Fixing a Bad Guarantee
In Part 2, we discussed the Fixed Price Guarantee created by the Federación Nacional de Cafeteros (FNC) in order to shed some light on how coffee is most commonly sold in Colombia. In essence, producers harvest, process, and dry their coffees before bringing them to buying points where they’re sold at the Fixed Price of the day, which falls generally in line with the New York Stock Exchange commodity price of coffee. Throughout this piece, to avoid confusion, we’ll refer to this as the FNC Price.
Due to its connection to the commodity market, this fixed price is woefully low, scarcely covering the cost of production for most. Beyond these inherently unsustainable prices, this type of buying is also bereft of traceability or producer inclusion. Once these coffees are purchased, they are typically assessed for quality via blind tasting. Those that are identified of high enough quality to be sold as premium products are separated off and marketed as such. Most likely none of this information, regarding the profits and the coffee’s final destination, returns to the farmer.
In recent years, there has been a growth of buyers (exporters) who have entered these local markets offering higher prices for quality first and foremost. This buyer diversification on the ground is inherently linked to the advent of specialty coffee buying more generally. In this piece, I’ll refer quality buying or specialty buying often. It could mean a lot of things, but for our purposes I’ll define it as a diversified buying system that was initiated roughly twenty years ago on the basis of paying higher prices commensurate with the cup quality, ideally in longterm relationships.
This type of buying on the ground level, however, is still in the minority. In San Agustin — one of the most famous and densest coffee growing regions in Huila — there are only two or three who pay prices consistently higher than market. I’ll present here two systems that I’m familiar with operating in or near San Agustin.
One of these diversified system operates by purchasing coffee at a private buying point on a small premium above the FNC Price, if it meets certain physical defect and quality conditions.
These coffees purchased at this increased price are then presented to buyers in or from consuming countries (depending on if they travel or not) who taste these coffees and make the decision of how much of a premium said coffee deserves. This premium is then awarded to the producer later on, several months later.
Systems like this exist in many place in Central and South America, and can result in significantly higher prices for producers. However, if coffees do not break a certain high standard for quality, they’re often not considered for purchase meaning that it can be difficult for producers to make the cut. Those who do will also have to be comfortable to wait for a premium down the road, without certainty of how much it will be. We can call this Fixed Price + Premium.
Second is the system of Fixed Prices. This is much more straightforward as it means that, after taking into consideration the physical quality of the coffee, it’s awarded a price that increases in relationship to the score it’s received in cupping (tasting). These fixed prices vary depending on whose offering them, but in these parts of Huila typically range from 50-100% over the Fixed Price Guarantee offered by the Federación. The positive here is that there is a fixed price for coffees that are good but not “great.” We can call this Higher Fixed Price.
A huge bonus here is that this system it doesn’t involve waiting — coffees of solid quality are purchased and paid for immediately. However, some producers may be intrigued to know if they can do better with a premium, or may find the Higher Fixed Price not high enough.
Barring a completely tedious description of cupping and cup scores, suffice to say that a cup score of 84 is considered Very Good, one of 86 to be excellent, and 89+ to be Outstanding. These existence of coffees at the upper end of this spectrum is scarce and prices tend to go very high for these. In this system of Higher Fixed Prices, 84-87 would be those that are found the most often and in the system of Higher Price + Premium, would err towards 85-89 or 90 points.
Both of these systems have and continue to achieve what quality buying (or specialty buying) aims to do. Namely, they hope to secure high quality product and to pay a higher price for it, directly to the producer or producers, while also developing a solid relationship that can be built on into the future.
This can no doubt have deep impact. If the relationship is handled well, and buyers are willing to commit to a grower despite the knowledge that their quality may suffer due to conditions out of their control, it can grant economic sustainability that they will never achieve otherwise.
Knocking On The Door Versus Being Inside
The effects of long term buying of quality coffees at a premium are evident the world over, but are far from common. A large set of intertwined and complicated factors leads to this, but chief amongst them would be a producer’s lack of access to capital, to knowledge of diversified markets, and to knowledge about the quality potential of their own product.
