to your roaster.
The stream, though winding, is navigable. We’ll keep a hand on the rudder for you.