Direct Sourcing & Direct Trade Coffee

Some plain talk about a simple business that often is misunderstood

By Vicente Mejia.

Why I’m writing this post?

With the popularity of direct coffee sourcing model and the fair trade and sustainability concepts almost every company is using them in the marketing messages, but in reality few really understand it and do it.  

There are also various grey points in the methodologies used and on how to do it. The purpose of this article is to clear those points and give a fairly good idea on how direct sourcing should be done.

What is direct sourcing?

Is a coffee buying model, in which the importer/roaster has personal relationship with the producer, has a transparent financial transaction, and ideally have visited or are planning to visit the farm.

Why direct sourcing have became so popular?

It offers competitive advantages in the buying and selling side for the coffee roasters (more on this later) and help to connect them and the final consumer to the coffee source. It also has a social impact in at origin (mostly developing countries) that gives an extra meaning to the business.

What are the buying advantages direct sourcing offers?

On the buying side a principal advantage of direct sourcing is the opportunity to develop a strong connection with the suppliers (cooperatives and producers) which affords roasters the opportunity to secure exclusive coffees which quality meets exceptionally high standards, to control pricing variance, and potentially the unique opportunity to experiment with processing and varietal variation.

What are the selling advantages direct sourcing offers?

On the selling side the personal relationships and regular farm visits create a story that roasters/importers can use as unique selling points. The exclusivity and promotion of direct sourcing and single origin coffees can help set a roaster apart from his competitors. And buyers photos on the origin experience create great marketing material for websites, and social media.

Who is involved in a direct business transaction?

Direct business doesn’t mean that producers export the coffee on their own or that the roasters import the coffee on their own. Most roasters regularly engage exporters and importers in direct-trade relationships.

I. Grower. Is the responsible of producing a specialty coffee.

II. Coffee mill and exporter. Responsible of milling and move it out of the origin country.

III. Coffee importer. Is in charge of helping the roaster with the financing as this kind of business usually requires an upfront payment to the grower and importing and logistics to the final destination.

IV. Coffee roaster. Must be involved in the whole process.

What is the relation between direct sourcing and specialty coffee?

For a sustainable direct sourcing relationship coffee quality must be exceptional. Roasters and importers have to do a significant extra work in order to direct source their coffees because of the competitive advantage this means for them in the market place, but the coffee really needs to be great so the extra work pays off.

Why farmers-growers like direct sourcing?

A producer with a loyal buyer is often guaranteed a market for their coffee each year and, likely, at a good price regardless of external market pricing.

In some cases, this guaranteed market also comes with willingness to pre-finance farmers. This cash flow allows producers to care for their families and also to invest farm with the hope of producing even better coffee each year.

Who can use direct sourcing?

Any passionate importer or roaster interested in finding great coffee. Direct sourcing is about access to unique, exclusive coffee. It is about developing links in a chain that can help your business sustain and grow over the long term.

How the coffee gets priced?

Price decisions flow from the quality of coffee in the cup, the quantity available and the negotiation or arrangement the farmer has with the importer and or roaster. In Clearpath Coffee we use the C Market as a reference and then add a premium that fluctuates usually between +75 to +150 cts/lb.

What are the challenges of direct sourcing?

I. Finding an exceptional coffee at origin. Finding a good coffee supplier at origin involves a good amount of research and most of times travelling to origin. Coffee conferences and international coffee auctions are good ways to be introduced to great farmers.

II. The need of experience and resources to bring in the coffee. The negotiation at origin with a producer can be challenging mainly if they don’t have past experience in this business model. Usually upfront payments are needed and the participation of a coffee mill, coffee exporter and coffee importer are needed in most of the cases. These links should be in the picture after the coffee is bought from the farmer.

III. Exports and Imports logistics. When the quantity of coffee is less than a full container load (37.500 to 43.000 pounds), the roaster or importer will have to find a bigger importer who can consolidate the shipment with others they are moving out of the same country and area inside the country in order to save on shipping costs. This process can often take several weeks.  

IV. Securing coffee quality. In the traditional green coffee business model the importer is responsible to delivering an agreed quality to a final client or roaster. The importer is then accountable for arrival quality problems, which may mean discounting poor-quality arrival coffee, replacing it, or even simply canceling the contract. None of these is an option in a direct-buying scenario. This s one of the most potentially devastating issues in direct business and reinforces the need of finding good partners at origin who have experience in coffee quality and coffee exports.

Invitation

Clearpath Coffee and it team has developed during the course of 30 years of work on the specialty coffee field a network of over 100 great coffee farmers and 20 cooperatives carefully selected for their commitment to the final quality of their product, healthy environmental practices and responsible community practices.

We are not only continuously seeking the best coffee available in Colombia, we have established partnerships who allow us mill the coffee and to move it out of the country.

If you would like to know more about our services, how we can help you with the direct sourcing of Colombian specialty coffee and have access to our monthly reports with information of available coffees write to Vicente Mejia at info@clearpathcoffee.com mentioning your company name and activity and you will be automatically included in them.

Vicente Mejia.