Defining Direct Trade, Thesis Ch. 4
Direct Trade is a highly variable system devised by each company to focus on their particular concerns, but almost always these programs include long-term partnerships with their farms, quality control and paying well over the Fair Trade minimum price ($500 + PNYSE). The Direct Trade (DT) purchasing structure was pioneered by the collective efforts of US coffee roasters, Intelligentsia Coffee & Tea since 2006, and Counter Culture Coffee since 2008. Coffee roasters like Stumptown Coffee Roasters also use the term. Within the specialty coffee industry, these three roasters are often referred to collectively as the "Big Three of Third Wave Coffee" (Meehan 2007). More coffee roasters and craft chocolate makers have since adopted DT as a term and concept, as well as other concerned consumer groups nationwide. DT is a form of sourcing from farmers just like FT, but instead of social premiums and a price floor, DT maintains the central focus on incentivizing high quality crops from their farmers. DT is an alternative to FT certification (Mohan 2010, Palmer 2011), and represents the interests of consumers who disagree with some of the central elements of FT, like: stagnant social premiums paid to farmers, quality concerns, necessity of a cooperative structure, membership and yearly renewal fees.
Advocates of DT promote direct communication and price negotiation between buyer and farmer along with systems that encourage and incentivize quality. There is no agreed definition of the term, and, unlike FT coffee, a third party certification is not required. One benefit of DT to both the consumer and producer is that it cuts out middleman buyers and sellers, in addition to cutting out the organizations who control certifications like FT or organic. This shortens the bureaucracy and allows the farmers to receive a greater portion of the profits. Proponents of DT believe it is the best model of trade because it is built based on mutually beneficial and respectful relationships with individual producers/coops in the producing countries. In many cases, these consumers opt for DT over FT because they are dissatisfied with FT and seek more control over the specific details of their coffee ranging from the quality controls, to social issues, or environmental concerns.
Intelligentsia pioneered one of the first DT models to promote their in-depth business partnerships with their farmers, and Counter Culture Coffee developed their program under the title Counter Culture Direct Trade Certification. Like FT, Counter Culture sets a minimum price that they pay, but it also establishes a strict quality standard (Ethical Net 2013). Unlike the FT certification, Counter Culture does not require growers to be part of a cooperative, a requirement that excludes independent-minded and successful growers. Intelligentsia claims it inspects their farms to ensure that "healthy environmental practices" are followed (Intelligentsia Coffee 2014). Inspections address such issues as the use of herbicides and pesticides, disposal of wastewater, and maintenance of forest cover.
The chocolate company Taza says their environmental standard is a central pillar of their DT programs, and to satisfy this they work exclusively with USDA certified organic cacao farms that practice sustainable agriculture (Taza 2014). Numerous companies and organizations take a variety of approaches to DT. There is no way to list them all here, but in this chapter, I will explore the DT programs for Stumptown Coffee Roasters, Askinosie Chocolate, and Taza Chocolate.
Direct Trade Programs in Comparison
Table 1: Direct Trade Programs in Comparison
Table 1 maps out models of DT from specific DT companies against other programs to give an idea of where these different programs converge and differ. All companies visit their farms during harvest season. Some companies, like Stumptown, PT’s, and Intelligentsia, visit multiple times in a harvest to gauge the pre and post harvest processes in addition to the actual growing conditions. All of the companies pay well above the FT price, and are committed to improving crop quality. Where most programs diverge is at the specific implementation of their procedures. Environmental concerns and responses vary greatly among DT programs to the extent that some do not even mention them like Stumptown, Coffee Collective, OrganicFair, and Askinosie. Transparency is an issue that many DT programs focus on, but not all.
