What the coffee industry can learn from the ride-hailing revolution

ride-hailing app uber
  • Ride-hailing apps emerged in the 2010s as an alternative to local taxi operators
  • Like local traders, they have been vilified in comparison to alternatives
  • Combining the benefits of different models can lead to greater efficiency and innovation 

YOU TAKE out your phone, open an application, type in an address, and hit go. Within ten minutes a car arrives at the street right in front of you, ready to whisk you to your destination. There has been no exchange of cash, no need to explain where you are, and no surprise fees at the end of the journey.

Ride-hailing apps such as Uber, Bolt, Lyft, and Ola have transformed the way we use taxis. Rather than waving down a marked car or phoning a mini-cab service ahead of time, they have made using taxis more simple, convenient, and price transparent than ever before.

Although many, including Uber which is credited with kickstarting the ride-hailing app revolution, struggled to turn a profit for some years, their benefits over the traditional model were immediately clear to those who used them.

As such, they began to quickly steal customers from local taxi operators, which continues to be met with widespread backlash, from walk-outs to roadblocks. Yet in 2021, Uber drivers reportedly completed more than 6 billion trips across 80 countries worldwide, proving the undeniable success of the model and its continued trajectory.

To draw comparisons between ride-hailing apps and the trade of coffee may seem like a stretch. However, the fierce debate around local coffee traders and direct trade has a number of similarities, not least the habitual demonisation of local traders despite the greater convenience and efficiency they offer.

direct trade coffee

The myth of direct trade

Most economists agree that the emergence of platforms like Uber have made the taxi market more competitive, while benefiting consumers through lower prices and more efficient services.

Rather than relying on a local taxi or minicab company to travel from A to B, consumers can use the same app in numerous countries. The company, say Uber, benefits from its economies of scale to keep down prices relative to local operators, matches drivers to riders more efficiently, and offers greater convenience in the form of a centralised app.

The option on many platforms to carpool, in which multiple riders share the same vehicle, has also led to a more efficient allocation of resources across cities. 

This is similar to the benefits offered by local traders over the model of direct trade, despite the fact the virtues of direct trade are regularly extolled (and local traders villified).

The fundamental idea of direct trade is that roasters negotiate directly with the farmers to agree a fair price and pay them accordingly for their green coffee. It is typically with the intention of building fruitful, long-term relationships between the two parties.

Because it “cuts out” intermediaries, leaving as few hands in the supply chain as possible, it is often said to be more transparent, equitable, and likely to provide a sustainable living income than any other model. Instead of passing a percentage of profits to importers or exporters, it all goes straight into the producer’s pockets.

However, direct trade implicitly suggests that intermediaries, including local traders, are therefore not valuable, which isn’t true. Eric Andersen, who co-owns FreshGround Roasting, a US-based roastery, points out several issues that can arise with direct trade.

“Local traders are criticised because people don’t have an understanding of the benefit they bring to the equation,” he explains. “But they bring many benefits: expertise of the region, a range of customers able to buy many varieties of coffee from producers, and expertise in shipping and logistics that direct traders don’t always have.

“Trading directly with producers also doesn’t provide the economies of scale that a local trader can achieve. A local trader can benefit by, for example, shipping multiple containers of coffee to one destination. With direct trade, on the other hand, you’re most often shipping much less than a full container and have to share space, or find an alternative method of transporting the coffee, which can be extremely expensive.”

Edwin Martinez, a third-generation coffee producer and founder of Onyx Coffee Trading, agrees, pointing out the inefficiencies and expenses involved in direct trade.

“Economic sustainability requires efficiency,” he explains. “At a small volume, direct trade has complexities which are expensive. Most of the time, it requires resources that, for a small company, would be difficult to access. A high return on investment also needs to be guaranteed for assuming some of the risks that it entails.”

jute bag of green coffee

A happy compromise

Like the debate around taxis and ride-hailing apps, the argument concerning coffee trading shouldn’t be divided into two distinct camps. Instead, it should approach the topic with a view to finding the most efficient and fair model. 

Direct trade has clear benefits in the coffee industry, and has worked as a system for many roasters and producers. Importantly, it frees producers from some of the volatility of the C market – the global benchmark for the price of coffee – which is crucial for providing a fairer, more sustainable income.

However, unless buying significant quantities of coffee (or enough to fill a container) then it throws up several inefficiencies that tip the balance in the favour of local traders.

In this scenario, the argument about taking a cut of the profits falls down as, like ride-hailing apps, they are providing a service that ultimately benefits the supply chain. “No matter how you look at it, local traders need to make money,” Eric says.

But there is a balance. The virtues of direct trade and local traders do not need to exist in isolation. Indeed, Eric suggests that roasters can still take the time to build a personal relationship with farmers while also tapping into the economies of scale that local traders provide.

“I think the coffee industry needs to define what direct trade more clearly is. You can buy coffee and have a relationship with the producer and buy from that producer year over year, providing them with a solid consistent customer base for their product and still purchase that coffee through a local trader.

“At the same time, you’re reducing the risk that the producer is taking because a local trader has multiple outlets for a producer’s coffee. You do not need to manage all the logistics of transportation, shipping, containers, sampling, etc. in order to purchase directly from one producer.”

But does this translate to the ride-hailing analogy? Too right. Popular ride-hailing app Free Now allows local taxis to use its platform, while maintaining their ability to be hailed down in the traditional style.

In this sense, the competition between models will always bring new paradigms and help each other grow, improve, become more efficient, and embrace innovation.