Paying for Coffee: Nariño

In our previous series, Paying for Coffee: It’s Complicated, we talked about the various factors that underpin how we as a sourcing company buy coffee, as well as how to discuss it. While that series looked at the larger picture and laid groundwork for discussion, this is something we feel we—and the industry at large—need to go deeper on. This series will take a closer look at the details that underpin how we buy coffee in our major supply chains, each of which is unique.

FUDAM and Red Fox

Headquartered in La Union in Northern Nariño, producer association FUDAM uses the production of superb coffees as a tool for communal success and economic growth. Run by sister-brother team Raquel and Jeremias Lasso, the group is woman-led and hyperinclusive of women producers as a result. FUDAM headquarters also houses subgroup Manos de Mujeres (Hands of Women), a group specifically focused on empowering local women through coffee production. 

We started working with FUDAM in 2007, and we’ve bought coffee from them every year since. They’re headquartered in La Union on the northern side of Nariño, only a dozen or so kilometers from Cauca. The Lasso family is fundamental to coffee production in the area. We’ve been working with them since the beginning. As the region has become more popular for specialty buyers, they’ve continued to build quality as well as community. Thanks to extensive outreach over the larger region, the group grew from an initial 44 members from both La Union and Cartago at its inception to 130 members in 2017. This year, they have over 200 members in La Union, as well as over 80 in Manos de Mujeres and over 40 in an offshoot chapter in El Tablon.

In the past, coffees from the further reaches of Northern Nariño were collected by intermediary buyers (locally called coyotes) and taken to Buesaco, which is the main hub for parchment trading in Northern Nariño. With cash in hand, these intermediaries were often able to purchase parchment coffees from these producers at prices far lower than their quality. Once connected with a wider producing community and a consistent buyer ready to pay sustainable prices, FUDAM producers throughout Northern Nariño were able to break away from working with coyotes and invest in producing a great product year after year knowing they’d get paid well for their work. 

As in Inzá, we’re deeply embedded in this supply chain at the ground level, working with leadership and membership to develop quality in the extant coffee supply and connect with new producers in the wider region. We work with a third-party supply chain partner to finance parchment, prepare coffee for shipment, and export it.

What We Pay

FOB and Farmgate Pricing

As we’ve discussed in previous pieces, numeric prices themselves don’t tell you much—but, we’d like to share them anyway, along with context that will inform the numbers. 

At the beginning of every season, we talk to leadership and iron out the details for the upcoming year. Our prices are never in any way based on or connected to the C market. They’re always much higher than the local price, which itself is slightly higher than the C market price. We see our prices as core to our sourcing strategy: they are the highest in the larger region, both in order to give producers the resources they need to produce top-quality coffee and to ensure that they want to sell that top-quality coffee to us over other potential specialty buyers. 

Another interesting thing to note here is the strategy Raquel used to set prices with us. Knowing her group and their production, she elected for a higher base price and fewer quality tiers. Even though her group produces many 87 point coffees, they produce far more 85 point coffee, so that was how she wanted to allocate the available resources. 

This past year, Manos de Mujeres was able to launch an organic fertilizer facility and get select coffees certified FTO, but a few small prep issues prevented those coffees from being certified as planned (the issues were resolved and 2020 crop is now certified). Still, we’re including the organic price tiers we agreed on as well—note that Raquel’s strategy was to certify select coffees on the lower end of the bracket in order to even out and raise those tiers, making sure that those high prices were distributed through a larger variety of products to make the community more prosperous as a whole.  

FUDAM Coffee Price Comparison

Cup ScoreLocal Price (pesos per carga/125 kg parchment)Highest Local Buyer Outside Red Fox (pesos per carga/125 kg parchment)Farmgate (pesos per carga/125 kg parchment)FOB per (USD/ exportable green lb)
84 (organic)700k800k1.3m2.73
85-86 (organic)700k800k1.4m2.90
85-87
700k800k1.2m2.56
88-89
N/AN/A1.3m2.73
90+
N/AN/A1.5m3.07
 

Ex-Warehouse Pricing

As discussed in prior Paying for Coffee pieces, we then price in the costs of import, warehousing, and the sales process. Since we typically take full ownership of the coffees and sell them out of the third-party warehouses we carry our coffee in, rather than shipping them directly to a storage facility of a customer’s choosing, we price the coffee ex-warehouse

As part of that equation, we assume full risk for the coffees we buy, committing to their quality and honoring that commitment even if delivered quality is lower than expected. Because we do actually buy the coffees, store them, and sell them rather than simply coordinating sales between customers and vendors, we have to price in potentially unpredictable warehousing costs as well  (for instance, if we end up carrying the coffee in the warehouse for longer prior to sale than intended). While that is both a risk and a cost, it’s well worth it in order to be able to support producers and smaller customers at a higher level, buying and selling in quantities that wouldn’t be possible if we didn’t make that commitment.   

