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Working with small producers: lessons from sustainable sourcing

We recently landed our latest container of coffee from a cooperative of indigenous producers in Cauca, southern Colombia. The landed samples tasted great and were full of summer berries and a vibrant lime acidity that was simply delicious. On the table were a mixture of certified coffees, community coffees and small 3 to 7 bag Project 121 micro lots.

For those of you unaware of Project 121, it’s a project we set up a number of years ago to match small producers (average farm size of 1 hectare) to roasters. The idea was to provide a quality incentive to small producers by paying them a better price than the standard cooperative grade, and also provide roasters access to individual smallholder lots and give them exclusivity on a coffee they could share with their customers.

What’s interesting is that although it’s a great idea in theory, in practice it hasn’t always worked out. When I was cupping the Cauca Project 121 lots, it reminded me of a cupping 3 years ago of some Peruvian Project 121 lots which was a different experience altogether. Given that around 80% of global production is produced by smallholder farmers, it’s fundamental we understand how best to serve their interests and maximise their profitability so we have a sustainable industry. However, as this article will outline, in order to best serve the individual, we need to better understand how people come together and pool their resources – that’s right, we need to talk about cooperatives.

Working with cooperatives

IMAGE (left): Henry from DRWakefield and Iris Alvarado, 121 farmer & head of Capucas Cupping lab in Honduras. (right) 121 Project coffee sack

We will first look at what a cooperative is, our experiences in working with them, and how this relates to small holder farmers, through analysis of Project 121. I will share with you what has worked, what has not worked, and the reasons behind both outcomes. Although Project 121 is a DRWakefield project, the lessons we have learned over the last 7 years with the Project should be applicable to many other sourcing models.

I chose the term cooperative as it seemed the most apt for this article, but in reality, I could have chosen a number of terms. Perhaps it might be easier to think of what I am referring to in terms of any entity that represents a number (in coffee often between 50 to 1000) of small holder farmers. Why? Each origin has its own rules and regulations on what a cooperative is, what an association (another common type of group that is formed by small holder producers) is, what are the tax (or lack of) implications, who can join, and if you are member, your obligations to this organisation. It might surprise you but in some origins you can be a member of a cooperative, receive pre finance and technical assistance from the cooperative, but have no obligation to deliver all of your crop to them. As each origin has its own set of rules and nomenclature, I will use the catch all term ‘cooperative’ for the purposes of this article, as the points I will make are largely applicable to any organisation that represents a group of individuals.

Any cooperative is an organisation that represents a number of individuals. The individual members are the owners of the cooperative and the cooperative is seen as a mechanism to market and sell the producers’ coffee. The cooperative’s remit can also include other less obvious areas such as building local infrastructure (roads, health centres, schools) and providing pre-finance for example. Smallholder farmers unite as the quantity of coffee they produce is very small and by pooling resources they can achieve outcomes they otherwise would not be able to achieve on their own. A smallholder producer will not be able to offer an FOB (Free on Board) contract and you would not even want this as it does not make sense to have multiple FOB contracts with smallholder farmers as this increases the risk for all parties.

Cooperatives, through the expertise of their permanent staff, empower producers and deliver them a service which helps increase sales and get better prices for them over the long term. In order to do this in an organised and professional manner, there will always be a number of permanent staff employed by the cooperative to achieve some of the outcomes aforementioned. They are the execution arm of the cooperative, ensuring that the goals of the cooperative board’s (typically comprised by a small number of small holder farmers elected to be on the board and led by an elected president) vision is met. Their efficiency and attitude reflect the strength of the cooperative as they are there to execute its vision, agreed upon on by the board.

How a cooperative is structured in regard to its permanent staff and also in regard to the people not on the payroll, tells you much about what kind of organisation you are dealing with. The type of supply chain from picking cherry through to exporting the coffee is also telling. Does a cooperative buy red cherry from its members? Does it dry mill the coffee itself or does it use a 3rd party miller? Does the cooperative export its own coffee or does it use another company to do this for them? All of these details will have an impact-not necessarily positively or negatively-on the best approach one should take when sourcing.

The importance of a shared vision

Another key point to take into consideration is the values of the cooperative. If a cooperative is formed by smallholder farmers who have a short-term strategy and are purely self-interested, then this will shine through in the way that the cooperative does business. If the cooperative is formed by smallholder farmers who have a longer-term approach and share the same values, this will also have an impact on how the cooperative does business. The salient point here is know who you are dealing with; you will then be able to better understand their strengths and weaknesses.

In summary, organisational structure (i), supply chain structure (ii) and the core values of the cooperative’s members (iii) will all play a role in what kind of sourcing model will suit all actors in the chain; cooperatives play an important role in the supply chain both providing roasters with access to smallholder producers, and providing these small holders with services they could not do on their own and access to international buyers. Let’s now take a look at Project 121 and how the three factors we just looked at impacted on our sourcing experience.

