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Adding Value to the Supply Chain

The first of this two-part series examines new categories of added value associated with specialty coffee, particularly specialty coffee sourced directly from individual farms in small lots through a transparent and traceable model. Part two will examine the challenges of maintaining competitiveness and authenticity in an environment that demands transparency.

By Rachel Northrop

As roasters, cafés and consumers opt to be more involved in sourcing their coffees by visiting farms and carefully evaluating samples of specific lots, exporters’ and importers’ roles in facilitating supply-chain logistics are also evolving. More origin travel, more containers subdivided into traceable microlots, and more farm and producer profiles mean that intermediaries who, in the past, focused on managing freight, customs and documentation, now assume new service-providing roles in addition to moving coffee from point A to point B.

The coffee industry has seen many categories of added value appeal to a range of consumers. For decades “cause coffees” and certified products have added value by providing customers with a social commitment in addition to a consumable product. Certifications add value by aligning coffee with consumers’ convictions – be they for fair wages, chemical-free agriculture, or support of a specific community.

Specialty coffee, by definition, adds value through cup quality that meets the Specialty Coffee Association (SCA, formerly SCAA) standards across dimensions of fragrance, aroma, body, mouthfeel and flavour, assigning the qualifier “specialty” to coffees earning a score of 82 and above.

In today’s coffee market, many of the social and sensory attributes that previously differentiated coffee by adding value are now viewed as baseline expectations. A broad cross-section of coffee drinkers have grown up with the terms “fair trade,” “organic” “sustainable” as normal rather than remarkable. To remain competitive in an environment where the added values of the past are taken for granted by many consumers, today’s coffee retailers, roasters and the intermediaries who supply them, are developing direct trade models to add value and create differentiated products by separating coffee into discrete lots based on where and how it was grown.

Understanding Direct Trade

Direct trade is a term whose definition continues to be much debated but always implies a connection between the original producer and the end consumer. Coffee labelled as direct trade indicates that the beginning and ending parties can easily learn each other’s names and interact, and that this direct information flow translates to a direct flow of the physical coffee. This is where exporters and importers are taking on new roles: by creating a supply network that corresponds to the information network for selling direct trade coffee.

In the mountains of Ecuador, exporter/importer Caravela Coffee, based in Chapel Hill, South Carolina, does more than buy and ship coffee from producers: they build whole containers that meet specific quality criteria determined by cupping score and profile. Starting with the soil on the farm, Caravela’s in-country team in Ecuador seeks out microlots from different producers to ship together. Contrary to past models of mixing coffee from different farms to arrive at an average regional quality, Caravela’s work as an exporter is in keeping those lots separate, very separate. “We have agents who go out and visit farms and producers and will do a diagnostic,” said Badi Bradley, managing partner at Caravela. “Everything has to go through our physical criteria. We’re about differentiating entire lots and maximizing income to the producers. We don’t tell them to wait until they have a twenty-bag lot to deliver it; we say, deliver every lot, as small as you can. A bad lot will bring down the other ones, but if you separate it out then you can identify a higher scoring lot.” Because lots are kept separate, exporters must also keep detailed records differentiating each lot to preserve the specifics of each separate lot’s value.

Direct trade coffees are marketed using narratives, therefore retailers, roasters, and consumers expect to have information about both the technical aspects of the farm and the cultural history of the producing family. The concept and practice of direct trade was catalysed then codified through the “origin trip,” where roasters and retailers travel to the coffee source to interact with producers and assess quality – social, environmental, and empirical. Sometimes roasters or importers organize these trips, but it is always the producers and exporters who now act as the hosts, turning their daily operations into stops on coffee sourcing tours.

Historically, supply chain actors providing logistics services of processing and container prep held roles that were mostly behind the scenes. Now, the procedure for stuffing a container is not just in verifying that all bags are of a uniform, specified grade or screen size, but that irreplaceable lots are labelled and packed correctly. Because direct trade microlots come from specific farms and are selected by buyers to meet multiple dimensions of criteria, they are not as replaceable as specialty coffee identified by region or cupping score alone.

Bradley and the team at Caravela manage the physical coffee and compile the corollary information differentiating each coffee, including photography and video footage. For a direct trade microlot coffee to be sold as such, it is not enough that it bears a certification seal or delivers a desirable quality; those added values are no longer enough to differentiate it. Direct trade lots are direct because they come with a clear and traceable back story, the kind that can be shared with consumers and adds a personal value not available from a logo or a flavour.

