Direct: without intervening factors or intermediaries. Buying and selling of commodities and services. Trade that is conducted in a personal or face-to-face manner has greater significance than what is indicated by the definition in the dictionary. The term is employed to show that the product is of high standard, environmentally friendly, and offers producers a reasonable cost. It has tales of its beginnings and is frequently featured in campaigns for specialty coffee. And, increasingly, it’s being met with cynicism.
So what does it really mean? Do words that are so ambiguous carry any actual significance?
WHAT DOES DIRECT TRADE MEAN?
Garrett Odell of Cirque Coffee Roasters says that direct trade in coffee occurs when a roaster purchases their beans directly from a grower.
Patrick Murray from Finca Mahajual in El Salvador brings up a similar response, however also notes the significance of the link. He states that this refers to the setting up of a direct line for trading between two individuals. This is about the connection created and developed between grower and roaster. Ideally, a connection should be formed where the quality and cost of items are established and accepted with a lasting plan in mind to benefit both sides.
Sound simple? It appears there are certain aspects making it unclear what the definition is. For a start:
What About Direct Trade Importers?
Importers who refer to themselves as being involved in direct trade assert that they purchase products directly from the producers. What does it mean if an exporter labels themselves as engaging in direct trade when functioning as a middleman? When the coffee arrives at the roaster, should they advertise it as direct trade coffee to be sold?
Garrett is certain that the answer is a definite negative to both questions. He insists that buying from an exporter or importer does not constitute direct trade. In other words, importers and exporters who are collaborating with producers are able to help farmers raise their profits.
Jon Allen, who is one of the proprietors and also the purchasor of green beans of Onyx Coffee Lab, concurs. “No, there should not be an importer involved. It doesn’t make sense to have ‘direct trade’ importers.”
It should not be assumed that collaborating with an importer is a negative thing; there are ways to make an effect on the coffee production chain apart from direct commerce. In particular cases, it can be more advantageous to collaborate with an importer in comparison to dealing with immediate trade. Moreover, in certain scenarios, it may be the only choice available.
THE POTENTIAL BENEFITS OF DIRECT TRADE
Although it can be difficult to precisely determine what “direct trade” means, it continues to be a vital component of the third wave coffee business – primarily due to the many advantageous aspects it presents. Garrett emphasizes that if done carefully, direct trade brings numerous advantages.
Here are some of the ones my interviewees mentioned:
A Stronger Relationship
Garret describes it as a chance to collaborate closely with a grower. It grants you the option to purchase items from a producer [you appreciate] and gradually form an ongoing connection with them. This provides an opportunity to explore different approaches (such as processing, cultivation, and cultivar selection).
He went on to say that the producers are fortunate to have customers who are eager to buy their goods. You are also aware of what’s going on in the specialized coffee industry abroad and have the resources to put different processing techniques into action.
Having faith in the fact that people will purchase coffee can give producers the assurance to commit resources to better infrastructure and procedures – and having a deeper understanding of current market movements can demonstrate the most worthwhile areas to concentrate on.
Transparency
According to Patrick, being a producer has many positive prospects, but there are three major elements that make it beneficial to both parties included: clarity, shared rewards, and traceability.
He explains that by having direct talks between producers and roasters, there can be a more informed understanding of the conditions and what can be done given these constraints; this should then enable them to collaborate in setting achievable objectives.
An enhanced link between buyers and suppliers facilitates more effective communication, facilitates collaborative problem-solving, promotes the identification of ways to improve product quality, and helps both parties gain a better understanding of production and export expenses.
Greater Investment
Patrick holds the view that a direct trade model that involves two like-minded businesses can create a stronger bond between the two parties, explaining, “I think when there is a direct collaboration between businesses, the producers feel a heightened level of purpose in their work.” If we are dedicated to providing a certain roaster with a certain amount of coffee of a certain quality, there is an implicit motivator to make sure we do our job well, so that we will be paid accordingly.
Patrick holds the view that with direct trade, purchasers are more likely to pay a higher price and put money into the regional community, and not just the coffee. He explains to me that the shared value is optimized because purchasers can detect how the significant sum of money that is generally spent is reinvested and has a clear effect on the social circumstances or production advances at the production source.
It is clear that through direct trade a positive system can be established where the money brought in can be used to not only make production more effective but to also enhance the lives of all those involved in the supply chain.
Both parties being emotionally invested in the product means they are inclined to put in energy, labor, and knowledge in order to create more excellent coffee and more favorable socioeconomic states.
Traceability
Third wave coffee culture emphasizes developing an awareness of the origin of coffee and the effects of the processing methods on the flavor. Direct trade promotes empowering consumer communication with growers so they can learn more about their labor and skill they put into the plant.
According to Patrick, this system can be beneficial to both coffee roasters and coffee farmers. He states that traceability permits purchasers to secure what they desire from certain manufacturers while manufacturers can make exactly to measure yields for specific consumers each year, being aware of how much and the quality their customers look for.
Logistics
Jon states that as a consequence of the detailed bonds between purchaser and producer, direct trading has an improved circulation of organization. You may need to educate yourself on the basics of trading, but this could also help streamline the supply chain.