Coffees We Don’t Buy

FUDAM helps members sell any coffees we pass on buying. As you can see in the above chart, the next highest price they can receive for their coffee is 800,000 pesos per carga as opposed to our base price of 1.2 million pesos per carga, and at the time when we visited to set prices for the year, the local price was 700,000 pesos per carga.  

How We Buy

Sampling

Members bring their whole lot to the warehouse in La Union, then FUDAM staff (specifically Raquel and executive director Yeny Constanza Castillo) sample us once the whole lot is in. Before they send us coffees, Raquel’s son Anibal cups all them and screens out anything below 85. Typically, we cup a large chunk of FUDAM samples in our Berkeley lab using signal detection (sending the results directly to Raquel) and the rest in the brigadas, or windfall buying rounds, we hold with FUDAM every year (where we give results on the spot). 

At the brigadas, producers show up with their coffees and we cup table after table, making commitments then and there. They’re often treated as a showcase where producers will bring their favorite coffees, the ones they are most proud of. This year, FUDAM’s production was down and quantities were far more limited than usual. Unlike a normal year, we bought our entire year’s volume through the brigada. 

Lot Construction and Allocation 

After signal detection cupping, we separate out certain producers for producer ID lots. For blends, we craft bespoke lots intended to highlight particular families and communities of neighbors, and subregions that deserve recognition. While many lots are ultra-high quality and large enough to separate, most FUDAM members are smallholders, and it doesn’t always make sense to have hundreds of single-farmer lots on a menu. That’s why our lot allocation process has to be so painstaking: these coffees are incredible, and the range of profiles from neighborhood to neighborhood is distinct. It’s crucial to us that we represent these coffees in the truest possible light. So, they all go through the same rigorous QC process and lot construction is extremely intentional. 

Logistics and Shipping

After we take possession of the coffee in parchment, we mill in Popayan. We then truck the coffee to the port in either Buenaventura or Cartagena prior to export. 

Support We Offer

For FUDAM, we are a constant buyer with transparent, consistent standards, paying prices that stand alone as the highest in the region. Since we’ve existed, we’ve bought their coffee every year at prices high enough to both allow them to continue investing in quality and present a clear incentive for them to continue their relationship with us. 

As far as social programs go, FUDAM is a perfect example of why we offer our support in the form of money that producer associations can utilize and invest as they see fit, rather than us spending that money investing in social programs of our own devising to benefit their community. FUDAM, and specifically Manos de Mujeres, has developed so many beneficial social and ecological  programs to which they allocate resources and invest in to maximum effect. In other words, they don’t need us to tell them how to spend money devoted to producer growth. This approach is validated over and over in respect to the nonprofit world, but of course it’s logical as well—coffee producers are, by necessity, smart, driven, innovative people, and they know exactly what parts of their operations and communities are a source of struggle and need investment.  

Support FUDAM Offers

A lot of the community support done by FUDAM is led by Raquel through Manos de Mujeres. Coffee growing can be a macho, male-dominated field, and a group that’s women-led and hyperinclusive adds a huge amount of value to the larger community even before you look at specific projects and initiatives. 

FUDAM leaders have worked in conjunction with us to connect with further-flung producers and bring them in, helping them access a high-paying specialty buyer to make their operations fiscally sustainable. In the case of Manos de Mujeres, many women producers who Raquel recruited weren’t producing coffee prior to joining; they were selling crafts like jewelry and growing other crops like avocados and citrus, so Raquel helped them increase and diversify their income streams by adding top-quality coffee to the mix. 

