Coffee producers have long sat on the sidelines when negotiating with buyers, roasters, and exporters. However, times are changing.
With a drop in international coffee prices as well as increasing demand from consumers for quality coffee, producers are in a better position than ever to take negotiations into their own hands and start controlling the conversation themselves.
It’s not an easy task, and will require that producers partner with the right people, improve their coffee and client knowledge, and fine-tune their communication and negotiation skills.
With this in mind, we’ve asked some experienced coffee producers and buyers to share their most helpful advice on building successful and long-lasting relationships with those that they sell to.
Lee este artículo en español Guía Del Caficultor: Cómo Hacer Negociaciones
Organic coffee cherries grow on a farm at Fazendas Klem, Minas Gerais, Brazil. Credit: Fazendas Klem
Why Now is a Good Time to Negotiate
It’s never been a better time for coffee producers to start taking an active role in negotiating their own coffee sales.
According to a 2018 Coffee Barometer released by developmental organisation Hivos, of all the profits generated by the coffee industry, only 10% remains in producing countries. In addition, international prices of coffee are continuing to decrease. This means that what producers are ending up with is adding up to far less than before – and that by directly negotiating with buyers, they could get more money directly into their pockets.
Additionally, coffee’s Third Wave movement has increased consumer interest in knowing where coffee comes from and that it’s been sourced responsibly. “The increase [in] specialty coffee preference and [a] new generation of young consumers who appreciate quality coffee has allowed direct contact between the ends of the coffee chain,” explains Juan Vargas, Co-Founder and Business Director of Fazendas Klem, an organic coffee farm in Minas Gerais, Brazil.
He adds that traceability has also become a key factor in how consumers select coffee, making a coffee’s origins more important than ever.
With the above factors helping to create the most favourable negotiation climate farmers have had in years, which type of producers are best placed to start the process?
“Typically, I find that they are coffee producers that don’t just farm. They have their own wet mill…dry mill, and often [they] can export.” says coffee producer Keith Pech of Damarli Estate, Panama – an estate that farms, processes, dries, cups, and exports coffee. “For example, nearly all the producers in Panama have their export license and wet mills. Another common trait they have is they travel to shows and are in touch with the industry trends.”
If you’re a coffee producer who has the above advantages, here are a few things you should know before entering into the negotiation process.
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A producer cups coffee in a Control Room at Fazendas Klem, Brazil. Credit: Fazendas Klem
Know Your Coffee
As a coffee producer with some processing capabilities, you’ll already be familiar with how your crop evolves from cherry to green bean. However, negotiation requires that you have knowledge that goes beyond understanding how to plant and nurture the crop. You need to know what happens to your beans after they get sold.
How will your coffee be processed, dried, classified, and stored once sold? What will determine its quality, and what kind of scores should it receive? These details are important, as knowing your desired result can help you take steps in the present to ensure a higher quality outcome.
“As a producer…you need to make sure your coffee is perfect before you start to export, [as] your reputation is on the line,” remarks Keith. “This means [you need] to make sure there are no defects or fermentation issues [and that] you took all the necessary precautions in the dry milling, peeling, sizing, screening, and density [stages]. You cannot simply put what you feel is ‘OK’ coffee in a bag. It’s better not to even send it… if it’s [not perfect]”.
View of Fazendas Klem, in Minas Gerais, Brazil. Credit: Nicholas Yamada
Know Your Buyer
Your eventual relationship with a coffee buyer will go beyond exchanging your beans for money. For a long term, mutually beneficial partnership, you’ll need to nurture the relationship, and the people involved in it, explains Keith. “Although it’s very important [to know your price], I find that getting to know the buyer [is equally important]. It’s much better to start by…trying to understand how they sell coffee,” he says.
This means that producers need to remember that communication is a two-way street, and that it’s important to take an interest in the buyer’s journey, what drives them, and what keeps them up at night.
“Often we believe that it’s all about telling our own story,” comments Phyllis Johnson, President of BD Imports, an international coffee import company. “It’s more about listening and gaining as much information as possible about the potential buyer that will allow you to offer the best solutions. Learn as much as you can about your potential customers. Also, look to gain more than a sale, [as] good advice goes a very long way and saves you resources.”
Another good recommendation is knowing whether your buyer is an importer or roaster. Depending on your capabilities, one or the other might make a poor choice of partner, as they might not be able to meet your needs.
From Juan’s experience, selling to an importer might earn you less, but it has the advantage of allowing you to pass transportation and distribution costs on to someone else. It’s also more financially stable. “Importers can make your coffee available to a whole country or region [and] create a client base for your coffee over the long run,” details Keith.
“You need to ask yourself what’s the cost of going and getting distribution yourself, [as] meeting and dealing with individual roasters on a large scale can be difficult for a large farm. A small farm only may need 3-5 buyers, but you may not have the budget to go and meet them, [so] it really depends.” he adds.
If your farm is small, you’ll have better luck with roasters, who are usually interested in small batches of high quality, and are often willing to travel far to get it. They’re also more likely to offer you a good price. However, bear in mind that “they’ll usually run a coffee for a season and then move on to another coffee. If they don’t buy from you next year, you need to consistently be looking for new customers,” says Keith.