Specialty has come on with such force, it can be easy to forget how new this type of buying is relative to coffee’s existence as an internationally traded commodity. Though Erna Knutsen coined the term specialty coffee as far back as 1974, it wasn’t until about two decades ago that buyers in the Global North took it upon themselves to travel to producing countries to form direct buying relationships. As with anything new, growing pains and even outright failings have to be expected. In short, it would be glib to believe that simply paying more money for a product based on qualitative assessment would solve all issues. In many ways, this is likely the least that can be done.
The evidence of how far specialty buying has to go can be seen in the numbers from our past posts. In Colombia — despite being one of the foremost Latin American countries as far as investment in coffee producers and the international marketing of their coffee — 98% of growers still sell at commodity price.
Certainly, as with anything in the world, there are coffee producers who don’t attempt to access this market or to improve their quality and so on. As I’ve heard from producers and others on the ground in Colombia, there are a variety of options available for producers if they seek them out, but many choose not to. This is certainly a valid point — not all producers are motivated or interested to put in the work necessary to get to where quality buying wants them to be.
For those who do wish to enter however, let’s consider some of the hurdles they have to overcome.
As a small producer who’s interested in procuring better prices, capital has to be considered the number one roadblock. Figures show that between 60 - 70 percent of all the world’s coffee is produced by smallholder farmers, meaning this isn’t a problem isolated to Colombia.
The reality is that for many producers, earning enough money for basic food security is a struggle. While it’s not a requirement for coffee producers to have a well-appointed farm to produce quality coffee, for them to maintain the long term economic security provided by a specialty buying relationship, consistency of quality is highly necessary.
In order to achieve this consistency, they may wish to invest in their farms. Drying beds, depulpers, cleanable tanks, all of these are significant investments that many cannot afford personally. To paraphrase a leader in the industry speaking a few weeks ago, smallholder agriculture is far from a wise investment in the eyes of financial institutions. There’s too many ways that money will never come back, and so it’s difficult for producers to obtain loans or financing.
Consistency of quality aside, one requires capital to manage operational risk. Producers in San Agustin in August expressed to me how climate change related diseases and weather patterns make their lives more difficult. This summer, for example, unusually heavy rains persisted throughout the typical dry season, stripping cherries from trees and creating difficult conditions for drying fly crop output. Even producers with infrastructure and systems cannot defend themselves from such events.
Further, as many smallholders have lived with so little for so long, it can take years for producers to reach true economic sustainability or self sufficiency. We often see narratives in specialty of the producers who “with nothing” achieved a great cup and were paid well for it. This is a heartening and wonderful story, to be sure, but it can obscure or at least minimize the reality they continue to face as new entrants to the specialty market.
For those producers with the least resources, higher prices are likely going into paying down debts or investing in long denied necessities of life prior. Investment in the farm can only come once the hierarchy of needs is properly met, and the longevity of a buying relationship more so than the price paid will determine whether producers achieve true economic sustainability from quality buying.
It shouldn’t come as a surprise that, like everywhere in the world, those with more capital have more chances to succeed. As a coffee producer, your consistency access to money likely translates to more opportunities for education, which can lead to increased market access (i.e.. learning English), and allows for more infrastructure investment that can ensure higher quality.
Knowing Your Product
A common misconception I’ve run into with coffee consumers is that coffee producers know what their coffee tastes like, and thus its quality. While some may keep parts of their harvest for themselves, the vast majority of those who do only keep defective beans that they pan roast and drink filled with sugar.
The national industry works the same way, buying and selling low grade coffees roasted very darkly. Many producers likely don’t drink coffee at all, preferring the very common hot chocolate with their morning meal. This is a far cry from procuring their best lots and meticulously roasting them on expensive machines attached to computers to ensure quality and consistency.
For producers to be unable to qualitatively assess a product that will sustain their family on the basis of said qualitative assessment is difficult to say the least. In many ways, producers are beholden to the opinions of buyers. Cupping coffee is an objective way to assess quality, but it also puts those who can’t participate on the outside looking in. While I hope that all buyers would be above board in this process given this power imbalance, there are indeed cases when these assessments are done in bad faith in order to procure quality coffees at prices below what they’re worth.