Ally Coffee, based in Lausanne, Switzerland, imports microlots of direct trade coffee from multiple countries, but their parent company, Grupo Montesanto Tavares, is based in Belo Horizonte, Brazil, where they export coffee from their network of farms. Ally began as an importer of coffee produced by these farms, which is direct trade in its purest form: coffee that is inherently traceable because it does not change ownership until it is sold to a roaster. For these coffees, a farm profile is already available. “People want to put a face with the product. They want to know as much as possible about the farm, farmer, and the product itself, which is why we created the farm IDs for each coffee,” Ricardo Pereira, director of Ally’s specialty division, told Tea & Coffee Trade Journal.

As an importer, Ally also facilitates direct trade coffee acquisition for buyers who have independently travelled to origin to source their own microlots and require logistics services for the specific lots they selected. “We’ve seen a slight increase in this type of transaction,” said Pereira. “But the cost is usually too great for smaller specialty roasters to invest in the full expense of travel and sourcing and then partnering with an importer for importing services, financing and storage. The ROI isn’t there for small lots of coffee to support this kind of direct trade.”

Which is why buyers are more likely to approach with specific parameters – farm micro region, varietal, processing technique, elevation, cupping score, agricultural practices – for sourcing custom microlots to brand as something completely unique. Importers, exporters and producers then work together to deliver designer coffee that meets those expectations.

Managing the Product Portfolio

Ally, like many importers, also manages a spot inventory portfolio of microlot coffees, all of which have full farm profiles. “People are drinking better coffee and they want to relate to that product,” Pereira observed. “Savvy consumers want to know the source of what they’re buying. By providing that information we‘re helping our clients tell that story.” These coffees, along with their roster of data, cater to the current surge of recently launched micro roaster operations. Rather than following an apprenticeship model of training under a buyer and roaster and then using that experience to inform a new business, many of today’s roasters and buyers have non-coffee backgrounds and a limited frame of reference.

This obligates the importer, often a new roaster’s first point of contact in the green coffee world, to act as an educator and consultant, in addition to managing the physical product. According to Pereira, “For people starting from the ground up, importers are the best resources. At Ally, we have an SCA certified lab to educate everyone in the industry. Education should go hand-in-hand with importing; it’s integral to how we do business.”

The need for information-based services tied to the trade of physical green coffee is prompted by the trend towards the productization of coffee. “The productizing of coffee is similar to what we have in wine,” said Sanjiv Bhatia, founder/CEO of Armwire Software, a dynamic data transformation and Integration software company that helps companies manage their demand and supply chains. “There has to be a way to communicate the characteristics customers are looking to evaluate on to satisfy their requests. Separating coffee into smaller lots only makes sense if each lot is branded as a product and that brand is valued highly enough to justify the added cost of producing in discrete lots rather than large batches,” he said.

Changing Roles in the Supply Chain

The parallel between specialty coffee and wine is often drawn to illustrate coffee’s complexity and how nuanced variables from terroir to roasting curve influence the final flavour. The parallel also applies to the establishment of branding. Today’s coffee farms are building the kind of name recognition vineyards use to sell premiere vintages of wine.

“We got first place in the 2016 Best of Panama competition and the highest price in the auction,” remarked Wilford Lamastus of Elida Estate in Boquete, Panama. The estate’s status as one of the top coffee farms in the country is due to equal focus on production and on building a brand through participation in competitions and professional organizations. “We produce, process, export; we host buyers, roasters, baristas, other farmers, and train competitors. I serve as president of Specialty Coffee Association of Panama,” Lamastus explained.

The days when producers, exporters, and importers only handled physical supply and roasters and retailers handled branding are of the past. Now, producers and intermediaries add value to coffee by isolating each lot as a separate, unique product, and communicate this through direct engagement with buyers and consumers, both in person and through various media.

“We visited a great deal of our buyers this year!” exclaimed Lamastus. In Japan, Hong Kong, Taiwan, South Korea, Europe and the USA, he and his son toured many of the roasteries and cafés where his coffee is served, shaking hands and taking pictures.

To continue to add further value to specialty coffee, direct trade supply chain actors must jump this eagerly into their new roles as travel coordinators, marketers, educators, and liaisons enabling the delivery of coffee that comes with a name and face.

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