Both Juan and Keith agree that selling to an importer makes the logistical aspect of exporting easier. However, if you choose this option you should be aware that it’s impacted by pricing and quantity, as many buyers will only be looking full containers.
Roasters offer a better price, but you must be willing to enter into a short-term relationship with them, and you may need to look for support companies to export and import your coffee.
Coffee cherries in a branch on a coffee tree at Fazendas Klem. Credit: Nicholas Yamada
Know if You’re Ready
How can you tell if your business is ready to make the leap into direct negotiations? As you’ll learn, it goes beyond having the desire to export your coffee, having the right equipment and knowing the right contacts. You need to define your product as a brand. “The right moment is when you have an excellent quality product, history, and visual identity to offer to the market. [You must have] something different, and you must have a defined production process,” states Juan.
As already mentioned, you also need to know exactly what kind of buyer you need, as once you enter into negotiations, things can speed up, and you might need to make major decisions sooner than expected. “Some coffee producers have excellent coffee but only small lots, and if the client is looking for big scale orders, they [will] lose negotiation time if [they can’t] deliver what they need,” says Juan.
You’ll know you are ready to look for buyers when “you can offer a final product and ship it…have an export license or have someone that can export it for you, and…can have the coffee ready to ship quickly (in bags, and labelled).” says Keith.
Coffee trees at Fazendas Klem. Credit: Nicholas Yamada
Know How And What to Sample
Whether you’re targeting roasters or importers, you’ll find them at international coffee events or business conferences. Most coffee producers kickstart the process by handing out coffee samples. However, to make an impression, you’ll need to take your sampling to the next level.
This requires honesty and consistency. “Your samples must be truly correspondent to the original lot”, suggests Juan, and last minute substitutions or replacements will not do.
“Don’t give samples for the sake of giving samples,” emphasises Keith. “In the beginning, I often gave samples to whoever I met, [but I’ve learnt] it’s not a very good use of samples. It’s important to get to know the roaster first. Have they sold your type of coffee? Do they have an opening for your coffee? How do they buy from your country – (directly [or] through an importer? Once you know that they could be a potential client…it’s good to…send them samples,” concludes Keith.
Sample inconsistency or not planning who to hand out samples to is a frequent mistake seen in coffee negotiations. Think of your sample as your foot in the door to a possible new relationship. To keep that door open, you need to produce a consistent level of quality in every sample, and target those who’ll want what you have to offer.
Person cupping coffee. Credit: Fernando Pocasangre
Know Your Worth
Pricing is a complex topic, dependent on a number of factors that will differ from producer to producer.
As mentioned earlier, it’s important to know all about your coffee, and this will include a detailed breakdown of what it costs to produce it. According to Vargas, you can formulate the most competitive price by “knowing [y]our production costs, additional costs, and [y]our profitability margins.”
Learning about the market for your coffee is also a must in order to set its price. “Know how your coffee scores, and how [it] benchmarks against other local producers’ prices for similar quality,” explains Pech. “See what other countries are selling at. [However, this isn’t] always the best [idea], because the cost of labour varies from country to country – i.e. Panama is US $18-$25/day while El Salvador/Nicaragua is US $8-10/day).”
From Johnson’s perspective, pricing is a major reason why producers must hone their negotiation skills, as knowing your worth will prevent you from settling for less than you deserve or have put in.
“When you give someone a price and they…go silent…try to find out why” he says. “Don’t be so quick to lower the price, but explain why the price is where it is. Last year I had the pleasure of attending Coffee Week in Brazil and was blown away when meeting with some of the farmers who could explain their business well, not only in production but cost and overall profitability.”
If you’re still unsure how to price your product, You can research coffee pricing in the specialty category through your local coffee institution. Alternatively, a recent investigation project called the Specialty Coffee Transactional Guide could assist you, as they collect and process data concerning specialty coffee roasters and their coffee negotiation prices.
Ripe and unripe coffee cherries on a tree at Fazendas Klem. Credit: Nicholas Yamada
Know What Skills You Need to Acquire
Getting into direct negotiations requires you hone your communication skills, so that every interaction goes as quickly and smoothly as possible.
“We must be transparent [and] have good communication between both parties to avoid problems during the process,” says Juan.
Keith believes communication abilities are key for successful negotiations, too. “Be patient, reliable, [as well as] open to working with many different people [and] making friends. It’s business but it should be fun, [so] know your stuff, be prepared, ask good questions, learn about your client’s business, learn about their local market…and of course, follow up, follow up, follow up!”
Cherries drying on a raised bed at Fazendas Klem. Credit: Nicholas Yamada
Developing business relationships is the foundation of negotiations. However, it’s also the future of successful coffee production for tomorrow’s industry.
As Johnson explains, “When buyers and producers see each other as partners, then sustainable relationships exist. Both buyers and producers should seek out the types of relationships they desire.”
All quotes from Juan Vargas translated from Spanish by the writer. Feature photo caption: An aerial view of Fazendas Klem in Minas Gerais, Brazil. Feature photo credit: Fazendas Klem.
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