- Freight On Board (FOB) prices can often be more than double what a farmer receives for coffee
- Consumers paying higher prices generally does not “trickle down” to coffee farmers
- Is a ground-up approach the only way to truly address the economic and social inequity in the supply chain?
DESPITE THE fact that the C price has fluctuated over the last few years – with some comparatively significant highs – many smallholder coffee farmers didn’t see a rise in earnings. Instead, they continue to earn the least in the value chain, and inequity in the coffee supply chain remains largely unaddressed.
In many cases, the argument in response has been simple: just pay more for coffee. But this is a reductive approach; in many cases, it reinforces existing power dynamics and perpetuates a cycle of rural poverty. In simpler terms, the issues in the supply chain and for many coffee-growing communities are too profound and complex to be resolved by higher prices.
To really understand this problem, we must look first at value addition. Almost all of coffee’s final sale value is added after it leaves the farm – and the majority of it is added once it leaves the producing country.
Martin Mayorga, founder of Mayorga Coffee, believes that “trickle-down economics” only works on a conceptual basis or when the financial structure is equitable. As such, paying more for coffee doesn’t effectively redistribute wealth or tackle deep-rooted inequalities.
“The supply chain in the coffee industry is essentially a funnel,” he says. “As the cash trickles down, the majority is captured by those closer to the market itself. We need to make the model more efficient and reward each player according to the value they’re each adding.”
A ground-up approach
Rather than simply paying more for coffee, a ground-up approach is needed to truly develop coffee-growing communities. This means focusing on sustainable, long-term development through providing technical assistance, education, and supporting valuable long-term infrastructure projects.
In turn, this will empower producers to add and retain more value within their communities, rather than relying on inherently paternalistic sustainability initiatives.
Under this approach, coffee-growing communities could receive the resources they need to tackle long-term challenges in a localised way – implementing solutions which achieve the most value for them.
This kind of model would empower farmers and provide them with the resources they need to improve long-term outcomes in their communities – meaning greater social and environmental development alongside retaining a higher percentage of the final sale price.
However, this kind of payment model is far more complex to implement – and coffee buyers need to realise that, as Martin explains.
“When communities depend on a monoculture this heavily, it touches all aspects of their lives,” Martin says. “It’s important to understand those socioeconomic needs and that simply can’t be understood by visiting one day a year for pictures.”
For Martin, fostering genuine and meaningful direct relationships between buyers and producers is central to a ground-up strategy. As well as enabling farmers to retain more value at origin, Martin explains that it eliminates intermediaries – “some of whom have managed to control the supply chain to earn more than the value they provide”, he says.
“With this streamlined supply chain, increased prices do translate to increased income for farmers.”
What does a “ground-up” approach look like in practice?
Mayorga Coffee has been implementing a relationship-focused approach for 25 years by prioritising the human side of coffee buying.
“I spent most of my time in Latin America as I grew the business because I wanted to ensure that I was learning the realities of the supply chain and developing trust-based relationships with producers,” Martin says. “That has led me to better understand their challenges, needs and opportunities, and has taught me a lot about coffee’s impact on communities.”
Martin explains that Mayorga takes a holistic approach to its buying relationships; the company focuses on improving farmer well-being, long-term economic security, and agricultural support.
As part of this, Mayorga works with agronomists who support farmers on a range of initiatives. This includes crop diversification, which helps farmers to become more economically resilient.
For instance, after a severe coffee leaf rust (la roya) outbreak in 2013, the company worked with farmers in Nicaragua to plant chia – helping them to diversify. As well as supporting them to grow a crop some knew nothing about, they also purchased and sold it.
With this in mind, in the broader context of how the coffee industry could approach providing support to coffee producers, and address the inequities in the supply chain, there is one crucial question: How do you fund initiatives like these while still staying profitable?
“We operate on margins that are about 50% of what small roasters are used to and about 10% to 15% below our large national competitors,” Martin says. “While this can be challenging, it allows us to drive value to the ends of the supply chain – consumers and farmers.”
At its core, an approach like this helps to address fundamental, structural issues in the supply chain, rather than simply pumping more money into the top and hoping it trickles down. Perhaps the reason this hasn’t been widely adopted so far is because it’s a much more daunting path to go down – and one which requires some sacrifice.
However, from where Martin is standing, it’s the only way forward – and it can only be successful if the coffee industry makes decisions based on “less greed and more equality”.
Coffee Intelligence
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