Each facet of DT programs addresses the following failings of FT. Under a DT program the premiums paid to farmers are no longer stagnant but dynamic and vary from harvest to harvest depending on the quality. Each program addresses quality concerns uniquely, but in all cases quality concerns are a central issue of DT. Cooperative structure is no longer required on the producer’s side, which opens up relationships to include single-estates, which are the most common type of coffee and cocoa farms. DT also does not require membership and yearly renewal fees. DT effectively reduces the levels of bureaucracy and red tape separating consumers from producers, and ultimately ends up paying farmers immediately at the end of the harvest. This is important because it gives the producers the ability to invest in the next cycle of crops and facilitates a quick turn-over, whereas with FT funneling the social premium through middle buyer can take much longer than a harvest season. At the end of March 2014, I took a tour of the Stumptown Coffee Roasting facilities. During this tour, one of the most striking things they said was that they view FT as a minimum wage system and that the price set in that system does not represent the true cost of production. In order to address the real costs of production, they engage in direct purchasing and go to the each farms on a case by case basis assessing the facilities and talking to the producers about what they need at each farm. This is the only way to truly meet the needs of the producers and invest in higher quality crops.
Applying Direct Trade, Stumptown and Askinosie
Stumptown is a DT coffee company started in Portland, OR in 1999, and Askinosie is a DT chocolate company started in Springfield, MO is 2007. Both companies have pioneered very similar DT programs for their respective bean. Both DT programs are predicated on upon pillars of improving cocoa/coffee quality, incentive based rewards to the farmer and transparency of the supply chain. These central ideas support the vision of Stumptown, which is “to provide the finest coffee experience possible with the assurance that the coffee was ethically bought” (Stumptown Coffee 2012). Askinosie has a catchier motto that essentially gets at the same ideas. They say “it’s not about the chocolate, it’s about the chocolate” (Askinosie Chocolate 2014).
In order to achieve the highest quality of their crop, both companies send representatives to visit each farm 2-3 times per year on average. In the FT structure, there was never any requirement for the consumers to visit the farms. Including these visits in the DT structure allows Askinosie and Stumptown to have intimate knowledge and awareness of the regions from which their cocoa comes. This also fosters a focus on building long-term and mutually supportive relationships with their farmers, which is a pillar of FT but lacks the follow through of personal visits multiple times a year. Early in the harvest season, they send representatives to build strategies for dealing with the specific cultivation needs of high quality coffee and cocoa along with the demands of each individual farm, and they do this together with the farmers. Then in the middle of the harvest, the representatives from Stumptown and Askinosie return to check in on the strategy and ensure all aspects of cherry selection and processing are top notch.
At the end of the harvest, Stumptown returns to taste coffees, discuss the outcome of that particular harvest, and reward a job well done as well as discussing options for the next year. Stumptown says, “We take the time to help prepare the coffees for shipment to help keep the coffee as clean as possible during dry milling and assist in the packaging process and encourage timely arrival at port” (Stumptown Coffee 2012). This is an important step for Stumptown to take control and carefully implement because the conditions of transportation can greatly affect and change the quality of the coffee. For instance, if the coffee shares a shipping container with another crop that has an infestation, the infestation can jump from one crop to the other within the container over the time of shipment. The FT structure lacks quality control checkpoints because controlling the quality is not important to FT. Additionally FT purchasing relies on third party contracts to deliver the beans from origin to final port.
Askinosie follows a similar protocol at this stage of harvest and production. After quality separation and controls for the cocoa, their farmers sign a contract agreeing that they are committed to healthful and responsible cultivation methods, which tackles their environmental concerns. Askinosie makes it clear that although many of their farmers cannot afford the expensive organic certification they make sure the cocoa grown is organic, pesticide-free, chemical-free, and grown in an ecologically responsible way. On top of environmental sustainability measures, they claim their chocolate is 100% traceable (Askinosie Chocolate 2014).
The next important step that Stumptown monitors intensively is day lot separation immediately post-harvest. This is a key component to cup quality because if the varieties or qualities of the coffee are mixed, this can change the entire flavor profile of the beans (Stumptown Coffee 2012). In the system Stumptown implements with all their farmers, the coffee cherries are separated into different lots on the day of harvest. Then they are separated by location on the farm and varietal. This is an extremely important step in ensuring that the individual characteristics of each lot can be defined and improved upon by suggestions. Those suggestions are backed by each lot being individually compensated according to their quality on the Stumptown cupping scale (Stumptown Coffee 2012). Stumptown pays more for lots that score higher, and feedback on day lots is a consistent loop between Stumptown’s green coffee buyers and producers to know what they’re doing on the farm level: which varietals, which processing methods, drying methods, and weather they can rely on (Stumptown Coffee 2012). They know which methods will achieve a better price and a long-term relationship with Stumptown.