Beyond recruitment, specific projects by Manos de Mujeres include getting the group FTO certified to increase income (especially for producers on the lower end of the quality spectrum) and opening an organic fertilizer facility so that organic production doesn’t come at the expense of productivity or conservation. As mentioned earlier, FTO certification didn’t work out for the 2019 crop but is now active, so the group will see these benefits this year. Another project of Manos de Mujeres is ensuring that women growers see a fair 50% of income from their coffees (at offer, we often get the coffees under a woman producer’s name, but when male family members deliver the coffee to the warehouse, the coffee can end up under their names instead).

Paying for Coffee—It’s Complicated

Each supply chain is unique, facing a singular combination of production costs, climate challenges, transit barriers, political issues, and scale factors. That’s why we feel it’s important to go deeper than looking at price alone: all of these factors matter when looking at the strength of a supply chain and the value add Red Fox brings to this relationship. 

FUDAM uses coffee to strengthen their local community, and even expand it. The coffee they produce is phenomenal, and we’re proud to source, export, and import it. It’s a supply chain we’re deeply embedded in and one in which, despite challenges over the years, we’re very excited about the future. All of that makes it a perfect candidate to look not just at what we pay for coffee there, but how we buy it.

Paying for Coffee: Coopbam, Peru

In our previous series, Paying for Coffee: It’s Complicated, we talked about the various factors that underpin how we as a sourcing company buy coffee, as well as how to discuss it. While that series looked at the larger picture and laid groundwork for discussion, this is something we feel we—and the industry at large—need to go deeper on. This series will take a closer look at the details that underpin how we buy coffee in our major supply chains, each of which is unique.

Coopbam and Red Fox

Within the Alto Mayo protected forest lies Coopbam, the association that drew us into Northern Peru after years of exclusive work in the South. Alto Mayo, which spans the border between the San Martin and Amazonas departments of Northern Peru, is home to a huge cross-section of native Peruvian wildlife.

Created by Conservation International, Coopbam acts as a steward of this forest, producing unique, excellent coffees while focusing heavily on fighting deforestation, protecting the native forest, and promoting socioeconomic development. Since coffee is still a major driver of deforestation, the project helps coffee producers in the protected area grow coffee in ways that preserve native trees, soil, and ecosystems.

Coopbam has been a major catalyst for change in our work in Peru. Prior to meeting Coopbam, we had worked only in Southern Peru, focusing our energy on inaccessible regions like Cusco and Puno where market access lagged far behind quality. Even though Northern Peru was home to some excellent coffee, the terrain was more accessible than the South and had better market access, so it was harder for us to see what value we could add to the supply chains there.

That changed when we met Coopbam, a group focused on environmental conservation and community uplift that needed a dedicated buyer to get off the ground. Because Coopbam is so different than the groups we work with in the South, it’s a perfect vantage point to look both at what we pay for coffee there, and the deeper issues of how we buy and what value we as a sourcing company are able to add for this group.

How We Got Involved

Conservation International organized Coopbam in 2014 as part of the Alto Mayo Conservation Initiative; a year later, a friend got in touch with us to tell us that Conservation International was looking for a buyer interested in taking on and investing in the project. They put us in touch with Coopbam and we started what would turn out to be a very meaningful relationship.

In our first year, we bought 30-40 bags of solid coffee, nothing mind-bending, but we came back, excited for a second year. As Conservation International employee and Coopbam leader Hugo Cahuapaza connected with more growers on the Amazonas side, the coffees got better and better. This area has a very special climate, with crisp cold nights and temperate days that are ideal for coffee production, as well as an abundance of old Typica, Caturra, and Bourbon, working together to produce a beautiful cup. Over time, our volume increased from that 30-40 bags to around 2.5-3 containers this year. While the quality is strong, we value Coopbam not just because of the cup they produce but the way they produce it: as a true community organization devoted to support and conservation of the local ecosystem and the humans within it.

Since its founding, Coopbam helped create a lot of job opportunities, not just through coffee production but also through reforestation programs. Coopbam has also created 4 women’s committees to represent women’s equity on a local level, targeting access to education and healthcare. They delivered cooking stoves to their member households, launched medical campaigns and installed solar panels. They produce delicious coffee, but that’s far from the limit to their work.

What We Pay

FOB and Farmgate Pricing

The actual prices we pay at the FOB and farmgate level are in a way the simplest and least interesting part of the supply chain, but we want to share them, as well as laying out the actual process by which people get paid—a variable that can have a huge effect on the lives of producers. Please note that the unit in the below chart jumps from quintals to pound when moving from farmgate prices to FOB.

