t o n x . o r g

I’ve just returned from another round of travels and had the good fortune to spend some additional time with the people of Chicago’s Intelligentsia Coffee. Intelli’s senior bean geek Geoff Watts was the focus of an illuminating article on their green coffee sourcing in Thursday’s New York Times business section.

Geoff recently penned a lengthy response to some uninformed criticisms of Intelligentsia’s direct trade model that appeared in comments on the blog green LA girl. I’m reproducing his letter in full (after the jump) as it’s one of the best straightforward explanations of the real on-the-ground economics of coffee farming and the deficiencies of the current fairtrade model. It and the Times article are worthwhile reading (even for my four non coffee-obsessed readers).

Though much good has come from the fair trade movement, it is often criticized by progressives inside the coffee industry as disingenuously presenting a simple solution to an extraordinarily complex set of problems. A great wealth of activist energy is expended in the promotion of Fair Trade branded coffee in this country. It has arguably become one of the most visible cause-related marketing systems and may have more traction on many college campuses than environmental or antiwar movements. The anti-globalization movement in the US seems to have quietly receded, leaving behind little more than a feel-good caricature of activism embodied in much fair trade sloganeering.

The US licensor of the Fair Trade logo, Transfair USA, receives a significant royalty on every pound of coffee sold (the lion’s share sold by none other than Starbucks, the largest single buyer of fairtrade coffee globally). That money, which doesn’t go back to the growers (growers bear much of the cost of their own certification) is used in marketing campaigns, astroturfing (student advocates can receive $100/week for promoting FairTrade coffee on campus), and Transfair’s administrative expenses. Ethical, small coffee companies that don’t buy into the branding scheme often find themselves on the receiving end of accusations of supporting exploitation. (A recent article in Reason offers some insight into the controversy around fair trade coffee promotion.)

Read on for the wise words of Geoff Watts…

original post on Green LA Girl
Hiya,

I’d like to jump in with a few thoughts on the concept of sustainability as it works in specialty coffee. Since this thread came to my attention I’ve read through several sections of Siel’s blog and am happy to see that there is a lot of very insightful discussion going on…you can be sure I will be more regular reader now. These are the types of forums where new ideas get hatched and old ones updated or fine-tuned.

But first a quick introduction—my name is Geoff Watts, and I’m both an owner and the key coffee buyer for Intelligentsia. A few readers have posted criticisms of our Direct Trade model that appear to me under-informed, perhaps a bit malicious, and that reveal a lack of understanding about the on-the-ground efforts and buying practices of companies like Intelli.

It would be great to continue the discussion about what exactly ‘fairness in coffee trade’ entails, where quality fits in the picture, and what can (or should?) be done on both a localized and large scale basis to improve equity in trade and make coffee farming a sustainable business for both small holder and estate farmers.

Sustainability is of course a principle that is (has to be!) dynamic and whose parameters (not definition, but means of achievement) change depending on context. But it’s not mysterious—sustainability in coffee simply means:

1. that the producers of coffee are earning significant profit from the sale of their coffees and are able to invest, not just subsist.

2. that the coffee is being produced in a way that is not damaging the surrounding ecosystem and that the land is being preserved so as to be productive over generations.

Looking at this more closely, what really constitutes significant profit? Well, in my opinion the cost of producing “good” coffee (for this purpose defined as clean, free of defect, decently sweet and not displeasing—perhaps an 80 out of 100 on the SCAA scale?) is normally somewhere between 65 and 80 cents. The true cost depends on dozens of factors—is the farmer paying for labor, or is it a 100% family operation…is the farmer depulping the coffee and processing it, or delivering cherry…how far is the farm from the place of delivery, and how are the roads… what is the production per hectare… what are the input costs, and is the farmer currently paying interest on investment… what is the cost of living in his/her community… boy o boy, the list goes on.

But for this discussion, let’s assume 75 cents as the cost. To have any significant profit, the farmer must of course get more than this, straight in the pocket. If I’m a farmer, I want at least 1.00 per pound of exportable ‘green’ coffee of decidedly ‘average’ quality. In a typical FT scenario, $1.26 goes to the exporting cooperative and is distributed from there. Usually the coop will deduct operating costs—i.e., management/personnel salaries, utilities, rental of land, transport, export taxes, marketing costs, pre-financing costs, etc—and then deliver payment to the coffee farmers (often price averaged across the whole group and distributed based on volume delivered to the coop).

