Why the private sector

Direct Trade , Sourcing
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A few days after I started at Intelligentsia in August, my new colleagues published this post to mark my arrival.  Although the move was one I had been eyeing for a while, the timing and nature of the transition caught some old friends and longtime collaborators by surprise.  Over the coming days, I answer the three questions that have arisen most often in my conversations related to my new role, starting today with the first one: Why would someone who has focused for so long on smallholder welfare go over to the private sector?

The sweet spot

From 2004-2016, I worked for a humanitarian agency leading projects at the intersection of coffee and international development.  In that sweet spot, I collaborated with roasters, traders, researchers, governments, coffee institutes, service providers and other non-profits.  I loved operating in that space and resolved to stay there.  So as each project cycle ended, I sought and found opportunities to lead new projects at the nexus of coffee and development.  Over time, however, I began to wonder what it would be like to stay in that sweet spot, but to work there on behalf of a different kind of actor — a market-based actor.  About five or six years ago, I updated my resume to include this career goal: “Play a leadership role with a development agency that thinks like a coffee company or a coffee company that thinks seriously about development issues.”

Why? Because over time, I came to appreciate both the acute limitations of projects and the unique potential of the market.

We heart projects

The coffee sector LOVES projects.  And with good reason.  Projects are often driven by the kind of altruism that we naturally find deeply attractive.  They tend to focus on people who are chronically vulnerable.  And they can generate vital quality-of-life improvements for people who need it.  What’s not to like?

A reliable barometer of coffee’s love affair with projects is the annual SCAA Sustainability Award, which in recent years has gone to projects that represent some of the worthiest examples of altruism and impact in the coffee sector.

Only, as someone who spent 12 years running externally funded coffee projects for a living, I never found projects to be particularly, well…sustainable.  My experience suggests that the best way projects can ensure the continuity of the activities they promote is for them to be embraced by the marketplace, incentivized financially, and embedded in business models, preferably in the context of long-term trading relationships.  (Needless to say, I was delighted when the Council announced just a few weeks ago a new sustainability award for business models.)

The problem with projects

The problem with externally funded, short-term projects projects is this: the incentives they introduce are usually artificial and always temporary, two conditions that are by definition the opposite of sustainable.

Projects introduce these incentives for good reason: to make the coffee sector more inclusive; to address the sources of the structural disadvantage smallholders face in a marketplace that rewards efficiency and scale; and to use the coffee trade to deliver more social impact.  The working capital, specialized training and marketing support that many projects deliver are almost always desperately needed for the kinds of farm-level reinvestment, enterprise development and market access smallholders need to participate more equitably in the opportunities created by the specialty market. Unfortunately, these activities are rarely tied to sources of recurring revenue or reliable market incentives, which means they often end shortly after the projects that supported them.

Which is almost always too soon.  Helping vulnerable smallholders achieve efficiencies and profitability at the farm level and independence and competitiveness at the enterprise level takes a lot of time and a lot of investment.  The more vulnerable the growers, the longer and more expensive the undertaking — long enough to make even the most patient capital weary and expensive enough to test the limits of the largesse of even the most generous donors.

Business models: It’s the market, stupid 

That is not to say changes catalyzed by projects can’t be sustained over time.  The projects I have found to be most successful in ensuring the continuity of project-supported activities beyond the life of the project are those that align project incentives most closely with the incentive structure in the marketplace.  They are the projects that enlist the collaboration of market-based actors who are committed to transparency and inclusion, solicit their perspectives from the outset, build those perspectives into the design of the project, relentlessly revisit market-oriented investments over the life of the project, sustain constant engagement with market-based collaborators and ultimately contribute to inclusive business model innovations.  They are, in short, the projects that help companies change the way they do business for good.  Precisely because these projects align their incentives with those of the marketplace that has marginalized or excluded their target populations, this kind of change is almost always more incremental than revolutionary.  But it tends to be more enduring precisely because it is implemented in the context of business relationships that are mutually beneficial and mutually profitable for everyone involved — a reliable recipe for sustainability.

After more than 10 years leading projects that worked to calibrate incentives and balance social impact with lasting change, I was eager for the opportunity to move to the other side of the table to help deliver market-based innovations for inclusion.

 

 

 

Posted in Direct Trade, Sourcing

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