The Truth about "Direct Trade" coffee

So you've bought a bag of "direct trade" coffee, complete with the farm name, but how much of your money actually gets to the farmer? Answer: Even the roaster you bought it from probably doesn’t know.

Coffee bags with ethical cues are everywhere now, but very few people in the supply chain (including your friendly barista) actually know who's getting paid how much. There's a reason for this. Let's try to demystify.

Is "Direct Trade" even possible?

Almost every specialty coffee roaster these days offers extensive claims on their website and packaging about so-called “direct trade.” We all claim to do our purchasing “differently” while knowing the farmers, etc. The reality is, almost all of these roasters will be carrying mostly coffees from farms and co-ops with which they have absolutely no direct connection. Typically a small specialty roaster will have 1 to 3 coffees on their offering list that come from farms with which they actually have something of a direct relationship. And even in cases where the roaster may know the farmer (or has even visited the farm), they typically won’t know what the farmer has actually been paid for the coffee. This is due to the inevitable coffee supply chain and all the middlemen involved.

Every single coffee from every single roastery in the global North will have gone through a similar supply chain: From farmer, to processor (sometimes the farmer will own their own processing equipment), to exporter, to importer (usually using a third party shipping company and a different third party warehouse), to roaster. Also, in the middle of this process a typical importer will have "hedged" this coffee deal against the New York Stock Exchange market price for coffee, offsetting risk while adding yet another layer of complexity and profit generation. This supply chain isn’t necessarily bad: These middlemen provide vital services and on average take a small percentage of profit. You almost always have to go through an importer to get coffee, especially given the substantial insurance considerations that come with international trade. However, these middlemen have competitive incentives to keep the prices they pay secret. They don’t want the roasters knowing what their profit margins are, and they don’t want other importers/exporters knowing what they paid since those competitors will try to undercut them.

In reality, though, there's no question who makes most of the profit in the specialty coffee supply chain: it’s the roasters. Farmers in most cases make barely enough to cover their own costs (a well documented issue). Exporters and importers make millions in the aggregate, but typically a margin per pound of 25 to 75 cents — nothing exorbitant. Specialty roasters, on the other hand, typically sell the coffees they buy for around 4 times what they paid for the green beans. Obviously this isn’t all profit — roasters have to pay operating costs in developed countries where wages and rents are higher. But still, it's pretty clear why small, medium, and large-sized specialty coffee brands and roasteries now sell for hundreds of millions of dollars.

Given this supply chain, it's worth asking whether "direct trade" coffee is really possible in the way that consumers imagine it, and whether many ethical promises are confusing or dubious (yep!).

Who gets what?

Skylark is slightly different in that we’re non-profit. That doesn’t make us immune to the industry-wide complications of sourcing coffee ethically, however. We of course have an inclination to support our own social projects and stay revenue-positive by purchasing coffees that are competitively priced for their quality. We can’t afford to put ourselves at a competitive disadvantage. Still, we exist for the primary purpose of making sure everybody in the supply chain as well as those involved in our charity projects is better off— our primary purpose is NOT to make money.

We also have an advantage: our buyer Micah has a number of longstanding relationships from his time working for a large South American-owned import/export company, and from his experience as a coffee buyer in Africa. Still, we can’t get all of our coffees from these relationships. The seasonal nature of coffee (and the requirements that some of these relationship coffees now bring) mean that we have to buy about half of our coffees from farms that our importing partners recommend to us. That means we don’t know the producers personally. We think it’s important to be transparent about this, and this also highlights the importance of having reliable importing partners that we can trust. 

So who are our importing partners? So far we’ve worked with three different importers: Ally, Falcon, and Raw Material. They all have various strong suits that have given us a quick and excellent basis of trust. Ally Coffee is Micah’s old employer, and this is where we get most of our coffees from farmers with whom we have long, preexisting relationships. Since Micah used to be in charge of buying some of these coffees (and had access to the contract details for the rest), we know with reasonable certainty what the farmers were paid. 

Falcon was one of our first ports of call when we started Skylark, since their main offices are just up the road from us in Lewes. It isn’t just the proximity though —Falcon are on the forefront of price transparency while investing in farmers and their communities. In the last few weeks, Falcon have started rolling out a very cool new kind of price information for the coffee’s entire chain of custody, and they aim to increase the number of coffees for which this data is available. Likewise, we will start providing this information to our customers as soon as it’s available in an easily digestible format like the one below. This is pretty groundbreaking stuff, and we’re very excited to help share previously private information. You might soon be able to easily answer the question: How much did the farmer get for this cup of coffee?

Finally, we source some of our coffees (like our delicious decaf) from Raw Material. Raw Material are a Community Interest Corporation, which means they are legally a social enterprise not dissimilar to ourselves. They return excess payments to the farmers who provide their coffees, which you can read more about here. Therefore, their incentives are once again aligned with the farmers rather than large scale profitability.

How to scrutinise ethical claims

So this is our current patchwork of solutions to get a price that is transparent as possible for coffees often sold as “Direct Trade.” We think this is just about the best approach possible for a roastery smaller than 10,000 kg per year. But what is a consumer to do with this information, and who should they believe? We recommend a couple steps that we also follow ourselves:

1) Look at incentives: Are you buying from roasters that are legally non-profit, social enterprises, etc., or are they for-profit companies that are looking to capitalise on marketing buzzwords? There's nothing wrong with turning a profit, of course, but we all know how exploitative coffee can be while much of corporate social responsibility is often more about marketing than substantive change. 

2) Are the roasters transparent about how the coffees are sourced, and who their middlemen are (or even about the fact that middlemen exist)?

3) Are there specific, numbers-based promises and reporting on the roastery’s website, or do they just make vague statements about “sustainability” and “relationships”?

Ultimately, buying coffee from any specialty coffee company is likely to be more sustainable (for both people and the environment) than your average supermarket coffee. However, we think it's important to be honest about the limitations of “Direct Trade” coffee, and to tell our customers exactly what we’re doing differently. You should be able to see this clearly, too.