March 23, 2021

“Quality is directly linked to logistics”: Why don’t more major brands roast coffee at origin?

The concept of roasting coffee at origin is appealing. It shortens the supply chain, adds more value at origin, and ultimately supports a more equitable relationship between producer and consumer. In addition, there are a number of other commercial benefits, including lower operational costs (for premises, labour, utilities, and so on).

So, despite the fact that some roasters have started operations at origin, proving that it can be done, a key question remains: why haven’t more major brands and international industry players followed suit?

To learn more about the challenges, I spoke with four stakeholders who work at different stages of the supply chain. Read on to learn what they told me, and for more insight into why roasting at origin can be a challenge for larger organisations.

Read our first article on roasting coffee at origin.

A recap: Roasting at origin

In recent years, a relatively small but growing number of roasters have established operations at origin with the aim of shipping abroad to international consuming markets. 

The idea behind it is simple. By roasting at origin, you add more value in the producing country, resulting in higher prices and better profit margins for coffee growers as a result. The roaster also (generally) benefits from lower operational costs.

It can also lead to the producer having more ownership over their coffee. Alongside receiving a better price, producers are more able to see how their efforts at farm level translate to certain flavours in the cup. This can drive education and further experimentation. Selling to a roaster at origin can also provide more stability when the international market is more volatile.

Furthermore, coffee that has been roasted at origin provides buyers, roasters, and coffee shops with a way to differentiate themselves in a saturated market. Consumers are always on the lookout for more sustainable products, and research shows that they are more likely to buy products that drive social impact in some capacity.

However, despite these benefits, the vast majority of roasters operating at origin and shipping internationally are small to medium brands, rather than larger multinational corporates. This reason for this will naturally vary from organisation to organisation, but we have examined a few below.

Extra costs: Duties and taxes 

As with any industry relying on a complex international supply chain, customs duties and taxes are an issue for the coffee sector. Simply shipping a product from one country to another can incur a host of additional administrative costs.

Cristian Czar is the Managing Director at Czar & Co (UK) Ltd and a commodity logistics expert. He says: “Traditionally, most agricultural products are exported raw to the consuming market where they are processed. This is for various reasons; sometimes the product has to be prepared in a certain way, and often you have import tariffs for the processed version.”

This is true for coffee. While both green and processed (soluble or roasted) coffee are duty-free in the US and Canada, importing roasted coffee into many other major consuming markets is a different matter.

In the EU, there is no import tax for green coffee, but most member states (all except Malta and Ireland) levy an excise duty on roasted coffee. As the EU accounted for some 34% of all global coffee consumption in 2019, this is a huge barrier.

The same is true in Japan and Russia. In both countries, green coffee can be imported duty-free. However, Japan levies a general excise duty of 20% on roasted coffee, while Russia has a 10% tax with a minimum of EUR 0.20 per kilogram.

Alongside added costs, quality control and certifications can also be an issue. Kevin Morales is a Commodity Trader at TRC Trading. He says: “Importing a manufactured food product into Europe [for instance] can also be complex versus importing raw food products.

“Typically, manufactured food products such as roasted coffee have to go through several quality control barriers. This makes it difficult to import roasted coffee.” 

These quality control barriers can also incur additional fees as well as slowing the process of exporting down, altogether making it a much less desirable proposition for larger commercial roasters.

Coffee should be fresh

Logistics and shipping are already two key considerations in the traditional coffee supply chain model where coffee is exported “raw” from origin and roasted once it arrives in the consuming country. This is because long-term delays at ports or warehouses can lead to decreases in coffee quality; humidity, heat, and oxygen can all affect the quality of green coffee.

However, with roasted coffee, logistics and shipping delays are even more of a concern. This is because coffee has a much shorter “shelf life” once it is roasted. Freshness is high on the agenda for both retail and wholesale clients worldwide, but preserving it when shipping roasted coffee internationally is very difficult. 

