De-commoditization ahead?

05/09/2007 - 3:06 PM
A few days ago, representatives from over 100 producer groups around the globe convened in the Long Beach Convention Center for TransFair USA’s annual Producer’s Forum held in conjunction with the Specialty Coffee Association Annual Convention.

A panel led by Jos Algra of Twin Trading, Jorge Cuevas of Sustainable Harvest, and Merling Preza Ramos of PRODECOOP focused on the growing demand for specialty coffee, and the emerging price premiums based on this growing demand. Jos demonstrated how regional and quality based attributes for specialty coffee are driving pricing for many significantly above the Fair Trade minimum and prevailing New York Board of Trade. High quality organic production in particular is giving some farmers leverage that has long been absent.

One of the oft-quoted factoids about coffee is that it is the second most heavily traded commodity behind oil. But, while oil is a highly capital intensive, non-renewable, and relatively non-differentiatable (when refined) commodity, coffee is produced in large part by small farmers, and has elements of terroir, a French term which describes the impact of land, climate, plants, and slope on end product. This variability and smaller-batch supply and demand matching is highly inconvenient for global food producers who want to buy in bulk. Think of the wine industry: imagine how much cheaper wine would be without its pesky artisan qualities. Still, coffee - unlike wine - is largely treated as a commodity.

Undoing this mindset is one key to wealth creation for small coffee farmers. Unfortunately (as Merling pointed out) it requires capital. Not the kind of capital that oil drilling and refining entails, but more than the typical coffee farming community can access. Many of these communities are still working on the basics – transportation, telecommunications and so forth; investment in the equipment and skill necessary to monetize the terroir is beyond their reach. An important function of the Fair Trade system is to support institutions which enable producers to meet and take advantage of specialty requirements.

Jorge asked how many of the producer representatives provided “cupping” services, one of the basics that allow buyers to assess a coffee’s merits at origin. He pointed out that “the growth of high priced coffee will ultimately be about quality, not philosophy.” Investing in this non-commodity way of thinking is an important way to lift farmers out of a market-based cycle of subsistence, and a key focus of Fair Trade. We hope to see this catch on for other crops such as cocoa as well.

As small producers begin to reap the rewards of the extra care that goes into their beans, they will become less vulnerable to commodity pricing swings. Someday, they may not need Fair Trade at all.
05/09/2007 - 3:06 PM
05/09/2007 - 3:06 PM