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Faring for Fairer Trade – PART 3

January 7, 2010

Photo credit: Chris Blakley via Flickr

THE REACTION OF CUSTOMERS

Coffee customers can be picky.

So imagine this: you’re a wholesaler and retailer and you have a number of progressive-minded customers. And suddenly you tell them you’re not doing a certification program, but you’re creating your own. “We had a good number of customers asking us ‘Why isn’t this Fair Trade?,’” Watts recalled. “[We had] wholesalers saying ‘We want Fair Trade!’ But we felt our own message was suitable for what we were doing.”

So how do you tell your customers what you’re trying to accomplish? “We did feel pressure to give people something. I felt comfortable explaining to anyone who asked why it was fair and why it was more sustainable. … But you can’t have thirty minute conversations with all of your customers. People want and crave some specific slogan. … So ‘Direct Trade’ came out … to put a face on what we’re doing to make it easier. Using the words Direct Trade was sort of a reaction to what customers need and want.”

So Direct Trade is Intelligentsia’s moniker to explain quickly and easily its program. The company originally trademarked it, but decided to open it up to mimic the open software model.

THE PROOF IS IN THE PASSPORT

But how do you prove that it works?

For one thing, Intelligentsia is considering allowing a third party to come in and certify Direct Trade coffee. “Absolutely consumers want it,” Watts said, “But as we are growing and the company is become larger, it becomes important just to give the consumers that little bit of extra confidence and [for us to] have the internal confidence if and when we’re not getting to a farm more than a couple times a year.

A screen shot of Watts' passport from Intelligentsia's web site.

But for now, Intelligentsia relies on trust. “We are all ethical and we are privately owned and we’re comfortable doing what we’re doing.”

Moreover, Watts insists, “I know several farmers who would probably not be growing coffee any longer if it weren’t for the relationship with Intelligentsia and the DT system we use.” Watts cites an example of an El Salvadorian farmer from the farm Matalapa. “She told me she had been planning on selling the farm and her beneficio because she didn’t see a future in it, but now she is thriving and winning awards at the Cup of Excellence.  Her coffee was used by our barista who won the US Barista Championship, and was a part of his success.  Now she is investing in the farm, planting new trees, and renovating her beneficio.”

Watts excitedly offers another example. “Another guy in Guatemala, from La Maravilla in HueHuetenango, was considered foolish by many of his neighbors for investing in the farm and spending money reviving it, given how bad the market was in the early part of this decade.  But it has paid off–his farm is thriving, it has grown considerably since 2003, and has earned a great reputation among many US coffee lovers.  He was the first person I ever signed a long-term contract with.  First one was 3 years, back in 2003, and we’ve been buying his coffee every since that time.”

In addition, as a fun way of illustrating Intelligentsia’s commitment to DT and its own transparency, Watts has posted his own passport on the company’s web site. Over the past seven years, Watts estimates that his time spent visiting farms abroad has been between 180-250 days a year. He’s currently working on his third passport in nine years by typically going on three trips per month.

HOW THE DT MODEL WORKS

In preparations for potentially using a third-party auditor, Intelligentsia has developed a few tools. For one, there’s a transparency contract that is the backbone of the entire Direct Trade system. “It breaks apart the prices of the coffee. Every time the coffee changes hands, we treat that as a separate piece.”

At “farmgate” (meaning purchasing the coffee directly from the farmer himself), the contract stipulates what the producer will receive in cash and the contract also stipulates the amount of payment increase corresponding to the increases in quality. Depending upon the situation, the price can even double when the farmers begin to approach the highest quality.

Sometimes the coffee will need to exchange hands to a drier, say, in the middle of the town where the farm is located. This adds on a second tier of pricing and likewise a third tier of price additions will be included when the beans are ready for export by the exporter.

The key is the transparency contract which discloses the pricing structure to all parties involved throughout the different tiers.

“There has been a lot of distrust where the growers look at the millers and think ‘You’re making too much.’” Watts describes. “Millers look at exporters and exporters look at roasters and think the same thing. So the idea was to remove that doubt so the farmers get all of the information… so they can see that this guy who I thought was ripping me off is only making five cents a pound.”

Moreover, it’s the relationship that matters. All of the farmers Intelligentsia works with have Watts’ cell phone number. And yes, they call. “Having mutual confidence and trust is very important in this kind of work—farmers need to trust that we are serious and reliable with our promises of higher prices for better coffees, and we need to know that the farmers are willing and capable of doing the work necessary to produce better quality coffees.”

It can often take years to build this relationship to the point where both parties are willing to sign long-term contracts. But it’s an integral part of the DT system and it offers both parties the security they need and a stronger ability to plan ahead.

After all, being able to predict the future is one of the few things that all businesses seek but infrequently are able to do.

********

The writer is the editor of CitizenPolity.com —  You can contact him at JamesERatcitizenpolitydotcom or follow him on Twitter:http://twitter.com/jepsteinreeves

Copyright 2009 – CitizenPolity & James Epstein-Reeves – Not to be used without the written permission of CitizenPolity or the author.

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One Comment leave one →
  1. Michael permalink
    January 9, 2010 12:35 pm

    So then, how much are you making per pound, Mr. Watts? You claim transparency but you don’t back it up. Show us how much you sell La Maravilla for and breakdown the profits made by each player in the supply chain, including Intellgentcia. That would be transparent.

    I don’t take issue with your “model”, but calling it “direct” is misleading. Claiming it is “transparent” is misleading. And, last time I checked, 3 years is not “long-term”. There is a disconnect between your ideals and your marketing.

    Keep up the good work, but back off on the marketing hype. Before you know it, you’ll be another Transfair.

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