Direct Trading??

You may have visited Nomads’ (or another specialty coffee shop) and heard phrases like, ‘direct trading,’ ‘ethical sourcing,’ or ‘fairly traded, not Fairtrade.’ But what do these terms mean? Isn’t coffee just coffee? Is it not just bought from a farm in Colombia and shipped over? Unfortunately, there is a lot more to it than that. In this article, we will be looking at the world of trading ethics within the coffee industry.

Auctioning

Before delving into what ethical trading is, it's important to understand other ways in which coffee is traded. To start with, let’s look at one of the oldest models of coffee trading – auctioning. Coffee has been traded at auctions for hundreds of years. Essentially, the coffee producer will sell bring their coffee and it is sold to the highest bidder. Sounds great for the producer, right? Unfortunately, there is a little more to it than that... Before the producer collects any profit, some deductions are made.

Direct Trading

There has been a shift, however, and more roasters/coffee buyers have started trading directly from coffee farms. This means that the farmers dictate the price of the coffee and there is no middleman (such as auctioneers), allowing farmers to keep 100% of the profit. This is more sustainable for farmers – especially the smaller producers – as they don’t make a loss on any charges. The only downside is that it doesn’t give them as much attention to the potential buyers as auctioning would. One could speculate that this would drive small producers to produce outstanding coffee, using unique processes, growing rare varietals and taking the utmost care in grading, in order to draw the attention of potential buyers. Realistically, more effort is needed, on the producer’s part, gain visibility to buy their coffee.

Auctioning Vs. Direct Trading

Coffee has been traded at auctions for hundreds of years. It’s convenient for coffee roasters and buyers and opens coffee farms to a wider audience of buyers. This may seem like it would help coffee producers but there are several costs to consider, such as processing mills, the organisations running the auctions collect a fee, country partners for those organisations also collect a fee. Essentially, the farmer ends up walking away with around 73% or LESS than the selling price of the coffee. As well as this, a producer could wait up to a year before receiving money for their coffee. While this may not have a significant impact on larger farms, it could lead to small-scale producers going into debt. Even where profit is made, the money may not be enough to put food on the table. With direct trading, however, the producers dictate the price of the coffee.

However, although the costs are lower, it is often harder for producers to gain visibility, compared to going through the market.  This can be particularly hard for smaller, individual producers. So, is there a better alternative to ensure the sustainability of these smaller farms? In order to ensure their survival, some small producers come together to form co-operatives. This results in better marketing and, therefore, better trade for the producers. It also means that these smaller producers can continue to trade directly and not have to sell through the auctions and pay the costs involved in that.

Many specialty roasters and coffee shops, like Nomads’, are passionate about the sustainability and ethics of our trading. This means that we want to make sure that the famers who supply our coffee (and teas) are able to profit from the coffee, as well as we do. We also care about the conditions in which the farm workers labour in. This is harder to assess through coffee auctioning, while trading directly can allow the coffee roasters to build relationships with farmers and even meet with them face-to-face and see for themselves, the conditions under which the farmers work.

While auctioning does come with its financial costs and does not always guarantee the best quality coffee, it does open up a lot of visibility to producers. That said, the money the producers do take home isn’t always enough for them to properly live off of. Trading directly allows them to dictate the prices of their coffee, and quite often you will get much better quality coffee as a result. The drawback is the lack of visibility that would otherwise be achieved through auction markets. To overcome this, some small producers team up and form cooperatives which enables them to market their coffee and can result in better trade opportunities.

I hope this snapshot into the world of coffee trading has been insightful and will encourage you to think about where you buy your coffee from and how, indeed, it is sourced! If you have any questions or suggestions for blog topics, please do not hesitate to get in touch!

Simon Burnett