As one reader mentioned, this number is often below $1.00. (quoting MatteoTemprano, march 3rd: Many industry estimates of the average price that actually gets back to the individual farmers are inflated. I heard at SCAA last year that some NGOs were touting that $1.00 to $1.10 on average gets back to the farm household. This might be true in some cases, but there is no way that this is the norm). My experience has backed this—the norm is surely lower than $1.00.

Up to now the numbers I’ve been working with are based on ‘decent’ quality coffee, the old “80 point” cup…not offensive, but not all that attractive either. To consistently produce really great coffees involves more cost—significantly more. I won’t get into it now, but in my opinion $1.40 to the farm-gate (not the FOB cost, which means price at the point of export…this would be more like $1.65) should be more or less the beginning/floor price for very good quality coffee. Exceptional coffee requires even more.

The environmental component is also quite intricate, but can be simplified. To me the biggest abuses come in three forms: irresponsible use of chemical pesticides/fungicides/herbicides, improper disposal/treatment of tainted post-fermentation water, and the cutting of existing forest to plant full-sun coffee. There is plenty of coffee that is sold under the FT seal which does not comply with good standards/practices in these three areas, despite what anyone might claim. I’ll get back to this later. In any case, there cannot be real sustainability without adherence to good environmental practices. However, this can get tricky as well—take a place like Rwanda, ten years removed from one of the worst genocides in human history, still hugely overpopulated (one of the most densely populated in Africa), ravaged by poverty and disease, lacking basic services in most parts of the country…in a place like this, with so much work to be done, it would be a mistake as a consumer to fixate on such things as lack of organic certification, no bird-friendly seal, no shade-grown seal, etc…. since the priority #1 is to get people on their feet and in a position to live decently. Believe me a farmer doesn’t give a shit about the birds if his kids cannot eat, and rightly so. Basic needs must be met first. That’s not to say these guys are running around spraying toxins around their farms—on the contrary, most of them cannot afford chemical pesticides at all. The production in most cases there is quite healthy, environmentally speaking, despite the lack of any kind of seal, and the time to think about adding certifications (which, of course, also add cost) is after the people themselves have at least a very basic degree of stability.

But lets get back to the question that started all of this…namely, to certify FT or not to certify FT? I’ve made a decision for the latter after having purchased and sold lots and lots of FT coffees over the last ten years, although I still buy plenty of coffee from cooperatives in Nicaragua, Peru, Mexico, Rwanda, Ethiopia, Sumatra, Bolivia, and Colombia that are FT certified by FLO. And I feel great about it. Yet I still support the existence of Fair Trade, and most certainly believe in its goals (if not always the methodologies).

How to reconcile this? Well, it means creating a separation between several things—FLO, Transfair USA, Exporting Coops, and individual farmers. It also means looking at the difference between ‘commodity’ coffee and true boutique specialty coffee. In my opinion, the Fair Trade brand / model works alright for commercial quality coffee and for one might term ‘entry-level’ specialty. Once one gets into extremely specific, ultra-high quality coffees it begins to falter because it was not designed to deal with them. It is, essentially, a one-size-fits-all blanket program that is applied to an incredibly diverse range of different coffee farmers across the world.

One problem with this is that it does not address dramatic differences in production costs or cost of living, does not have any mechanisms to really reward added cup quality, and has not yet evolved to deal with inflation. In the HUGE majority of cases the FT price turns out to be both a minimum AND a maximum. Want proof? Check the export records for the two biggest suppliers of FT certified coffee in the world: Mexico and Peru. You will see a very long list of export contracts at either $1.26 or $1.41, but not much that is higher.

Why such uniformity in pricing for these coffees? Because quality differences are not actually being rewarded in any clear way. The FT model is, essentially, yet another commodity model…albeit a more equitable one than the traditional “C” market. As such it is, as your reader Matteo pointed out, more “fair” for some farmers than for others. The fact that it the FT price has been $1.26 for more than fifteen years and is the same for every farmer whether he/she lives in Peru, Rwanda, Sulawesi, Costa Rica, or El Salvador makes little sense.

But I am not out to disparage the Fair Trade brand or anyone involved with it. I have devoted my life to coffee for the last eleven years, and have personally met hundreds of farmers who would not be farming coffee today were it not for the price support they received from FT contracts during the crisis years of 1999-2004. I’ve watched cooperatives spring up in the countryside under the FT banner that have provided security for small farmers who had previously been on their own, at the mercy of the local exporters. I believe its existence is a good thing, and do not have even the slightest interest in tearing it down.

