January 29, 2020

What to Consider When Developing a Sourcing Program

Developing an authentic green bean sourcing program will require you to consider several factors you might not have considered before. 

For starters, you’ll have a responsibility to provide transparency in your pricing and interactions with producers. You’ll also need to understand that pricing transparency is key to ensuring producers remain invested in production, as well as to meet the growing demand for ethically produced coffee from consumers.

If your green bean sourcing program isn’t taking the above into consideration, it could keep your business from meeting its sustainable sourcing goals, fostering long-term relationships with producers, or doing its part to ensure the coffee industry functions profitably in the future. Here’s why you need to consider these factors when developing one.

Lee este artículo en español Crear un Programa de Compra de Café Verde: ¿Qué Debes Considerar?

Natural processed coffee drying in patios on a farm in El Salvador. Credit: Fernando Pocasangre

The Value of Authentic Sourcing

Coffee passes through many hands as it makes its journey from farm to coffee shop, and never before has its origin been as important as it is now to the people drinking it. Across the world, the millennial-aged population is becoming a driving force behind global economies, impacting how and why coffee is consumed.

For millennials, coffee is more than just a product – it’s an experience they connect to or identify with that goes beyond the drink itself. It’s important for them to know about the sourcing practices of the coffee they enjoy, that the workers and farmers involved in producing it experience fair treatment, and that they’re buying from a responsible business.

This is echoed by findings by Innova Marketing Insights, an international market research company specialising in food and beverage industry knowledge and insights. One of their top product trends for 2020 is storytelling, which involves positioning ingredients in the context of culture and tradition, sourcing methodologies, or processed methods.

I spoke to Kristina Madh, who is Founder and Head Roaster at Cloudland Coffee – a small batch coffee roaster in the USA that sources and roasts coffees from around the world. She says, “Initially when we first started the company, I think many of my customers were just concerned about which country [my coffee] came from…Over the years though, I’ve found that as I’ve shared background and stories about the coffee, the customers now are wanting to learn more about the producers and where the coffee comes from. Many often say, “tell me the background on this coffee.” I think there’s a growing movement of knowing where your food grows and a demand for learning more about where your food is coming from”.

You may also like How Coffee Roasters Can Use Direct Relationships With Producers

Coffee labourers weigh coffee at a farm in El Salvador. Credit: Fernando Pocasangre

Traceability & Transparency Matter 

While a sourcing program should always take into consideration consumer behaviour, it also needs to take into account the current state of coffee production. Environmental and pricing sustainability is critical, as it’s estimated that climate change could halve the amount of land currently available for coffee farming. In addition, the prices that farmers are currently receiving for their crop isn’t enough to cover their costs of production. 

Having attended coffee trade shows and events like the annual Producer & Roaster Forum before, Kristina has learned a lot about the negative impacts that a low C price will have on a producer, the agricultural challenges they face, and the resulting importance of environmental certification.

She explains, “as we’re willing to pay a higher price for the coffee, we’re also concerned about how it’s produced. We pay particular preference to those farmers who have gotten certified as organic or through the Rainforest Alliance…and as we grow as a company, it is important for us to stay consistent with how we source our coffee in order to be authentic to our customers.

Traceability allows the buyer to see where their coffee comes from, who farmed it, and how much was paid. In turn, it creates recognition for producers, so they can see what they’re doing is worth the effort and that they’ll be compensated for it. It can also help them develop a reputation based on the developments of their personal brand.

Without transparency, many members of the supply chain will remain in the dark as to who is profiting from the coffee being sold. This lack of information can lead to certain parties being exploited through low prices and hefty margins. 

Martin Mayorga is the Founder and President of Mayorga Organics, a company that seeks to eliminate systemic poverty in Latin America through direct trade with coffee producers. In his podcast, Cultivating Change, he discussed his thoughts on what happens when the interactions between producers and other members of the supply chain aren’t transparent.

He mentions that historically, farmers will be offered money for their harvest as well as loans from a mill or exporter. However, these loans will often come with a 27 percent annualised interest rate – which doesn’t benefit the producer.

“What these mills are doing [is] making money on interest. They’re paying producers less than market [value] and ….they’re gonna turn that coffee around and sell it at a major premium and the bulk of the profit. That’s been happening so long that these producers are in neverending poverty.

As can be seen, when credible price information is missing, there is less equity, and those who are uninformed or disconnected can be exploited. However, this can be assisted by encouraging a transparency movement in specialty coffee.

Natural processed coffee drying in raised beds. Credit: Julio Guevara

Bridging The Information Gap

Transparent Trade Coffee is an organisation that acts as a forum for direct trade roasters committed to transparency when dealing with producers, as well as a communication vehicle for consumers who want to learn how much of their coffee’s purchase price goes back to its origin. 

They believe that “if specialty coffee growers are supplying both excellent coffee beans and the credentials that support product differentiation, then the individuals and organisations that support coffee growers should develop programming that allows specialty coffee growers to better understand and therefore capitalise on these market dynamics.”

When entering into a relationship with producers to create a sourcing program, they need to be aware of what customers are looking for, market trends, and ways to improve their financial standing. Those who are best able to access, interpret, and utilise different market information sources effectively are most likely to experience an advantage from it.

Currently, many mainstream coffee producers don’t have access to training and also don’t know what their consumers expect of them. They also often don’t know what their coffee should taste like, or how production and milling factors can impact their coffee’s quality. 

There are many ways that buyers can help manage this. One way can be to encourage producers to cup their coffee, which can give them more information on what markets and buyers it suits, what price it could fetch, and how their production and processing can be improved. This can help them improve its quality and negotiate better prices.

Coffee bags at a warehouse in Ethiopia. Credit: Meklit Mersha

Green coffee buyers must get to know what things are like on the producer’s side in terms of what production and processing challenges they’re facing, in addition to any region-specific issues. By learning about this, you will better understand why it can take time for quality improvements made to reflect in a coffee’s quality. It can also show you exactly how climate and transport issues impact producers.

Getting to know producers better on farm level can also lead to a better understanding of what they look for in green coffee buyers. Using this information can help you implement procedures that emphasise good communication, payment, and transparency.

For example, once you’ve negotiated a fair price for your producer, you may want to expand your offering to them in a way that takes on more of their risk. You may pre-finance them to pursue other projects such as crop diversification, which can help them handle the impact of low coffee prices and potentially fund farm improvements and expansion. 

Elisa Welchez is Director of Marketing for Cafe Honduras, which is a Honduran coffee production and export business and host sponsor of this year’s Producer & Roaster Forum. She says that buyers should try to understand what processes a coffee goes through, by asking themselves if the farm takes care of its ecosystem, water, wildlife, and trees. They should also consider if the producer is thinking of how they can positively impact the lives of those involved in production, and how they as buyers can help make the world better for current and future generations.

She says, “I firmly believe that if more buyers ask [these kinds of questions], the [more] producers will be working on these issues, and ultimately, it will be a common good for everyone in the coffee world without forgetting the importance of coffee’s great aroma and unique taste”.

A person holding dried coffee cherries. Credit: Julio Guevara

While taking into account the importance of consumer trends, traceability and transparency, and the education gap can help you craft a successful sourcing program, these are not by any means the only factors that will shape it. 

It’s important to note that there will always be more to consider, and more ways to self-improve. Whether you are purchasing your green coffee online or travelling to origin, you need to remember that the supply chain is filled with complexities and that there are many financial considerations beyond price.

Enjoyed this? Then Read How Is Green Coffee Bought & Sold?

Feature photo: Coffee bags in a warehouse. feature photo credit: Fernando Pocasangre

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