Coffee’s traditional supply chain
Direct trade vs Fair trade: Let’s look at the typical coffee supply chain before going into Fair Trade and Direct Trade in the coffee industry.
A standard coffee supply chain with several intermediaries is depicted above. Green coffee beans harvested by farmers will be sold to the roaster through several intermediaries, such as cooperatives, type 2 cooperatives, and so on, and then to 2-3 different heads.
The café owner and the drinker are both infested with new termites. Farmers will receive the most negligible value in this chain of connections due to price pressure from traders, causing them to sell coffee at a low price. Farmers will be unable to improve the value of their products or implement new growing methods, such as ecologically friendly planting methods and more excellent water resources, as a result of this (Because it costs more money to grow, additional investment costs while the revenue from coffee beans is not enough).
With this traditional coffee supply chain, the end-user of the coffee will pay a premium for it while the farmer will sell it for a low price. Of course, real value, with a monetary difference from the other hints in the chain. They all have one thing in common: they don’t grow or use the stuff directly.
And if we keep this essential supply chain in place, the quality of the coffee will never improve. Why? Give the farmer a motivation to increase the quality of the coffee because the value of green coffee beans is so low?
Fairtrade – The Fair Trade Certificate for Coffee was born
The Fair Trade model aims to solve equality in a commercial interaction, supporting sustainable growth by offering good business circumstances with a complicated coffee supply chain. An Oriberry cafe in Vietnam uses Fair Trade in its supply chain.
Fair Trade or Fair Trade Certified – More than 50 nations utilize this certification. The Fair Trade model will solve the inequality in trade cooperation, promote sustainable development by providing relevant business circumstances, and solve the above traditional coffee supply chain.
If that sounds too complicated, let’s simplify it a little, okay?
A fair trade agreement is similar to a buyer-seller deal. Buyers (countries importing coffee) will agree to pay a higher price for coffee than the typical market price, resulting in a more significant profit margin for sellers (here, coffee farmers/farmers).
However, the seller must commit to improving farming techniques and business conditions and apply for more sustainable coffee production, better environmental protection, and sufficient quality and products for consumers.
It’s already sounding “fair” and moving in a more positive direction
However, “Fair Trade” has several drawbacks, much like a double-edged sword (On the positive and negative side of Fair Trade, I will analyze it in a later post).
For example, the cost of this certificate’s paper is relatively high, and products labeled “Fair Trade Certification” are similarly more expensive. Can a product categorized as Fair Trade Certification pass all of the Fair Trade Certification standards to be labeled?
Simply put, “Fair Trade” products are offered at a higher price because consumers recognize and trust the designation. On the other hand, manufacturers will very certainly compete for Fair Trade accreditation.
I do not believe in certificates issued solely to extort money, but the quality is what it is, and only the producer understands that. Of course, I’m not the only one who doesn’t trust Fair Trade Certification.
Coffee roasters who buy directly from producers are known as direct traders, as they avoid both traditional sellers and intermediaries and certifying groups such as Fair Trade. They cultivate mutually productive and respectful relationships with coffee producers and farmers.
They do “Direct Trade” because they are dissatisfied with and lack trust in third-party certification programs such as Fair Trade, and they want to have direct control over more aspects of coffee quality, social issues, and environmental concerns rather than entrusting them to a third-party and subjecting them to that party’s standards.
Let’s start with the farmers. Farmers will benefit the most from direct trade when engaging in the coffee-producing process. Farmers can’t usually sell at high prices in traditional supply chains because they have to travel through many intermediary channels to reach the people who need to buy it. Farmers will be able to sell their coffee at a higher price due to this direct relationship, leaving them with more money to invest in a higher-quality future harvest.
Furthermore, the end consumer will know whose farm/individual grew this coffee, which even Fair Trade has never done before. What method is used to create it? Information about the farm will be entirely open to the public. This will benefit the farms’ brand and reputation, allowing them to sell at a higher price.
But, as I already stated, everything has benefits and drawbacks.
Because there is no documentation, no standard for both buyers and sellers to rely on to pay the price in Direct Trade, it is all about trust. Instead, there is mutual trust between the two parties. What equals if the user trusts the direct trade company, feels they are compatible with their standards without third-party certification (and, of course, the user agrees to their requirements).