Expert Insights -- On Direct Trade by Ashley Prentice - Ally Coffee Merchants
In the past years the trend for direct trade has increased, and in contrast, the definition of it has become ambiguous and even misused. While direct trade is not a regulated certification, and the definition and practices may vary from buyer to buyer, the essence of what it should represent is ‘The Direct negotiation of terms and prices between a buyer and the farmer that grew the coffee. ‘ Ideally I might add ‘with the goal of building a sustainable business relationship.’ While direct trade can add value to a business in many ways, there are various questions and issues to consider. This short commentary is designed to address a few.

Can anyone engage in Direct Trade?

For a roaster, direct trade can be challenging and expensive. And the more diversified the offerings the harder it is to maintain relationships with all the producers from around the world. Before being drawn into the novelty of direct trade one needs to ask oneself – Does this kind of business model make sense for my business? Do I have enough resources to invest in maintaining direct trade relationships? And finally, do I have the correct partnerships to assist me in the process?

How can I start sourcing directly?

There are many ways to meet a producer to start purchasing coffee directly: Traveling to origin, attending an International coffee conference, participating in origin auctions, through a trusted importer or exporter, or through a vertically integrated company. Some companies have the competitive advantage of managing their own supply chain, whether roasters owning farms and mills, or farmers importing their own coffee. In today’s global economy, this is becoming more and more prevalent, hence, making direct trade more approachable.

How does Direct Trade Add Value?

Traceability – The coffee can be traced back to the region, farm, processing techniques, and varietal. Direct trade allows us to learn the story and idiosyncrasies behind the coffee being bought. Furthermore, by sharing the coffee’s ‘story’ the perceived value of the coffee increases in the view of the consumer, as they get educated on what’s behind their daily cup of coffee.

Transparency – This is really the key to sustainable partnerships. Transparency in prices, terms, and growing practices will ensure that the coffee is ethically sourced.

Feedback – Farmer’s take a lot of pride in growing coffee, being recognized and receiving feedback adds value to their hard work. Furthermore, the sharing of information can be mutually beneficial in a direct trade relationship. Roasters learn about growing practices and issues at origin, and vice versa, farmers learn about roasting, brewing, and consumer’s preferences. Feedback does not mean however, that a buyer can impose practices on farmers without the correct incentives or scientific research.

 

What are the challenges with Direct Trade?

Partnerships - Finding partners to facilitate the movement of the coffee efficiently from an origin to your Roastery is a critical step in the process of sourcing directly (i.e. exporters, importers, logistics, warehouses, etc.)  The exporter will oversee and ensure the coffee gets to the port efficiently (In some cases the farmer himself), and the importer will oversee logistics and finance the coffee, making each essential players in the process.

Financing – This is a key point that should never be overlooked. In most cases roasters will not be able to finance the coffee themselves, so they will be looking for an importing partner to assist them. As a roaster you should be asking - who will finance the coffee? What are the payment terms? How soon will the producer be paid? Being an annual crop (some countries harvest bi-annually), farmers that focus solely on coffee are subject to ‘thin months.’ Meaning that, technically, farmers will only get paid during the months that they are selling the crop and they might not have incoming cash the rest of the year. Overseen by many, is the timeliness of this payment. If a roaster goes directly but is not able to pay cash against documents, but rather takes another 10 month to pay, the farmer is left with a tight cash flow during the months he is supposed to invest in the land (i.e. New plants, pruning, paying farm workers etc.).

Sustainable Relationships – A sustainable relationship not only entails having a continuous and long-term relationship between the producer and the buyer; it also requires that the buyer understands the cost of production, the quality, and potential for quality the farmer may have, and therefore has the willingness to reward and incentivize quality through better prices. Conversely, being a crop whose quality and yield is fully dependent on climate change and susceptible to pest and diseases, if the quality is not up to par with the roasters expectations one year, it can generate issues for both parties. The farmer is left without a buyer, maybe selling to the local market for less, and the roaster is left looking for another supplier for that year.

When done right, direct trade can be beneficial for all the parties involved. By allying yourself with the correct partners, building direct-trade relationships should be easy, ethical, and transparent.