Just like Stumptown, after these requirements are met, Askinosie has another quality control checkpoint in place where they can reject defective beans at the farm. This does not mean that the farmers can’t sell those beans to someone else; it simply means that Askinosie won’t buy them (Askinosie Chocolate 2014). Due to the long-term and direct nature of the relationship, Askinosie and Stumptown both aim to help identify and solve problems before problems arise by suggesting ways to combat disease and pests which could wipe out a crop, educating the farmers on the nuances of growing coffee and cacao, implementing crop diversification to maintain the richness of the land, etc. (Askinosie Chocolate 2014). Both companies control input on how the beans are stored before shipment, another detail that has a big impact on flavor. This affects flavor because they can make sure the beans are not inadvertently mixed up with other beans at origin.
To answer the FT practices of the price minimum and social premium, both Askinosie and Stumptown pay their farmers significantly above the per-ton FT market price. On top of that, they also profit share with their farmers. At the end of the selling cycle, which also happens to be the time to inspect the new crop, they visit the farmers and pay them directly (Askinosie Chocolate 2014, Stumptown Coffee 2012). Because neither company uses a broker, this is just another example of removing layers of middlemen. Incentive based rewards how Stumptown and Askinosie choose to reward their farmers for a job well done. Both DT programs include price incentives based on quality, which is determined both in the day lot separation and at the final port. Stumptown has a tiered pricing system which is geared to guarantee the farmer will get a larger premium than the farm gate price, and that premium will grow as the quality improves (Stumptown Coffee 2012). Producing great crops is expensive no matter the type, so the investment the farmer makes is taken into consideration for development strategies (Stumptown Coffee 2012). They know that certain steps require different costs for their producers and they want to compensate the farmers appropriately for better quality. Stumptown and Askinosie demonstrate a full understanding of the needs of their farmers by allowing flexibility between countries and farms, where FT cannot because it does not have an intimate relationship with the producers. Ultimately each farm is different and they respond to these differences by adjusting and developing their relationship with each producer on an individual basis with their specific goals in mind (Askinosie Chocolate 2014).
Transparency of supply chain is the last important step for both programs. Rather than negotiating a price with a broker or an importer, Stumptown and Askinosie settle on the price directly with the producer (Stumptown Coffee 2012, Askinosie Chocolate 2014) They understand the farmer’s cost of production, they understand their quality (and their potential for quality) and so they negotiate a price directly with them (Stumptown Coffee 2012). After that the costs of moving the beans, insuring the crop and all of the less interesting things get added to the price which was negotiated directly with the producer (Stumptown Coffee 2012). Both DT programs are not simply a way of saying that they negotiated the price directly with the producer, but it is also their way of demonstrating their long-term commitment and partnership. As the Kraft purchasing example from chapter 3 showed, it could be incredibly difficult to track both the beans and the cash flows of FT. FT lacks traceability and fails to foster the close level of direct relationships these DT companies maintain. FT also has a history of delaying payments made to coops because of transnational flows and the reliance on third parties, where DT pays each farm at the end of each harvest through a representative physically at the farm. Both Stumptown and Askinosie benefit in terms of the quality of their chocolate and coffee and in terms of social improvements in their farmers lives through DT. This is apparent on both companies website where they talk about different social goals they are working to achieve in different regions through school lunches programs (Askinosie Chocolate 2014) or bike relief funds (Stumptown Coffee 2012) to name a few. While FT certainly has regional social goals, the follow-up is poor as many academics have failed to prove the connection between FT and improved living conditions for FT farmers.
