Especially in specialty coffee, there is increasingly 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 terms of communication? And what is their explanatory value?
David Wistorf from the Kaffeemacher explored these questions in his bachelor's thesis. The thesis is thorough, introducing the subject matter with a comprehensive literature review and culminating in David's own model for measuring transparency.
Here David summarizes the most salient points of his thesis. He also makes his bachelor's thesis freely accessible.
David's inputs are having a significant impact on us at Kaffeemacher, and we are planning to advance our approach to how we report on coffees. And that is what David's thesis should accomplish – it should question and provide new ideas.
David Wistorf: Management Summary
The price for a pound of Arabica coffee was around $0.92 on October 17, 2019. This price has been falling continuously since 2016, preventing many producers from covering their production costs. Due to falling coffee prices, there are initiatives in the coffee industry to make the value chain of coffee transparent.
By disclosing the cost distribution, the aim is to enable fair compensation 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, there has been no investigation into how transparency in coffee processing can be measured.
The aim of the thesis is on the one hand to identify the key aspects for creating transparency in the coffee value chain. On the other hand, a model is to be developed for analyzing transparency in the coffee value chain.
Questions on Transparency
The thesis examines the specialty coffee segment and answers the following questions:
- What aspects must be considered to create transparency in the specialty coffee segment?
- What approaches to creating transparency in value chains are prevalent for the comparable product cocoa, and what of these can be applied to the coffee industry?
- What can a verified model for analyzing transparency in the coffee value chain look like?
To answer the theoretical aspects of the questions, a systematic literature review was conducted. Additionally, guideline interviews and a supplementary short questionnaire were used to survey roasters, the organization "the Pledge," and consumers. In this thesis, the following people were interviewed from the roasters and the organization "the Pledge":
- 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"
David Wistorf's Findings
What aspects must be considered to create transparency in the specialty coffee segment?
In 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 measurement units for analyzing transparency in the coffee value chain to date are 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 the survey respondents clearly lies in the work and processing steps in the country of origin. For the roasters surveyed, it is particularly important in a transparent value chain to obtain information about the wages of farm workers, the ex-farmgate price, processing, drying, the FOB price, and production costs.
For a transparent value chain, the consumers surveyed consider knowledge about the compensation of all parties in the country of origin, working conditions, environmental impact, water consumption in processing, roasting, and shipping and handover to be most important.
What approaches to creating transparency in value chains are prevalent for the comparable product cocoa, and what of these can be applied to the coffee industry?
To answer the second question about what aspects of transparency exist in cocoa production and how these can be transferred to the coffee value chain, the literature showed that in cocoa processing, the focus is on disclosing what each involved party needs to live on (living wage 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 the ex-farmgate price is often communicated in isolation. This is done without the relevant context as to whether these prices are high or low. Therefore, the approach to determining living wage income can be transferred from cocoa to coffee processing. If living wage income is determined and communicated in coffee, the previously communicated prices can be put into context and thus more easily interpreted.
What can 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 guideline interviews were further developed.
This resulted in a model consisting of 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: country of origin, logistics, and consuming country.
These are in turn divided into a total of six links. These links are further refined into a total of 29 steps. These steps were weighted based on the results of the guideline interviews, so that if information exists for all steps in the corresponding value chain, 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 knowledge. In the next step, all weightings per step and value chain must be added together.
This yields the individual results per part of the value chain. The higher the results, the more information exists about the coffee value chain and accordingly the more transparent the value chain is.
Model as a Table
Through the insights gained in this thesis, particularly from the model, it is possible in practice to analyze how transparent a specialty coffee value chain is. This provides the ability to compare different value chains and make decisions based on this.
However, the interpretation and especially the generalization of the results should be done with caution, since on the one hand, the number of roasters and consumers surveyed was small. On the other hand, due to the Corona pandemic and the difficult access to producers and coffee traders, they could not be surveyed. Thus, the results of the thesis are only from the perspective of the 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 thesis should be verified with a larger number of respondents and the established model should be adapted accordingly. Furthermore, it should be checked whether the model can also be applied to value chains of coffee with less than 80 quality points. Cocoa processing has shown that living wage income can be of great significance as it puts transparently communicated prices into context. Future research should investigate, against this background, how high the living wage income for coffee producers in each region is.