The only time I refer to it at all these days is when someone levels criticism at my business, my buying practices, or my ethics and uses FT as the example of what sustainability is supposed to look like. The only reason there is any reference to it at all in our literature is that it has indeed become the most recognizable standard in the US for ‘socially responsible coffee’. So we use it as a baseline against which to compare our own buying practices and standards, and it is very useful for our customers to know what the overlap or differences are between Direct Trade and Fair Trade.

So why don’t I put the sticker on my bags anymore? The biggest reason is that I do not think it makes sense for our company. To use the sticker, I must pay ten cents per pound (or less if I negotiate volume discounts with Transfair USA) for every coffee I sell with the sticker. This money goes to Transfair and is used to finance their operations—staff wages, marketing costs, building costs, etc. By paying this money, I am essentially paying for the marketing advantage that having the FT seal on my bag gives to me. The problem is, I don’t really feel that is an advantage at all anymore for our company, and would much rather take that ten cents and stick it straight in the farmer’s pocket. Ten cents goes much farther in Nicaragua than it does in San Francisco. We will do our own marketing, because we have a lot to be proud of and are, in my (admittedly biased) opinion doing some of the most progressive work out there with specialty coffee. That’s what I want to advertise…I choose to leave the FT marketing to be utilized by those who feel it brings them additional market share, which increasingly looks to be the multinationals more so than the little guys.

So, is what I’m doing called self-certification? Perhaps. Call it what you like. The fact is it’s not really certification at all. Direct Trade is simply a name, eleven tiny letters, that we’ve created to identify those coffees in our line-up with which we have the most intimate relationships. It is the name we chose to give a face and reference to the same work we’ve been doing for the last 6 years without calling it anything. You could say it is a model, but it is a model that is in a constant state of evolution. Every trip to every farm is learning experience and every year our understanding increases, the world pushes forward, the industry grows, consumer sophistication advances, and our relationships with the individuals who produce the coffees we sell become stronger and more meaningful. I expect our model to change every year, for the better, and to be fine-tuned to meet the individual needs of specific growers in specific situations.

Essentially, Direct Trade is exactly what the words imply—I work quite personally and regularly with the coffee growers themselves. I’m on the road eight to nine months every year with the express purpose of spending time with growers and figuring out how we can both continue to advance. I sleep in their houses, I bring them to Chicago to sleep in mine. We have each other’s cell phones on speed dial. Most importantly, we are constantly pushing upwards, with both quality and price. My commitment is to help growers improve quality by donating my own time to provide cupping training, helping to finance improvement of infrastructure, and working closely with the growers before, during, and after harvest to analyze results and find ways to improve, reviewing both the successes and the failures.

This is the essence of relationship coffee—a relationship is not a10 minute phone call every 6 months or a series of complimentary emails. A relationship is face-to-face interaction, mutual and vested interest in each other’s well being, and commitment. Putting a sticker on something does not make a relationship, and calling something Fair does not make it so.

I believe quite strongly in the slow food movement, and the basic idea of Direct Trade is constructed from some of the very same tenets. Check out the website if you are unfamiliar.

In any case the real keys here are intrinsic quality and taste, transparency, and sustainability. This is exactly what the Direct Trade program is about—full transparency in pricing to everyone in the chain (straight to the individual farmer ) promoting and helping to create exceptional quality coffees, and paying great prices that reflect the real value of these premium coffees and encourage their further production. It’s about long-term relationships and two-way education.

But don’t take my word for it. I also believe in peer review and track records as very good methods of verification. The real specialty industry (companies who are more substance less marketing) is a rather small place, and most everyone knows each other. There are some very good companies out there doing some very good work, and I think they deserve your support. Counter Culture in NC, Stumptown in OR, Terroir in Boston, Taylor Maid in Northern Cali, Sweet Marias in SF, Allegro in Boulder, Maruyama coffee in Japan, Kaffa in Oslo, and many more (don’t mean to leave people out, but this email is so friggin long already!!). Some do FT, some don’t. But they are all, in my opinion, doing extremely progressive and sustainable work. Check out the agricultural and aid groups like ACDI/VOCA, CIRAD, CIAT, and PEARL. I’ve done volunteer work with every one of them and have a great deal of respect for what they are trying to accomplish. Talk to folks like Nick Hoskyns at CafeNica in Nicaragua, a federation of cooperatives that is the best model of its kind and should be copied in every other coffee producing country. Want more? There are many great people laboring to make our industry better and demonstrate to other roasters, both established and up-and-coming, that a quality focused coffee model based on direct interaction with producers and prolific education in the consuming markets is the future of specialty. These people deserve your support and respect. You don’t believe me? Ask around.