Taza
I have chosen to explore the Taza case study separately from Stumptown and Askinosie because it is very different from those two programs but most like the FT structure. Taza operates their DT program under five principles and three official certifications. The five principles of Taza’s DT program are: work exclusively with USDA certified organic cacao farms that practice sustainable agriculture, pay a premium of at least $500 + NY ICE price on the date of invoice directly to farmers, physically visit each cocoa farm or farmer cooperative at least once a year to build long-term, sustainable relationship, buy only cocoa from farmers and farm coops that ensure fair and human work practices, and never purchase cocoa from farmer who engage in child or slave labor (Taza 2014). Beyond these five principles, Taza Chocolate is the only DT company that I have found certifies their producers DT by a third party certification system. The certification claims of the third party are that firstly, direct relationships with cocoa producers, meaning they visit their cocoa producers at least once a year. Secondly, Taza DT certification requires that the price premium paid to cocoa producers be set at $500 above NY ICE price for cocoa beans (Taza 2014). Thirdly, Taza will only purchase high quality cacao. This means they source only the highest quality cocoa beans which are characterized by 95% fermentation rates or more and adheres to 7% moisture of less after drying (Taza 2014).
Taza is the only company I found that pays for a third party certification of their DT program. This could have something to do with how early Taza was founded as a company in the DT chocolate movement. Because Taza was one of the first DT chocolate companies founded in 2006, the lack of trade models beyond FT itself was few. So the certification could have been inspired by FT certification and have carried over only in Taza’s DT. Also is it useful to question whether Taza felt the need for a formal certification to match FT claims in the eyes of the consumer. While Taza is the most similar program to FT, it still retains many differences like there are no membership fees imposed on the farmers. Beyond that, they follow almost every other DT principle while still maintaining a direct relationship with their farmers and coops on a deeper level than FT consumers maintain. This is most apparent when comparing FT chocolate companies like Green and Black’s or Dagoba with Taza. On Taza’s website they posted personalized information and stories about their specific farmers to showcase a friendship, where Green and Black’s doesn’t have any personalized information on their farmers because they have never visited the farms or met the farmers personally. Just like Stumptown and Askinosie, Taza relies on the deeper and personalized relationships between their sourcing team and the farmer to work on improving crop quality and implementing quality controls. These two additional criteria seem to be the most difference between FT and DT models of sourcing for cocoa and coffee.
To sum up the overarching sentiment of DT, I turn to a mission statement from the Canadian company OrganicFair. In the outline of their DT program, they explainwhy they felt the need to establish their program in the first place. They say,
We do not feel the best way to accomplish this (ethical sourcing) is to align ourselves with large bureaucracies, that have also chosen to align themselves with very large multinational corporations looking to cash in on the fair trade ‘trend.’ For us this is not a trend, it is a stance, and it is an all or nothing belief structure. We do not feel that corporations that are, to a large degree, responsible for the plight of millions of poor workers all over the world should be allowed to high jack the fair trade movement by having a fraction of what they do be fair trade certified. We will not be high jacked and as such, we continue to do what we have always done, what is right, because it is what we believe to be right. We want our dollars to speak for us and as such we decide where it goes and what it does (OrganicFair 2012).
The feelings expressed here are common between each of the companies detailed in this chapter. Where FT seems both trendy and like a mask for the real problems, DT can hopefully stand the test of time and deal with the crux of the problem by improving the quality of crops from their farmers and at the same time improving their quality of life too. Stumptown, Taza, and Askinosie have all outlined the extremely rigorous and minute details involved with securing the highest quality beans, but in addition to all these checkpoints and harvest plans, it is the personal relationships these companies that have developed with their farmers that allow quality of crop to improve and demand higher prices for these better quality crops.
In summary, the strongest tool in accomplishing social and quality goals is the long-term and direct partnerships established between producers and consumers. While DT benefits the farms they work with more than FT, there are serious limitations on the scope of DT relationships that the few number of concerned coffee roasters and craft chocolate makers can make. Until more companies represent these ideals, the benefits from programs like this will remain far too limited.