Secure Your Coffee Supply Chain ASAP!
If you tuned into the conversation last week on the podcast with Chad Trewick you'll have learned one very important thing about the supply of coffee into the future - if you haven't gotten about the business of securing your supply chain, then you'd better get onto it...like NOW!
Not to sound alarmist (alarmism goes against my nature as a realist), but if we consider most of the variables at play - pricing, over demand, climate shifting, etc, the indications are that prices are going to stay low (way below the cost of production) for at least the foreseeable future. Unless of course, something drives the supply right down in the next few years and the price somehow corrects.
Now I don't have a crystal ball so we don't know any of this for certain. However, if cycles are anything to go by, the debt many farmers are still carrying from the previous crisis' thanks to the 30-50% interest rates they got hammered with by the banks back then, compounded with the current situation and the debt they'd need to take on to get through this crisis, one might suggest that there's more than likely some writing on the wall we should take notice off.
In the meantime, increasingly more smallholder producers are left with no choice but to either cut down their trees or abandon their coffee farms because the debt to income ratio they're amassing simply doesn't make sense if there's no imminent changes from further up the supply chain guaranteed. Without secured outside investment, asking commercial-grade coffee producers to upgrade their farms to produce specialty grade coffee is simply a fanciful dream that comes from a privileged perspective.
As more smallholder producers close down their production operations (or diversify their crops to produce less coffee) it leaves our long term supply chain exposed as to become more centralized with few [larger] producers. At a time when these bigger producers come into unexpected lower yields caused by incidences like Roya (Leaf Rust), natural disasters, and climate shifting, (this is inevitable) the dramatic effect on pricing and supply will be felt with even more force due to the power they'll yield.
The more smallholder producers we loose during this crisis, the more power the larger producers hold long term due to a lack of competition. They'll have more say over the pricing, quality and who's going to get the coffee they have on offer even when yields drop. This is a natural correctional force of free markets that's will result in the globalization of coffee right in front of our eyes without us noticing.
For that reason, I implore you to take heed from some of the business practices of many of the data donors contributing data to the Transaction Guide. They've done great work to secure their supply chain long term by doing the hard work of establishing relationships with producers and understanding what they need not only to survive but to grow and thrive. They're ahead of the curve and are less likely to feel the long term financial and supply effects of the coffee crisis. Their responsible (and longsighted business practices) will benefit the entire value chain, from the producer all the way to the consumer and go a long way to conspiring to the long term viability of their business.
As I said in episode #149 of The Daily Coffee Pro, you don't need to start by buying your coffee directly from the producer. There's nothing wrong with working with an importer to start with. Working with an importer, however, isn't enough. Use your relationship with your importer to establish relationships directly with the producer through your importer and cultivate a long term relationship with a smaller number of producers to secure your supply chain long term. You need to get onto this now!!
I'm working on bringing guests onto the podcast to teach you how to do this if you have no experience at all. I believe that starting in 12 months from now may be too late! I'm advising all my clients who own roasteries and cafes to prioritize securing their supply chain in their planning over the next 12 months.
I hope you’ll consider it too! The long term survival of business may depend on it - even if you’re doing well today.
This article was written by Lee Safar. Lee is the founder of MAP IT FORWARD and the CEO of Elixir Specialty Coffee Inc. An 18-year veteran of the Australian Specialty Coffee industry, Lee is now based in San Diego, California where she runs both businesses and records daily episodes of The MAP IT FORWARD Podcast featuring guests from around the world specializing in all sectors of the coffee value chain. Lee travels the world doing professional business and career development focused workshops and consultations for the global coffee industry.
Lee has a bachelors degree in Science (Genetics) from the University of NSW, an associate diploma in counseling and interpersonal skills, extensive experience in project management and business analysis in the corporate sector, and was a releasing music artist and record label owner.