Cupping Score
Advance (USD/quintal)Fair Trade Premium (USD/quintal)Prima Asamblea/Coop Payment (USD/quintal)
Quality Premium (USD/quintal)Total Farmgate (USD/quintal)FOB (USD/lb)
84/85140.005.005.0025.00175.002.40
86/87140.005.005.0035.00185.002.75

Coopbam pays members at two points. When the coffee is delivered, they do a physical evaluation to determine the estimated yield. Producers receive an advance based on this estimate (as seen above).  Coopbam pays producers again at the end of the season (sometime between December and February, depending on when the coop receives payment from all of its clients).

This second payment is based on the price paid by the buyer as well as the other premiums noted above (Fair Trade and Prima Asamblea—both of which the coop designates into separate communal funds for workers and producers in order to be used to improve the social, economic and environmental conditions of the community and cover certain operating costs). The second payment can be up to $80 USD. Red Fox pays the coop the above FOB rates once we receive the export documents.

As discussed in prior Paying for Coffee pieces, the core of our sourcing strategy is setting clear, consistent standards for quality and pricing. Prices are a) never, ever connected to the C market price in any way, and b) they are the absolute highest in the region in order to incentivize both quality production and sale to Red Fox over another potential buyer.

Also important to note is that we aren’t just offering high quality premiums: since most groups produce more 84/85 point coffees than higher-scoring lots, our base rate comprises the majority of what we end up buying, meaning that paying the highest base rate is critical to an honest approach. It should go without saying, but we also stand by the benchmarks we set and never renege on the quality tier and pricing we commit to, regardless of what happens to the coffee on the sales or quality side after import.

Ex-Warehouse Pricing

As discussed in prior Paying for Coffee pieces, we then price in the costs of import, warehousing, and the sales process. Since we typically take full ownership of the coffees and sell them out of the third-party warehouses we carry our coffee in, rather than shipping them directly to a storage facility of a customer’s choosing, we price the coffee ex-warehouse, meaning the price as it comes out of the warehouse.

As part of that equation, we assume full risk for the coffees we buy, committing to their quality and honoring that commitment even if delivered quality is lower than expected. Because we do actually buy the coffees, store them, and sell them rather than simply coordinating sales between customers and vendors, we have to price in the potentially unpredictable costs of third-party warehousing (for instance, if a particular coffee doesn’t sell promptly, we will pay to carry it in the warehouse until it does sell). While that is both a risk and a cost, it’s well worth it in order to be able to support producers and smaller customers at a higher level, buying and selling in quantities that wouldn’t be possible if we didn’t make that commitment. We assume this risk in order to add value to the supply chain, expedite logistics, and strengthen producer relationships.

How We Buy

More on Coopbam

Before we delve into the specifics of our relationship with Coopbam beyond payment alone, here’s a little more about how the organization works. As mentioned, the group works directly with Conservation International. Hugo Cahuapaza is one of Coopbam’s primary leaders (the one we work most closely with). An employee of Conservation International, he handles client relationships, sales, and financing. Internally, Coopbam has a president, manager, and board of directors (one of whom is Marilu Lopez Padilla, an incredibly talented producer we work with). They have leaders in each community (Beirut, Yambrasbamba, and Vilcaniza in Amazonas and Aguas Verde and Moyobamba in San Martin) to ensure on-the-ground support.

To get to Coopbam HQ, you fly into Tarapoto, at the entrance of the Amazon, Unlike the challenging terrains of the South, it’s only a few hours by car from there to get to headquarters in Rioja. It’s only about another hour to get from there to the producing zones.

Sampling

Unlike Valle Inca in the South, Coopbam members aren’t too far-flung, so they bring their coffee to different collection centers based on their location (in Aguas Verdes, Moyobamba, and Vilcaniza). Each location receives coffee once a week. All of the coffee Red Fox purchases is delivered to the Vilcaniza collection center on Thursdays.

Since Coopbam has members at altitudes ranging from 950-1900 masl, the harvest period is long. Coopbam’s QC team is cupping constantly between the months of March and October, and Red Fox quality coffees start coming out in July. Coopbam’s QC team prepares the samples and send us batches of samples 3 or 4 times over the course of the season, about every 3 weeks between August and October.