In response to Lua, who wrote: “In the end, Intelligentsia’s marketing hype and self-promotion hurts the very farming communities it claims to help, opening the door for more industry-driven “certification” programs that go “beyond” Fair Trade - remember how well Yuban claimed to know good ‘ole Juan? Why can’t all “mission-driven” and “relationship” coffee companies just embrace Fair Trade as their starting point, get over their damn egos, greed and cynicism, and sweat the what-tastes-better and who-does-more later? Fair Trade can do only so much, the rest is up to each company - and each time these companies knock Fair Trade, they remove a brick from their own foundation.”

I do not know who this Lua person is, but I would like to talk to him/her. I feel it is terribly irresponsible to go around making assumptions and denigrating people or companies without taking the time to really investigate them or to understand the issues themselves. Especially in a public arena where the speaker hides behind a three letter name. I would like to hear from this person how Intelligentsia is ‘hurting the farming communities it claims to help’. I would like to ask this person how many times they’ve visited such farming communities, and what they really know about the economic realities of coffee production. But mostly I’d like to know exactly how Lua arrived at these conclusions about my company. I’m extremely proud of what we’ve done already and we’ve just only started. This is the vanguard of specialty—the small companies who are willing to roll up their sleeves and dig in, and who do not need to rely on anyone else to figure out what sustainable and ethical business mean because they are actively helping to create the definition. I have no interest in knocking FT, and I believe it has it’s own role to play in our industry as a price-support mechanism for decent quality coffee as well as to police the multinationals and help stimulate consumer awareness. But I will continue to challenge it, with an interest in pushing it to evolve, improve, and adapt to a quickly changing industry.

In response to Gernot, who wrote: “I’ve had a few contacts with big companies and they always tell you how green they’ve already become, but if you ask them for details, for numbers, the only thing you get is silence…”

Hi Gernot. I’m not really a big company, but I’m happy to give you details. Feel free to email me or call. I love to talk about coffee—it is my life’s passion. [Siel’s note — As an FYI for those who don’t follow the link to Gernot’s comment: Gernot was referring to multinational corps; he was commenting on a post about Nestle.]

In response to hmmm…, who wrote: “a side note-Cups of Excellence often have nothing to do with what farmers are paid for their beans. There are many documented cases of farmers being paid chump change for beans that an estate or broker takes along to a CoE and gets $20 a pound while the farmer still gets nothing. Furthermore, CoE’s represent special small lots that must be sold at the end of the auction and these purchases have no contractual tie-ins to the rest of that farmer/estate’s crop”

What exactly are you talking about “hmmm.”? Are you involved in the coffee industry as a retailer, a roaster, a barista, an exporter, an importer, a farmer? From where does your knowledge about the Cup of Excellence come? I would love to hear about these documented cases you mention. The CoE system is in my opinion one of the most transparent competition/auction systems out there. The traceability for lots purchased in the auction goes way beyond that of most certified coffees. Brokers do not receive the premiums for coffees sold at auction—it is the farm owner. Can there be abuse? I’m sure every system in existence on this planet has the potential for leaks (please don’t get me started here about FT and such). But this one is pretty darned water-tight. When you say these purchases have no tie-ins to the rest of the farmer’s crop, you miss the point entirely. The real value of the CoE competition is as a discovery mechanism for quality and a means of creating market linkages between quality-driven producers and those buyers who crave great coffee. It’s not about auction income, although that can be a huge windfall for producers and is inarguably the most effective system in the world for rewarding cup quality with excellent prices. It’s about the fact that these farmers have gotten their names in lights and have been introduced for the first time to the consuming world. The real benefit comes post-auction, when the farmers are courted by international buyers and the true relationship is initiated. Intelligentsia is just one example…I buy coffee directly from 11 producers in 5 countries who I connected with through the Coe, and have been working with some of them for 4 straight years. But there are plenty of other examples as well, not just with North American specialty roasters but in Europe and Japan. It is quite offensive to me that you go out and make these public assertions that criticize a program like CoE without actually bothering to fully investigate it and understand it.

Anyway, I suppose I have done a bit too much ranting already, and will happily shut up so I can go attend to my dogs at home. I hope that this message helps to stimulate further discussion on this issue, and I invite both Hmmm and Lua to please respond and let me know what your thoughts are.

If someone on this forum would like to reach me directly, feel free. You can email me at watts at intelligentsiacoffee.com.

In solidarity for the pursuit of true greatness in coffee,

Respect,
Geoff

This entry was posted on Sunday, June 25th, 2006 at 8:35 pm and is filed under Coffee, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.