When you also consider also that there are other issues and possible delays when importing a “manufactured” food product (as Kevin mentioned), it becomes a much more challenging proposition to ship roasted coffee internationally in a timely fashion.

Cristian adds that this has become more difficult in recent months. “Particularly because of Covid-19, we have seen a bottleneck in shipping and a shortage of lorry drivers,” he tells me. “So for roasters, the logistics itself to transport even just green coffee from origin to roaster is more difficult than usual.” 

This shows that logistics is already a pressing concern for roasters and green coffee in consuming countries. Those seeking to export roasted coffee directly to consumers or other businesses will only see these logistical delays as another hurdle.

Pedro Henrique Dutra is the Head of Sales & Marketing at Fazendas Dutra, an organic specialty coffee farm and roastery based in Brazil. Pedro tells me that Fazendas Dutra operates a small roastery, Café Dutra, on-farm.

However, despite the fact that Fazendas Dutra exports green coffee elsewhere around the world, Pedro says that the Café Dutra roastery “focuses on the domestic market”.

For Pedro, this is because “the main challenges of roasting coffee at origin are quality and logistics”.

“Specialty coffee should be consumed fresh once roasted (after degassing), meaning that quality is directly linked to logistics,” he says. “When shipped in containers by sea freight, coffee has an average landing time of approximately 30 days after shipping.

“In contrast, air freight has an average 10-day delivery time, but the logistical cost is very high, which can cut into profits and end up making international sales infeasible.”

Jacob Elsborg is the CEO of African Coffee Roasters, based in Kenya. While many roasters at origin recognise that air travel is the best solution for maintaining freshness when roasting at origin, Jacob’s team relies on maritime shipping to send roasted coffee from Kenya to supermarket suppliers in Denmark.

Jacob notes that transportation is an issue, but tells me that there are a number of innovative ways to preserve product freshness through technology. “We ship maritime, but nitrogen flush in our coffee bags to push out all of the oxygen. This method has helped us focus on maintaining freshness.” 

Existing infrastructure can make relocation less appealing

“Exporting a perishable product like [roasted] coffee can be costly and difficult without existing infrastructure and a partner abroad,” Pedro says.

Alongside logistics, quality, and any additional tariffs or costs, infrastructure is a huge point to consider for many large roasters.

Many will have existing networks and long-term, reliable supplier relationships. This alone can make opening a new business or relocating an existing roastery to origin much less appealing.

Jacob says that for African Coffee Roasters, the experience of establishing an export operation in Athi River (just outside Nairobi) was a heavily bureaucratic process.

“Before African Coffee Roasters began operating in Kenya, there was a lot of negotiation between the East African and European governments,” he says. “Between the financial difficulties and concerns about international shipping, all parties involved had to be convinced of the benefit of moving the operation and starting in Kenya.”

However, Jacob notes that in his case, the team has been able to overcome these barriers and establish a successful link between origin and their target consuming markets in Denmark.

“We work cohesively with retail supermarkets and a number of different governments and save on duties/taxes by way of supplying a high volume of roasted coffee,” he says.

Roasting coffee at origin can be a highly valuable proposition, and can hold benefits for the roaster, the producer, the coffee shop, and the consumer when it works. However, as with other non-traditional supply chain models within coffee and beyond, it’s not the concept that’s the issue – it’s the process of scaling it up.

This is not to say that there aren’t examples where major roasters have established a larger commercial presence at origin, either. The FNC’s Juan Valdez brand in Colombia is one particularly significant example. But while this shows that it’s certainly doable, it’s also a lot easier when you start by roasting coffee near where it’s grown, rather than relocating your business when you’re already successful in a consuming country.

For many large roasters, it will often be simpler to keep existing systems, networks, and supplier relationships in place. Whether or not this will change in the years to come remains to be seen. If it does, and if more value can be added at origin at scale, then maybe the coffee sector will be able to take a major step towards longer-term sustainability.

Enjoyed this? Then read our article about whether or not Covid-19 will mobilise producers to roast their own coffee.

Photo credits: African Coffee Roasters

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