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Expert Insights -- On Direct Trade by Ashley Prentice

Oct 2, 2014


In the past years the trend for direct trade has increased, and in contrast, the definition of it has become ambiguous and even misused. While direct trade is not a regulated certification, and the definition and practices may vary from buyer to buyer, the essence of what it should represent is ‘The Direct negotiation of terms and prices between a buyer and the farmer that grew the coffee. ‘ Ideally I might add ‘with the goal of building a sustainable business relationship.’ While direct trade can add value to a business in many ways, there are various questions and issues to consider. This short commentary is designed to address a few.

Can anyone engage in Direct Trade?

For a roaster, direct trade can be challenging and expensive. And the more diversified the offerings the harder it is to maintain relationships with all the producers from around the world. Before being drawn into the novelty of direct trade one needs to ask oneself – Does this kind of business model make sense for my business? Do I have enough resources to invest in maintaining direct trade relationships? And finally, do I have the correct partnerships to assist me in the process?

How can I start sourcing directly?

There are many ways to meet a producer to start purchasing coffee directly: Traveling to origin, attending an International coffee conference, participating in origin auctions, through a trusted importer or exporter, or through a vertically integrated company. Some companies have the competitive advantage of managing their own supply chain, whether roasters owning farms and mills, or farmers importing their own coffee. In today’s global economy, this is becoming more and more prevalent, hence, making direct trade more approachable.

How does Direct Trade Add Value?

Traceability – The coffee can be traced back to the region, farm, processing techniques, and varietal. Direct trade allows us to learn the story and idiosyncrasies behind the coffee being bought. Furthermore, by sharing the coffee’s ‘story’ the perceived value of the coffee increases in the view of the consumer, as they get educated on what’s behind their daily cup of coffee.

Transparency – This is really the key to sustainable partnerships. Transparency in prices, terms, and growing practices will ensure that the coffee is ethically sourced.

Feedback – Farmer’s take a lot of pride in growing coffee, being recognized and receiving feedback adds value to their hard work. Furthermore, the sharing of information can be mutually beneficial in a direct trade relationship. Roasters learn about growing practices and issues at origin, and vice versa, farmers learn about roasting, brewing, and consumer’s preferences. Feedback does not mean however, that a buyer can impose practices on farmers without the correct incentives or scientific research.

 

What are the challenges with Direct Trade?

Partnerships - Finding partners to facilitate the movement of the coffee efficiently from an origin to your Roastery is a critical step in the process of sourcing directly (i.e. exporters, importers, logistics, warehouses, etc.)  The exporter will oversee and ensure the coffee gets to the port efficiently (In some cases the farmer himself), and the importer will oversee logistics and finance the coffee, making each essential players in the process.

Financing – This is a key point that should never be overlooked. In most cases roasters will not be able to finance the coffee themselves, so they will be looking for an importing partner to assist them. As a roaster you should be asking - who will finance the coffee? What are the payment terms? How soon will the producer be paid? Being an annual crop (some countries harvest bi-annually), farmers that focus solely on coffee are subject to ‘thin months.’ Meaning that, technically, farmers will only get paid during the months that they are selling the crop and they might not have incoming cash the rest of the year. Overseen by many, is the timeliness of this payment. If a roaster goes directly but is not able to pay cash against documents, but rather takes another 10 month to pay, the farmer is left with a tight cash flow during the months he is supposed to invest in the land (i.e. New plants, pruning, paying farm workers etc.).

Sustainable Relationships – A sustainable relationship not only entails having a continuous and long-term relationship between the producer and the buyer; it also requires that the buyer understands the cost of production, the quality, and potential for quality the farmer may have, and therefore has the willingness to reward and incentivize quality through better prices. Conversely, being a crop whose quality and yield is fully dependent on climate change and susceptible to pest and diseases, if the quality is not up to par with the roasters expectations one year, it can generate issues for both parties. The farmer is left without a buyer, maybe selling to the local market for less, and the roaster is left looking for another supplier for that year.

When done right, direct trade can be beneficial for all the parties involved. By allying yourself with the correct partners, building direct-trade relationships should be easy, ethical, and transparent.


