- Last year, container costs were up 80% from 2020
- Similarly, rising prices since mid-2021 have affected roasters’ profit margins
- In some cases, ancillary costs like sustainability initiatives at origin could be under threat
THERE HAS been plenty of discussion about how ethical purchasing decisions are driving consumer behaviour, and what that means for coffee roasters.
For many in the specialty coffee segment, initiatives framed around socioeconomic development have been commonplace in recent years – reinvestment in coffee-growing communities has spanned from improving access to education and healthcare, continued technical assistance, investments in agroforestry and more.
For roasters, these programmes have helped to establish more secure and equitable trading relationships while also appealing to their buyers.
However, roasters are now facing inflationary pressure unlike anything they have experienced in over a decade. Covid-19 forced many businesses to restructure, and subsequent rising costs have caused a second wave of financial re-assessment.
For example, the price of shipping goods via sea has, at times, been over five times higher since before the pandemic. This is just one example of the rising costs roasters are having to deal with.
During such uncertain times, roasters must look more closely at how they are spending their money.
This could manifest in a number of ways. For some, it could mean purchasing cheaper coffee or restructuring their business model towards e-commerce and subscription plans. For others, however, it could mean cutting back on social impact programmes.
A commitment beyond resource allocation
Where businesses decide to cut costs depends on how they view and prioritise their social development programmes.
Typically, social programmes are funded through allocated profits recorded under the expenses column of the balance sheet. However, “smarter businesses are moving it towards the investment side – money for the future that we want,” says Daniele Giovannucci, co-founder and CEO of the Committee on Sustainability Assessment.
If roasters consider social responsibility as an obligation and allocate funds accordingly, development programmes could be the first to face budget cuts. However, for businesses that recognise the broader benefits of their investment, both for themselves and for the greater social good, these programmes play a more central role and will less likely be cut back on.
In addition, cutbacks may depend on a roaster’s involvement in the program. For instance, if the funding is given to a partnering organisation, cooperative, or trader without direct involvement, it becomes relatively straightforward to withdraw the investment.
However, as roasters begin to have a greater footprint at origin, their involvement goes beyond portioning off a percentage of profits. In this scenario, withdrawing funding from a social program could be considered a last resort.
“For the entities that are serious about their commitments to sustainability, things don’t change that much,” says Daniele.
For these businesses, a commitment to social responsibility may have to be offset with price increases for the customer. Yet, in a cost-of-living crisis, this becomes a communications issue that must be carefully managed.
“Customers should be gradually familiarised with the costs involved in ensuring farmers’ incomes are sustainable and ethical,” says Daniele.
There are many different ways to approach price adjustments. For example, roasters are increasingly publishing direct impact reports that share how customer contributions are being used. As a result, consumers can be reassured about the premiums they pay and can establish a stronger connection to the value they receive.
However a business chooses to react, increased prices have raised the stakes. Finding the balance between maintaining affordable customer prices and generating enough revenue to support social initiatives is harder to strike than ever.
Locally embedded social programmes work
During such uncertainty, programmes that continue to be successful are ones that are locally embedded.
For example, Farmer Brother is part of a trading program called Project Direct. They create partnerships with cooperatives that forms a network of “promoters” – producers who are also leaders in their community.
Rather than delivering direct technical assistance, such as bringing in external agronomists, this model empowers producers with the skills needed to take greater control and ownership over their farms.
This shift not only promotes financial sustainability but also enables greater engagement and empowerment of local stakeholders, ensuring that programmes align with the specific needs and priorities of the communities they serve.
Furthermore, by avoiding expenses related to foreign travel and program supervision, roasters are able to reduce their operational costs.
Developing local capacity is also a way to build resilience against what is ultimately a volatile market. Long-term contracts with roasters are important for providing stability. However, empowering producers with more resources, knowledge, and skills means that they can diversify their revenue streams and more easily adapt to market fluctuations.
“Businesses can just leave any time and that leaves a void,” says Daniel Cifuentes, senior manager of sustainability at Farmer Brothers. “We want producers to empower themselves. What’s important is building local capacity and empowering people to be part of their own development – that is what brings good results.”
Ultimately, price rises force all businesses to reassess their expenditure. Even for roasters whose social programmes are deeply ingrained into their values and operations, it still represents another cost that has to be managed carefully. In most cases, transferring control to local stakeholders could be the way forward.