Especially in specialty coffee, there is increasingly talk of transparency and traceability in the coffee chain. But what do these concepts actually mean? And what advantages or disadvantages do they bring to a company in its communication? And what is their explanatory value?
David Wistorf from Kaffeemachern investigated these questions in his bachelor thesis. The work is thorough, introduces the subject through a comprehensive literature section, and culminates in David's own model for measuring transparency.
Here David summarizes the most salient points of his work. He also makes his bachelor thesis freely accessible.
David's inputs are currently having a significant impact at Kaffeemachern and we plan to advance our approach to how we report on coffees. And that is what David's work should achieve – 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, which has meant that many producers can no longer cover their production costs. Due to falling coffee prices, there have been initiatives in the coffee industry to make the coffee value chain transparent.
By disclosing the distribution of costs, the aim 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, it has not been investigated how transparency in coffee processing might be measured.
The goal of the thesis is on one hand to identify the most important aspects of 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.
Research Questions on Transparency
The thesis addresses the specialty coffee segment and answers the following research questions:
- What aspects must be considered in order to create transparency in the specialty coffee segment?
- What approaches exist for creating transparency in value chains in the comparison product cocoa, and what can be transferred to the coffee industry?
- What could a verified model for analyzing transparency in the coffee value chain look like?
To address the theoretical aspects of the research questions, a systematic literature review was conducted. In addition, guided interviews and supplementary short questionnaires were used to survey roasters, the organization "the Pledge", and consumers. In the present thesis, the following persons 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 in order to create transparency in the specialty coffee segment?
In addressing research 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 units of measurement for analyzing transparency in the coffee value chain so far have been the FOB-Preis and the ex-farmgate price. However, both prices have been criticized in the literature and in the survey results.
The interest and focus of those surveyed clearly lies with the work and processing steps in the producing country. 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 producing country, working conditions, environmental impact, water consumption in processing, roasting, and shipping and handover to be most important.
What approaches exist for creating transparency in value chains in the comparison product cocoa, and what can be transferred to the coffee industry?
In addressing research question two, on what aspects of 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 involved party needs to live (living wage).
Here the focus 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 is done without accompanying context as to whether these prices are high or low. Therefore, the approach to determining a living wage can be adopted from cocoa to coffee processing. If a living wage is determined and communicated in coffee, the prices previously communicated 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 (research question 3), the results from the guided interviews were further developed.
This resulted in a model consisting of three parts, each of which forms a separate result. The three parts are divided according to the point at which value creation occurs in the chain. Accordingly, three parts emerged: producing country, logistics, and consuming country.
These 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 is available 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 are known. In the next step, all weightings per step and value chain must be added up.
This yields the individual results per part of the value chain. The higher the results, the more information is available about the coffee value chain and the more transparent the value chain accordingly is.
Model as a Table
Through the insights gained in 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 this.
However, the interpretation and especially 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 limited access to producers and coffee traders, these 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 adjusted accordingly. Furthermore, it should be checked whether the model can also be applied to coffee value chains below 80 quality points. Cocoa processing has shown that a living wage can be of great importance as it puts transparently communicated prices into context. Future research should investigate against this background how high the living wage is for coffee producers in each region.
