Coffee is an integral part of our days, many begin their mornings with a warm cup. But how many of us stop to ask, where did this coffee come from? This question pops up more often these days as consumers become more conscious of the choices they make, but regardless, true transparency in coffee is still a work in progress.
The basic concept behind transparency is to allow consumers to know where their coffee comes from, but we also must ask ourselves, what about the other end of the supply chain? Do farmers know where their coffee is sold, at what price, and how can this information benefit them?
What is Transparency?
Transparency in coffee is majorly a matter of financial transparency, where the price paid to the producers is known to consumers and others along the supply chain.
The transparency movement originated with coffee importers sharing the Free on Board (FOB, the price paid to get coffee from the farms/processing units to ports) with roasters. This made many realise that the price paid did not match the prices paid to the farmer. The discrepancy between what the farmer is paid and what goes to the middlemen is what spurred the transparency movement.
To go beyond just financial transparency, there is a need for broader transparency along the entire supply chain so that each player at each stage knows exactly what happens at every other stage and this must be communicated factually and objectively within organisations and to consumers at large.
A lack of transparency in the coffee supply chain means that players along the supply chain, from producers to consumers, have little to no clarity on who is profiting from the coffee. This ambiguity can be taken advantage of by anyone along the supply chain – exporters, importers, traders, roasters – to exploit producers and add heavy profit margins onto the coffee that doesn’t reach the producer. A lack of transparency also enables roasters to falsely claim the quality of their coffee to undercut the competition and drive up their profits.
Barriers to Transparency
The primary concern for most businesses with opening their books is that they are apprehensive about sharing potentially sensitive financial information. Being open about prices leaves businesses vulnerable to competition that might step in to undercut their trade relationships.
While this is a valid concern, the best way to counteract this is to build long-term, trusting relationships with producers to ensure that the partnership between roasters and producers can withstand these challenges.
2. Which prices should be shared?
There are multiple ways to present the price paid for coffee and demystifying the coffee industry starts with a better understanding of the different prices that can be used as benchmarks for transparency. These prices include Free on Board (FOB), Farmgate price, and Return to Origin (RTO) price.
FOB is the price of milled coffee at the port, ready to be shipped. This includes the price of getting the coffee to the ports. However, this price doesn’t always reflect the true price paid to producers since it includes the price paid to millers, exporters, and other middlemen.
RTO is the percentage of the final price of coffee that remained at the origin. For example, if the RTO is 20%, then 20% of the final price of the roasted coffee remains where the coffee was produced. While this seems like a good metric, it can be misleading. The producer may not actually earn more as this depends on the margin added on by the roaster.
Finally, we have the Farmgate price which is the price paid directly to the producer. While this sounds like the best option for transparency, it lacks standardisation and can mean different things in different places. For instance, the Farmgate price varies depending on whether the producer sold the coffee cherries, green coffee with parchment, or fully milled green coffee. Farmgate price varies depending on the stage of processing and each stage comes with its own risks and losses.
While none of these prices are particularly straightforward, sharing at least some of these details is a step in the right direction.
3. Lack of context
Data is only meaningful when put in context and this applies to pricing information in coffee as well. Sharing the dollar price alone doesn’t give you information about the quality or quantity of coffee, the method of processing, or the unique supply chain journey of each coffee. Prices need to be supported with additional information to give the full picture of the benefit or profit at the origin.
The Value of Transparency
While most businesses are wary of sharing their sourcing information, there are several benefits to transparency, including:
1. Competitive advantage
By displaying quality and integrity, roasters and other coffee businesses can gain a competitive edge. An increasing number of consumers want to know more about their consumption and businesses that can provide this transparency stand out from the crowd.
2. Brand loyalty
Transparency fosters trust and this is true for customer retention as well. Retaining customers is a major goal for any business and by being transparent about sourcing, pricing, and quality, roasters can attract and retain long-term consumers.
3. Strong Partnerships
When transparency goes both ways and producers also know the final price and destination of their coffee, we can build stronger relationships between roasters and producers. When producers are recognized for their work and paid fairly, they attain the security to improve their farms through investments and stimulate innovation in the industry.
Final Thoughts: Abandoning Romanticism for Practical Transparency
At Era of We, one of our core missions is to empower farmers to be active participants in the supply chain. For them to truly take ownership in the industry, they must know what happens to their coffee after they drop it off at a warehouse. Relevant information such as pricing must be available to producers beyond the platitudes in corporate brochures and sustainability reports from the other side of the world.
Producers need to know how their coffee is being marketed and interpreted at all levels. For example, if their coffee is being appreciated as superior quality, the producer should be made aware of this, so they have a stronger bargaining position in the industry.
Of course, producers having more bargaining power may not be appealing to everyone in the supply chain, particularly those enjoying the status quo of a highly imbalanced exchange. Yet perceptions are changing as conscientious and progressive roasters and consumers are demanding two-way transparency, even if it comes at a higher price.
However, higher prices are only one aspect of two-way transparency. While paying a higher price to producers is an immediate and rather obvious solution to balance the scales, true inclusion and growth goes beyond pricing. Many talk about dignity when it comes to transparency and affording producers a better quality of life, but this veers far too close to charity and fails to address the inherent power imbalance in coffee.
Raising prices is a short-term solution. While increasing incomes for producers is important, particularly smallholder producers, how we do it and the motivation behind it is important too. The history of exploitation in the global south where coffee is produced cannot be addressed with price increases alone, since this perpetuates the idea of a benevolent foreign power coming in to ‘save’ marginalised communities and perpetuates neo-colonialism.
Rather, we should aim to level the playing field, so prices are based on value and utility and producers are active participants in trade and profits, which puts power back in their hands. One of the ways to level the field is to form direct, long-term relationships.
While paying producers a fair price is an important first step, the most sustainable solution involves empowering producers with the information they need to change the supply chain power dynamics — i.e. two-way transparency.