Increasingly in specialty coffee, there is talk of transparency and traceability along the coffee chain. But what do these concepts actually mean? And what advantages or disadvantages do they bring to a company in communication? And what is their explanatory value?
David Wistorf from the Kaffeemachern investigated these questions in his bachelor thesis. The work is thorough, introducing the subject with a comprehensive literature section and culminating in David's own model for measuring transparency.
Here, David summarizes the most relevant points from his work. He also makes his bachelor thesis freely accessible.
David's insights are currently having a significant impact on us at Kaffeemachern, and we are planning to advance our approach to how we want to report on coffees. And that is what David's work should do – it should question and provide new ideas.
David Wistorf: Management Summary
The price for a pound of Arabica coffee was around 0.92 US dollars on October 17, 2019. This price has continued to fall since 2016, meaning many producers could no longer cover their production costs. Due to falling coffee prices, there are initiatives in the coffee industry to show the coffee value chain transparently.
By disclosing the cost distribution, the goal is to enable fair payment for all parties in the value chain. However, there has been no analysis of the concept of transparency in the coffee industry to date. Furthermore, no research has been conducted on how transparency in coffee processing could be measured.
The aim of the work is on one hand to identify the most important aspects for creating transparency in the coffee value chain. On the other hand, a model for analyzing transparency in the coffee value chain is to be established.
Questions on Transparency
The work addresses the specialty coffee segment and answers the following questions:
- What aspects must be considered to create transparency in the specialty coffee segment?
- What approaches exist to create transparency in value chains for the comparable product cocoa, and what from these can be transferred to the coffee industry?
- What could a verified model for analyzing transparency in the coffee value chain look like?
To answer theoretical aspects of the questions, a systematic literature review was conducted. In addition, guided interviews and a supplementary short questionnaire were used to survey roasters, the organization "the Pledge" and consumers. In the present work, the following persons from the roasters and the organization "the Pledge" were interviewed:
- Mathias Bühler from Adrianos
- Andreas Felsen from Quijote Kaffee
- Christoph Sauser from Horizonte Coffee Roasters
- Fabian Schmid from Drip Roasters
- Jonas Lorenz from "the Pledge"
Findings by David Wistorf
What aspects must be considered to create transparency in the specialty coffee segment?
When answering question 1, current literature showed that the concept of transparency has neither only advantages nor disadvantages, but rather that the results of transparency must be evaluated on a case-by-case basis. Important metrics for analyzing transparency in the coffee value chain so far have been the FOB price and the ex-farmgate price. However, criticism of both prices was expressed in the literature and in the survey results.
The interest and focus of those surveyed clearly lies in the work and processing steps in the growing country. For the roasters surveyed, it is particularly important in a transparent value chain to receive information about farm workers' wages, the ex-farmgate price, processing, drying, FOB price, and production costs.
For a transparent value chain, the consumers surveyed consider knowledge about the payment of all parties in the growing country, working conditions, environmental impact, water consumption in processing, roasting, and shipping and handover to be most important.
What approaches exist to create transparency in value chains for the comparable product cocoa, and what from these can be transferred to the coffee industry?
To answer question two, which aspects for creating transparency exist in cocoa production and how these can be transferred to the coffee value chain, the literature has shown that in cocoa processing, the focus is on disclosing what each party involved needs to live on (living income).
The focus here is particularly on the producers, as they often receive a very small share of the final price. In the coffee industry, the FOB price or ex-farmgate price is often communicated in isolation. This without the associated context of whether these prices are high or low. Therefore, the approach of determining living income can be transferred from cocoa to coffee processing. If living income is determined and communicated in coffee, the previously communicated prices can be put into context and thus be interpreted more easily.
What could a verified model for analyzing transparency in the coffee value chain look like?
To create a verified model for analyzing transparency in the coffee value chain (question 3), the results from the guided interviews were further developed.
This resulted in a model with three parts, each forming a separate result. The three parts are divided according to where value creation stands in the chain. Accordingly, three parts were created: growing country, logistics, and consuming country.
They are in turn divided into a total of six segments. These segments are further refined into a total of 29 steps. These steps were weighted based on the results of the guided interviews, so that if information about all steps in the corresponding value chain is available, the three results of the parts each total 100%.
When applying the model, it must be checked which steps of the corresponding value chain have information available. In the next step, all weightings per step and value chain must be added together.
This produces the individual results per part of the value chain. The higher the results, the more information is available about the coffee value chain and accordingly the more transparent the value chain is.
Model as Table
Through the insights gained from this work, particularly from the model, it is possible in practice to analyze how transparent a specialty coffee value chain is. This offers the opportunity to compare different value chains and make decisions based on that.
However, the interpretation and in particular the generalization of the results should be done with caution, as on one hand the number of roasters and consumers surveyed was small. On the other hand, due to the Corona pandemic and difficult access to producers and coffee traders, these could not be interviewed. Thus, the results of the work are only from the perspective of parties in the consuming country. Consequently, the part of the value chain up to and including logistics is not represented.
In the future, the results of the work should be verified with a larger number of respondents and the established model adjusted accordingly. Additionally, it should be checked whether the model can also be applied to coffee value chains below 80 quality points. Cocoa processing has shown that living income can be of great importance, as it puts transparently communicated prices into context. Future research should investigate, against this background, what the living income is for coffee producers in each region.
