A few weeks ago, an article was posted about the inflationary use of href="https://www.scottrao.com/blog/2021/1/17/cup-score-inflation" SCA scoring. The article was of particular interest to me because so far little has been reported about the impact of this scoring system on producer organizations. I have been speaking with representatives of coffee cooperatives about the SCA points system for some time, and they have been observing a development that has been threatening to them for years.
Guest contribution by href="https://www.kleber-cruz.de/" Kleber Cruz, green coffee buyer for Gepa. Kleber Cruz regularly writes interesting articles with many insights from work in cooperatives and coffee-growing countries such as Peru, Mexico, Honduras and Nicaragua. In the future we will publish Kleber's texts on kaffeemacher.ch to make this important content accessible to a broader audience. Thank you very much for your work, Kleber!
Investment by cooperatives in quality improvement for members
Over the years, many cooperatives have invested in improving the quality of coffee produced by their members and have achieved quite high standards in the process. Manuel Quiliche from the COPICAFE cooperative in Peru tells me what his cooperative has invested in to continuously improve varieties. In doing so, the cooperative has also built up a social foundation that makes it easier to carry out certain projects, such as the joint marketing and processing of coffee. I hear the same thing from Nicaragua, Jinotega specifically, when I speak with Alvaro Rodriguez (representative of the href="https://www.gepa.de/produzenten/partner/coassan.html" COASSAN coffee cooperative): "In the late 1990s and with the price crisis, a program began in Nicaragua to identify quality coffee and differentiate it. This work was led and managed by cooperatives, and at that time the advantage was that they already had producers organized, which made it much easier to carry out this project". Leonid Herrera from the Jose Olaya cooperative in Peru comments: "Year after year, the cooperatives introduced new organic farming techniques and offered producers much relief for this transition, such as access to credit, harvest advances, transportation of their products, provision of bio-fertilizers, or the renewal of coffee plants, but above all further training seminars". Through this work of the cooperatives, members of the organizations were able to significantly improve the quality of their coffee over the years. The cooperatives' work was crucial for many producers to achieve a good quality level. But as always, this process does not reach all producers.
Importers bypass cooperatives
There are some importers who have bought coffee directly from cooperatives in the past. Through these relationships, they were able to learn more about the work in the field and better understand the entire production process and identify growing zones for good coffee. However, for some time now there has been a worrying development for the cooperatives: importers who used to buy from cooperatives are now going directly to producers who have achieved high standards thanks to the cooperatives' work and are buying coffees of outstanding quality (86+ SCA or higher) from them. This is coffee from high-altitude growing areas. For this coffee, importers pay prices that are sometimes over 50% higher than the prices of the cooperatives. For the cooperatives, the coffees from low and medium altitude zones remain, which are good but far from achieving scores of over 86. Hugo Roblero, who is responsible for exports at his organization FEJCEM cooperative in Mexico, also tells me: "The buyers in Mexico come to the most remote communities and buy the best coffees directly from producers at higher prices, which the cooperative cannot compete with. This practice destabilizes us, the farmers are dissatisfied with us and we are missing these extremely good coffees to achieve better prices."
Q-Graders gone astray
However, the cooperatives are observing another problem: improving the marketing structure of a cooperative also includes further training for its staff, including Q-graders, and equipping coffee laboratories. The cooperatives have invested a great deal in this area. Now these Q-graders are responsible for coffee quality in the cooperatives. Some of them have discovered a business gap and are splitting the cooperatives. That is, these Q-graders identify farmers who produce good coffees and are dissatisfied with the cooperative, quit the cooperatives, organize these farmers in parallel companies, sell the high-quality coffee directly to the importer or to consumer countries and achieve good prices.
In this development, the problem for the organizations is that they have invested in improving commercial infrastructure for years and have achieved good quality standards. Now they see their marketing opportunities decimated due to these practices. Many cooperatives call this unfair.
What prevents cooperatives from acting differently themselves?
However, the justified question arises as to why cooperatives cannot compete with these specialty coffee importers. One point is certainly that change processes in cooperatives can only take place very slowly and laboriously. Market adjustments take longer at cooperatives than with other forms of business, which in my view is a major problem that the cooperatives have not yet properly tackled. Another point is undoubtedly that these organizational structures are sometimes misused for other purposes.
But the current market conditions for coffee cooperatives are also unfavorable: the prices paid for specialty coffees or microlots are decoupled from the exchange price, while coffee cooperatives depend on the NY exchange price. Leonid tells me: "The market doesn't help, the price for coffee listed on the New York exchange is much lower than the cost of production." The costs for operating supplies or tools have become expensive, and prices for equipment and infrastructure for organic conversion are constantly rising. Under these conditions, the economic performance of the cooperatives is not sufficient to compete with importers/buyers of specialty or microlots.
Every coffee needs a market
On the other hand, the market for specialty coffees in consumer countries is still so small that it cannot keep up with the inflationary development in producing countries worldwide. Coffees are being offered as specialty or microlots that really aren't. In fact, cooperatives have a wide range of coffee offerings in all quality levels. They must try to sell everything, that is, the entire assortment. From these sales, they usually calculate an average price, which they pass on to producers minus costs. This model means that farmers who have delivered top quality coffee receive less than specialty coffee buyers would pay. Farmers who delivered low quality coffee can achieve better income through this pricing policy. Other organizations are trying to introduce different pricing models, but cooperative pricing models try to achieve a balance between producers. This model proved itself during the quarantine due to COVID 19: without the cooperatives, the situation in rural areas would be more dramatic than it already is.
Perspective: Improving coffee quality in "lowland coffees"
It seems, however, that the producers of good coffees have for some time no longer been willing to accept this model and are putting pressure on the cooperatives, but the cooperative cannot exclude farmers. Leonid tells me: "Cooperatives cannot afford to discriminate against farmers, but we demand that they continue to educate themselves. They should constantly improve their craft, structure their investments so that in the end the family benefits, they should not switch to growing illegal products like coca."
A manager of a cooperative in northern Peru also tells me of his concern that his members are beginning to sell their best coffees outside the cooperatives. According to him, it is necessary to continuously improve the quality of lowland coffees. But for that, there must also be a market that helps with better prices.