Project 121

The purpose of Project 121 was to pay a better price for small, single producer lots with a minimum cup score, and find a roaster who was committed to that producer over the long term. The minimum cup score was there to ensure the roaster got a great tasting coffee, which would cup at least 84 points. We felt this was a better approach than simply choosing the tastiest lots on the cupping table each season as this sustainable model both gave farmers a level of security over the medium term (3 years) and roasters the opportunity to source a tasty coffee and build a relationship that went beyond the cup. We rolled out the Project with two cooperatives in Honduras, followed by a cooperative in Peru and then one in Colombia. It’s worked well in both Honduras and Colombia as the cooperatives there had the capacity to deal with smaller lots and the idea of the project was understood and in line with the core values of these producer groups. There are some roasters who are still sourcing coffee from the same smallholder farmers within the project and the added price premium they pay continues to have a large impact on the lives of the participating smallholder farmers. This has been amazing to be part of and we hope the project, and the relationships it has created, will continue to grow from strength and strength.

Lessons from Peru

In Peru, however, it was a different story. The permanent staff at the cooperative bought into the idea but they had 3 problems: they used a 3rd party dry mill where they were not a priority; farmers who were part of the project ended up thinking they were more important than the cooperative and wanted to sell all of their coffee at the price they were getting for the tastier coffee they produced for Project 121; and some years these farmers could not meet the minimum cup score.

Often containers we sourced for the project would have anywhere between 15 and 30 small lots of between 5 and 20 bags and in order for the dry mill to process these small lots, they had to dedicate the entire mill to process them, which would cause delays on other containers they needed to process. The mill was processing numerous containers each day and it saw the mixed Project 121 container as a nuisance that slowed down production. Producers that got good prices year on year began to feel more important than the cooperative and this conflicted with the spirit of the cooperative, where everyone is equal and treated the same. Also, even when producers could not meet the minimum cup score, they still demanded that all their coffee was sold at the Project 121 price.

One year we received a container that was very late as the mill had processed it right at the end of the season. Because of the delay some of the coffees lacked the brightness we would expect and some had aged. Also, some of the lots did not meet the minimum cup score. We were at a crossroads where we had to take action and find a way to confront the challenges our method of sourcing was presenting us, but also continue to pay smallholders farmers an additional quality premium.

What did we do? We spoke to the cooperative and asked them if they wanted to continue the Project. It was a quick no. They said they bought into the principles of the project, but in reality, it didn’t work. So, we went back to the drawing board.

There were essentially 3 main challenges: how to process quality coffee at the mill quickly, how to source coffee in a way that suited the values of the cooperative, and how to source quality coffee year on year. What we did was turn to bigger community lots and we used the cooperative’s own branding for higher cupping coffees called ‘Dios Te Dé ’.

IMAGE: (left) Henry from DRWakefield and cupping at Sol y Cafe. (right) Jeinner Vasquez, cupper at Sol y Cafe and Javier, Head of Export, from Sol y Cafe.

How it works is that every time a producer hands in coffee, it is cupped by the cupping team within 24 hours and assigned a score. If it cups above a certain score it is set to one side in a dedicated space in their warehouse and they are paid an extra premium for it which is funded by the higher price the cooperative sells the coffee for under their brand ‘Dios Te Dé’. This coffee is marketed as the crème de la crème of what the cooperative produces. The cooperative has full traceability on all the producers so it can also group these coffees into coffee from specific communities or areas if required.

Selling coffee in this way means that every producer has the opportunity every season to get a better price for producing higher quality coffee and the cooperative is able to meet the minimum cup score required, so that roasters receive what they are looking for. These ‘community coffees’ are also bigger lots, ranging from 50 to 150 bags: the 3rd party dry mill could process them in the same manner it processes full container lots. We have used this as a model with some producer groups where for whatever reason we feel it will be better to work in this manner as opposed to solely focusing on single smallholder lots. We were able to overcome the challenge effectively because we understood what went wrong and also the capacity and nature of the group we were working with.

Success stories

However, as mentioned earlier in the article, Project 121 has been a great success in Honduras and Colombia. This is down to working with cooperatives who have a strong organisational structure, have a certain degree of control over the supply chain up until the export of their coffee, and who have producers who share the same vision as the organisation they are part of.  There is not one single method that will work everywhere, but what can be observed across all the ways of sourcing is the need to know who you are sourcing from, and how they intend to source and export their coffee.

In summary, in order to effectively work with small holder producers, you need to understand what drives the cooperative that represents them and what are its strengths and weaknesses. Cooperatives are there to empower producers and provide a pivotal role in access to finance, finding a market for their members’ coffee, and providing technical assistance, to name but a few reasons. When you understand what kind of cooperative you are dealing with, you will be best able to make a judgment on what method of sourcing their coffee will work for everyone in the supply chain. As with all sourcing models, the best way to achieve this is by working with people over the long term as the longer you work together, the deeper the level of understanding there is between all parties, which will help everyone in both the good times and the bad. We still have some Colombian Project 121 lots available and we are currently sourcing new crop lots from the groups Capucas and COCAFELOL in Honduras, so get in touch if you’re interested!