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=> 'Expert Insights -- On Direct Trade by Ashley Prentice'
        'texto' 
=> '<p class=\"MsoNormal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">In
the past years the trend for direct trade has increased, and in contrast, the
definition of it has become ambiguous and even misused. While direct trade is
not a regulated certification, and the definition and practices may vary from
buyer to buyer, the essence of what it should represent is ‘The Direct
negotiation of terms and prices between a buyer and the farmer that grew the
coffee. ‘ Ideally I might add ‘with the goal of building a sustainable business
relationship.’ While direct trade can add value to a business in many ways, there
are various questions and issues to consider. This short commentary is designed
to address a few.</span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Can anyone engage in Direct Trade?</span></b></p>

<p class=\"MsoNormal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">For
a roaster, direct trade can be challenging and expensive. And the more
diversified the offerings the harder it is to maintain relationships with all
the producers from around the world. Before being drawn into the novelty of direct
trade one needs to ask oneself – Does this kind of business model make sense
for my business? Do I have enough resources to invest in maintaining direct
trade relationships? And finally, do I have the correct partnerships to assist
me in the process?</span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">How can I start sourcing directly?</span></b></p>

<p class=\"MsoNormal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">There
are many ways to meet a producer to start purchasing coffee directly: Traveling
to origin, attending an International coffee conference, participating in origin
auctions, through a trusted importer or exporter, or through a vertically
integrated company. Some companies have the competitive advantage of managing
their own supply chain, whether roasters owning farms and mills, or farmers
importing their own coffee. In today’s global economy, this is becoming more
and more prevalent, hence, making direct trade more approachable. </span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">How does Direct Trade Add Value?</span></b></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Traceability –</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> The coffee can be traced
back to the region, farm, processing techniques, and varietal. Direct trade allows
us to learn the story and idiosyncrasies behind the coffee being bought.
Furthermore, by sharing the coffee’s ‘story’ the perceived value of the coffee
increases in the view of the consumer, as they get educated on what’s behind
their daily cup of coffee.</span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Transparency –</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> This is really the key to
sustainable partnerships. Transparency in prices, terms, and growing practices will
ensure that the coffee is ethically sourced. </span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Feedback –</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> Farmer’s take a lot of
pride in growing coffee, being recognized and receiving feedback adds value to
their hard work. Furthermore, the sharing of information can be mutually
beneficial in a direct trade relationship. Roasters learn about growing
practices and issues at origin, and vice versa, farmers learn about roasting,
brewing, and consumer’s preferences. Feedback does not mean however, that a
buyer can impose practices on farmers without the correct incentives or
scientific research. </span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">&nbsp;</span></b></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">What are the challenges with Direct
Trade? </span></b></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Partnerships -</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> Finding partners to
facilitate the movement of the coffee efficiently from an origin to your Roastery
is a critical step in the process of sourcing directly (i.e. exporters,
importers, logistics, warehouses, etc.) <span style=\"mso-spacerun:yes\">&nbsp;</span>The exporter will oversee and ensure the coffee
gets to the port efficiently (In some cases the farmer himself), and the
importer will oversee logistics and finance the coffee, making each essential
players in the process.</span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Financing –</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> This is a key point that
should never be overlooked. In most cases roasters will not be able to finance
the coffee themselves, so they will be looking for an importing partner to assist
them. As a roaster you should be asking - who will finance the coffee? What are
the payment terms? How soon will the producer be paid? Being an annual crop
(some countries harvest bi-annually), farmers that focus solely on coffee are
subject to ‘thin months.’ Meaning that, technically, farmers will only get paid
during the months that they are selling the crop and they might not have
incoming cash the rest of the year. Overseen by many, is the timeliness of this
payment. If a roaster goes directly but is not able to pay cash against documents,
but rather takes another 10 month to pay, the farmer is left with a tight cash
flow during the months he is supposed to invest in the land (i.e. New plants,
pruning, paying farm workers etc.).</span></p>

<p class=\"MsoNormal\"><b style=\"mso-bidi-font-weight:normal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">Sustainable Relationships –</span></b><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\"> A sustainable
relationship not only entails having a continuous and long-term relationship
between the producer and the buyer; it also requires that the buyer understands
the cost of production, the quality, and potential for quality the farmer may
have, and therefore has the willingness to reward and incentivize quality through
better prices. Conversely, being a crop whose quality and yield is fully
dependent on climate change and susceptible to pest and diseases, if the
quality is not up to par with the roasters expectations one year, it can
generate issues for both parties. The farmer is left without a buyer, maybe
selling to the local market for less, and the roaster is left looking for
another supplier for that year. </span></p>

<p class=\"MsoNormal\"><span style=\"font-size:12.0pt;line-height:107%\" lang=\"EN-US\">When
done right, direct trade can be beneficial for all the parties involved. By allying
yourself with the correct partners, building direct-trade relationships should
be easy, ethical, and transparent.</span></p>
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