A HIGH-MAINTENANCE & OFTEN HIGH-RISK BUSINESS
In order to operate well, direct trade necessitates producers and purchasers possessing particular competencies and resources. If these are not present, the deal can quickly go wrong and both sides will be left unprotected and open to danger.
Moreover, because the traditional style of coffee trading differs so much from the direct trade approach, there are no protections or standards in place to safeguard the interests of those involved.
The Risks
Problems may come up when two independent companies engage in transactions which do not have government supervision. Some of the key risks associated with direct trade include:
Contract & Payment Issues
Due to the absence of strict regulations and the lack of standardized agreements, there is an escalated chance of both sides failing to meet their obligations. The result of this situation is that the producer may not receive any compensation, and the customer could be left without a purchased item.
Unreliable Delivery Or Quality
The coffee may not be up to the standard that was hoped for, and because there are no rules in place, there is nothing to protect people from a bad experience. This poses both economic danger to the producer and purchaser.
Unmanageable Bureaucracy & Logistics
With fewer parties, the burden of organizing difficult paperwork and complex logistics solely rests on the two actors. In many situations, either one or both parties may not possess the capabilities or necessary materials to manage the added work.
Less Formality
An emphasis on personal interactions can result in a lack of structure, regulations, and responsibility. If there is a shift in leadership, transferring information becomes more complicated.
Reduced Flexibility
In general, direct trade on a smaller scale usually entails less resources and financial liquidity due to the limited size of the operation. This implies that if something were to go awry, both the seller and purchaser would not have the ability to tolerate the risk.
The Gaps
Direct trade requires time and effort. For many, the cost of obtaining the necessary competencies, assets, and knowledge does not justify the rewards that would be gained.
Ms. Kolosvary heads Café Femenino, which belongs to the Organic Products Trading Company. She recognizes there are dilemmas that both makers and purchasers can have difficulty with.
Size Of Operation
In direct trade models, if the production capability is limited, there may be few choices of goods, as is commonly observed with small producer organizations. This greatly heightens the danger for both the manufacturer and the roast master.
“It can be a fragile position,” Connie says. Increasing the number of places where a product is created and the number of people who are willing to purchase it strengthens the balance between a roaster and a producer if either of them is unable to complete their task.
It is usually not profitable when either a buyer or a seller can only manage a small amount of business, so activities that cannot be increased in size are typically not viable. Additionally, purchasing in small amounts from the source is normally more costly and just the cost of transportation can reduce the profits.
Financial Literacy
Connie commented that small producer groups are often composed of lots of growers who don’t typically have access to the means to vocalize their own interests. Not having background knowledge regarding the coffee market can hinder negotiations unless the organization has a person who is well-equipped with the necessary knowledge and expertise.
A thorough knowledge of additional subjects, like supply chain management, funding, prior financing, danger, and availability, is even less available to many companies or roasters who run on a minor scale.
Communication
Manufacturers are commonly out of luck due to a disconnect between digital resources. Inaccurate online connectivity and poor cellular phone service can make it hard to keep in touch.
Issues can arise from linguistic and cultural dissimilarities that act as a large hindrance for both sides.
Market Network
Connie mentions that it would be extremely challenging for a small coffee grower living in an isolated area of Peru to get into contact with a roaster located in Seattle without any help.
Small-scale growers regularly have trouble in connecting with the coffee industry and may not have access to the necessary instruments to help increase their reach, such as utilizing social media and the internet generally.
There are similar difficulties for roasters, too. Creating a worldwide system of manufacturers who are reliable, provide certifications and pricing that align with customer requirements is a tricky process.
FOR DIRECT TRADE TO WORK, WHAT DO YOU NEED?
In order for this to be successful, the problems previously mentioned need to be solved. Connie believes that a few crucial elements must be present for the direct trade model to be successful.
At first, she proclaimed: “Excellent communication is necessary for any successful business.” She remembered Café Femenino’s work with a collective of Bolivian farmers. However, according to her, the leadership of the cooperative altered, causing many of the aptitudes they had to depart with them, which resulted in the coffee market decreasing and adversely impacted the farmers.
The new leadership had to brush up on abilities such as sending an email, setting up pre-financing, and scrutinising a contract. Connie stated that it took a couple of years to regain stability.
It is essential to have the capability to speak about the item that is being traded in addition to these essential abilities. Nonetheless, grasping the intricacies of coffee quality, creation, refinement approaches, and authentication plans is often not a characteristic of many mini roasters and providers.
For the purchaser, there are an assortment of equally essential abilities which must be in position. Logistics, certifications, and local resources for export activities such as trucking, grinding, and storage must all be taken into consideration. Connie stated that it is necessary for one individual to be responsible for managing logistics, evaluating quality, funding prepayment, billing, insuring, and communicating.
“It takes a dedicated crew,” she says. Wouldn’t it be great for any coffee-roaster to get on a plane and make a journey to East Africa, exploring the area’s coffee crops? It is a rewarding journey for those who have the necessary connections and resources to achieve it, yet moving the coffee beans from the plantation to the roaster is a highly unique process.