New pricing model developed to help coffee farmers earn a living income
Coffee farmer in the fields of Colombia
Setting a new standard in coffee pricing, Bellwether Coffee, the creator of the most sustainable commercial coffee roaster, Heifer International, a global development organisation, and Sustainable Harvest, a mission-driven specialty coffee importer, have announced Verified Living Income, a pricing model designed to meet coffee farmers’ livelihood needs.
Rooted in transparency, the new pricing model determines the minimum price farmers need to be paid for their coffee to earn a living income. The Verified Living Income model calls for three priority shifts within the coffee industry:
- Equalize power dynamics between buyers (traditionally “price-setters”) and producers (traditionally “price takers”);
- Evolve procurement practices to directly address economic sustainability at origin;
- Boost cooperation across the supply chain and invest in the future of coffee, ensuring that coffee production provides a dignified, self-sustaining livelihood for farmers.
“We all know and love the coffee these farmers produce, but people don’t realise the downward price spiral farmers are stuck in. Coffee can be a poverty trap, simply because the farmers who grow it are not paid adequately for their very valuable products,” said strategic initiatives manager: Coffee & Commodities at Heifer International, Cory Gilman. “We believe products like coffee are not sustainable unless they are tied to living incomes at origin. Coffee companies have a big opportunity to help end poverty in growing regions by paying verified living income prices, and our methodology shows it’s possible.”
To develop the Verified Living Income methodology, a pilot study was conducted in Tolima, Colombia with 38 smallholder farmers from the ASOPEP cooperative. Leveraging Heifer International’s extensive living income benchmarking expertise in the coffee industry and Sustainable Harvest’s deep producer relationships, origin staff, and expertise in the coffee industry for data collection, the pilot study showed that with an average cost of production of $1.33 per pound of green (unroasted) coffee, buyers would need to pay $1.89/lb. at the farmgate and $2.24/lb. Free on Board.
“The results of the Verified Living Income pilot programme highlight the need for further transparency and accountability across the coffee supply chain,” said cooperative manager at ASOPEP, Camilo Enciso Suarez. “Identifying the key factors that impact farm profitability is powerful, and pairing that knowledge with prices based on the true cost of production can transform farmers’ lives for the better.”
With cooperation from stakeholders at every level of the value chain, Verified Living Income can be a path to improve farmer livelihoods through alleviating economic instability in the coffee-growing regions and creating the value necessary for coffee production to be viable for farmers — today and for future generations.
“At Sustainable Harvest, our most fundamental belief is that the traditional coffee supply chain must change, and more value needs to shift toward coffee farmers. This has been our mission for nearly 25 years and Verified Living Income now provides an additional actionable standard that more roasters can adopt. The industry has a new opportunity to discover a Living Income price that can assure a sustainable supply chain for years to come; our role will be to help them navigate how to get there,” said director of sales at Sustainable Harvest, Monica Terveer.
“Verified Living Income marks a substantive change in the way the industry pays for green coffee. It is a truly transparent, economically viable method of determining how much to pay for green coffee, rooted in farmers’ livelihood needs,” said senior sustainability manager at Bellwether Coffee, Grayson Caldwell. “Committing to paying producers living income-based prices is not only a strategic investment, but also is foundational to a more sustainable and stable coffee industry. We call on the industry to join Bellwether in adopting the VLI pricing model and committing to paying living income-based pricing as a core procurement approach within their respective supply chains.”
The data from the Verified Living Income pilot indicated the need for Bellwether to increase the price paid to ASOPEP by 20%. In December 2020, Bellwether signed a contract with ASOPEP to reflect the Verified Living Income Price of $2.24 FOB. Bellwether has committed to implementing living income-based pricing throughout its supply chain, with the first milestone of all Latin American coffees targeted for completion by 2023.