Why Direct Trade

Direct Trade , Sourcing
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Last week, I answered the first of the three questions I have fielded most frequently since I moved to Intelligentsia over the summer: Why the private sector?

Today I respond to the second: Why Direct Trade?

I was recently asked this question by a reporter, and in my response I borrowed from the wit and wisdom of Winston Churchill, who once famously said of democracy that it is the worst form of government, except for all the others that have ever been tried. Based on more than a decade of experience working with and for smallholder coffee growers in the field and in the marketplace, I feel the same way about Direct Trade: it is the worst approach to the coffee trade, except for all the others that have ever been tried.

My decision to go to work for a Direct Trade roaster wasn’t a foregone conclusion. During more than 12 years leading projects in the coffee sector, I collaborated with lots of different kinds of companies and engaged with lots of different kinds of business models.  The one that seems to me to offer the most value to growers is Direct Trade. It isn’t perfect, but there are four elements of the model’s value proposition that make me feel about Direct Trade the way Winston Churchill felt about democracy.

The first of these is quality. Of all the different strategies to help growers create and capture more value at origin, I have found the most reliable and enduring to be cup quality. It isn’t dependent on any altruistic impulse — it is where the search for flavor for which we are hardwired leads us naturally. It doesn’t require third-party validation — people decide for themselves what they like. And its value doesn’t lie in symbolic indicators that are independently verified but invisible to the consumer — it lies in the intrinsic quality of the coffee itself and attributes that people can taste. While it is true that the limited demand for the highest qualities of coffee is remains a constraint on the impact that Direct Trade can create for farmers, that demand is growing and has proven to be remarkably durable.

The second consists of the financial incentives Direct Trade creates for quality. The entire Direct Trade enterprise is based on the provision a superior product. Direct Trade understands that you get what you pay for. That sourcing the world’s finest coffees costs more than doing business as usual. So Direct Trade creates clear financial incentives for growers to improve quality. My experience suggests that these incentives aren’t just a powerful source of motivation — they are also a meaningful reward for growers seeking higher returns in the marketplace for the effort they exert at origin.

The third are the long-term trading relationships that are the hallmark of Direct Trade.  The stability of these relationships, rooted in mutual commitment to quality and value, is central to Direct Trade’s promise of consistently pushing the frontiers of flavor.  When growers and roasters are confident in both the future and the mutual benefit of their trading relationships, they are most likely to commit to the kinds of investment and innovation necessary to sustain and improve quality.

But I believe the biggest source of value for growers may be the D in DT. There is simply no substitute for the face-to-face engagement between the farmers who grow coffee and the representatives of the roasters who buy it — direct engagement that is part of any credible definition of Direct Trade.

At the most basic level, communicating directly increases clarity. The more intermediation there is in supply chain communications, the more likely there will be some degree of distortion. Just think of the dinner-table game Telephone. Even simple messages begin to get distorted in parties of five or six people. Now think of how much distortion there can be in a game of Telephone that conveys layered, nuanced messages.  In different languages.  Across multiple continents.  Asynchronously.  Things can begin to break down pretty quickly. Direct communications aren’t always easy, but they reduce pretty mightily the likelihood of misunderstanding.

Then there is the immense value of the information exchanged in these direct encounters. Over the years I have read lots of references in development literature to the importance of “market intelligence” for growers. But those accounts tend to reduce the concept market intelligence to timely information on market pricing. In my experience, if there is one piece of information growers have at the ready, it’s this one. What is harder for growers to come by — and consequently the source of endlessly more value — is information about what is going on in the marketplace generally: trends in consumption, taste and service. More valuable still are how those trends affect the demand of specific roasters in terms of quality, volume, delivery and communication. Most valuable of all are the gory details about how individual Direct Trade roasters do business: what grades of coffee they are buying and why, how they are using them, how they communicate around those coffees to their customers, how they see their own businesses evolving and what implications that evolution has for their grower partners.  This is true market intelligence — a radically transparent window into the way the business is run, a comprehensive conversation that situates the grower in the context of a broader business model, and a two-way exchange of actionable insight that informs the decisions growers make on the farm.

Finally, there are all the good things that grow naturally, almost uniquely, from this kind of direct engagement between growers and roasters: the trust and affection that are the foundations of long-term relationships of any kind, the calibration of vision that put the entire supply chain in tight alignment, and the willingness to innovate together and share the risks and rewards of those innovations fairly.

 

 

 

Posted in Direct Trade, Sourcing

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