In sum, despite all of the knowledge they have about growing and processing coffee, it’s difficult for producers to know with certainty that the process they follow will be guaranteed to produce a great cup — this can only truly be verified if they themselves gain consistent access to a roasting and cupping lab where they can taste their own coffees or if they are told their coffees score well by buyers.
Even those who do have this access or have a track record of producing quality will admit it remains difficult to the every changing circumstances throughout harvest. Hopefully, once they do find out they’re having success with their process, they can begin to systematize for better consistency. However, many growers continue their work often unaware of what they have or the quality premium it could achieve.
Knowing Where to Sell It
It seems obvious that if a producer does not know the quality of their own coffee, they’re unlikely to bring it forward to a quality focused market. However, even if they did know or expect the quality was there, it’s unlikely they would know how to access a market that would be interested in paying for it. Again, many consumers may assume that terms like “Direct Trade” imply a producer grows their coffee and sells it a buyer and that’s that. It overlooks the fact that — though possible for a Colombian coffee producer to be an exporter — exporting coffee is another incredibly costly and complicated business to navigate.
Most smallholders then must rely on a partner who will act in good faith to connect them with these buyers. As mentioned above, these options do exist, but there are many reasons why producers may not come forward to them. The buying point may be a long distance away and they don’t have access to a vehicle. They may distrust bringing their product to someone they don’t know due to misinformation or bad experiences in the past. Or perhaps they’ve brought their coffee forward before and its been rejected without much explanation as to how they can improve.
Specialty coffee is, first and foremost, a business. It’s part of the private sector and an offshoot of a commodity market. It’s aim is not primarily towards inclusion and access, though it hopes it can encourage those things. However, Colombia serves as an excellent example of how the boundaries of this system may need to be tested.
If producers with high quality coffees are in fact coming forward but are having their coffees rejected for failing to meet a stringent quality standard, it can of course leads these producers to feel there is no point to trying. Or they may simply distrust the whole process, believing their coffees are being scored unfairly in order to exclude them. Whether they are right in thinking this or not, the result remains the same — a producer who seeks to sell their coffee at a higher price, may only have one or two options available to them and a small error, from roasting to cupping, to defect sorting, may stand in the way between them and a longterm buying relationship.
Making Quality Buying Better
This series on Colombia began with a broad explanation of the history and the day to day realities of coffee production in the country. However, discussing Colombia provides a great lens through which we can observe the benefits and possible drawbacks of quality buying as a system. In my opinion, the ways in which quality buying needs to improve are plentiful, but this isn’t put forward to cast aspersions on how the system currently works. Rather, it’s an attempt to coalesce opinions and ideas I’ve heard from many more intelligent than I for the purpose of creating solutions.
And that in itself hints towards a key behind this system. As an offshoot of the coffee commodity system, specialty buying encompasses multiple similar forms of firm-led sustainability in which there are few unified standards. Basically, we have private businesses attempting to do their best but in a fragmented and individualized way. Without a harmonized general standard, and a corresponding lack of consumer knowledge about the coffee value stream, it can be very easy to tell a positive story that doesn’t align with real results, or is even based in reality.
Despite the shortcomings of Fair Trade and other certification systems, one advantage they have over specialty buying is their investment in a set of standards. There is a clear and enunciated rubric for what is being done, with reports that show the effects year after year. For the most part, specialty cannot claim the same, though we often argue we are doing better work. This is an incredibly complex problem with no single answer, however I would like to leave us with a set of questions to consider.
As an industry, are we satisfied with buying for quality if that means that our buying errs towards those who have the resources to achieve this?
Is it part of specialty buying’s mandate to seek to not only buy quality, but support producers to get there?
Who implicated should buyers be in maintaining/supporting producers in the ever-evolving task of coffee production?
What responsibility do we have to ensure that our buying is done in an equitable and balanced manner that supports broader communities, not only a few standouts?
How important is it to have a broader framework that specialty buying as a whole must conform to?
As always, thanks for reading. Please stay tuned for more and feel free to drop questions or comments through the chat function on the page or to email@example.com