As far as prescreening goes, the QC team cups through all of their producer samples and groups them by quality. What they determine to be 84+, they send to Red Fox, and the lower qualities are bulked together for different customers. Once we’ve cupped and scored the coffees, we send results to Coopbam and they share the results during meetings with members.

Support We Offer

In terms of producer support, the central type we offer in Coopbam, as in every origin we work in, is in paying the highest possible prices and letting producers lead their own development projects. While that may run counter to the narrative of offering several programs for producer advancement, we want to recognize that producers and groups know their business better than we do—they know where they need to invest their money. We honor that by communicating clear quality standards, living by those standards, and then paying the money they earn directly to them for their chosen expenditures, rather than paying slightly less and offering auxiliary services. Many studies in the nonprofit sector validate this approach.

In that spirit, when we first started working with Coopbam in 2015, we worked with coop leaders and producers to understand the Red Fox model and what was required on the production side to meet our quality standards. Two members of Coopbam’s QC team participated in our cupping training and calibration this year, and we’ll continue calibrating with this group as needed.

Support Coopbam Offers

As mentioned, Coopbam uses its resources to focus on conservation and economic uplift through coffee production, offering agronomic assistance so that producers can maximize quality and income through conservation and best practices.

The agronomic assistance team is made up of one agronomist and 6 promoters (people from the communities whom the coop agronomist trains to provide agronomic help). Coopbam has 20 base committees (different communities), and each promoter is responsible for about 3 committees. The promoters teach preparation and application of organic bokashi-style fertilizer using food waste, coffee pulp, sugarcane stalks, microorganisms from fertile soil, and guano from the islands. They also teach members to make foliar fertilizers using coffee wastewater to prevent roya and ojo de pollo, as well as pruning, harvest and post-harvest practices, including selective harvesting, the importance of depulping the same day, fermentation, building raised beds for drying coffee, and proper coffee storage. They help farmers constantly monitor moisture content and water activity, drying to 10.5%-11% moisture and .50-.58 water activity.

As mentioned earlier, the group has 4 women’s committees that work to ensure access to education and healthcare through various projects. This is crucial because communities that have strong support systems for women are best positioned to thrive economically, especially in fields like farming where women are often doing a huge chunk of both production and community labor.

Logistics and Shipping

Logistics are less complex for Coopbam than the more geographically-challenging South, but humidity does add some difficulty.

Since we purchase their coffee FOB, they take responsibility for all of the transportation within Peru (from their storage center to the dry mill and from the dry mill to the port). Coopbam’s coffee almost always ships out of the port of Paita in Piura, on the northern coast. They have a storage facility in Aguas Verdes, but since it’s very humid, they preserve quality by storing all the parchment in GrainPro. As soon as they have results from their cupping lab, they move it to Piura, which is much drier. The coffee is stored at the dry mill in Norandino before moving to port and shipping.

Coffees We Don’t Buy

One thing we’re thinking more about is what happens to the coffees that we don’t buy, and the producers who grow them. Since we are a single company with a specific model, it’s not a problem we’re positioned to solve yet, but we do want to be open about the prices producers get elsewhere.

Coopbam is a quality-focused group, so they don’t purchase any coffee with a cup quality below 80. If the coffee cups below 80 points, the coop leadership helps the producer sell that coffee in the local market.

Coopbam has clients for all the 80+ coffee they receive from producers, and thus far they have been able to make the minimum payments to producers without taking a financial hit (the minimum they pay is $140 USD per quintal exportable or 46 kg). Coopbam negotiates “combo” contracts with the clients that purchase the lower quality tiers. The vast majority of the contracts are FTO, and the rest are C+.20, C+.10, etc. By averaging all of these contracts out they are able to pay producers the $140 minimum.

Impact Reporting

We believe in the work we’re doing, but we also feel it’s important for us to go deeper and make sure we’re covering our bases. To that end, we’re conducting a series of surveys over the course of this season, working with an experienced outside surveyor to try to mitigate bias and get the best data possible.

The surveys are mostly focused on cost of production, with a goal of making sure that the prices we are paying represent a sustainable living for producers. More to come on that later as the production and payment seasons wrap up.

Paying for Coffee—It’s Complicated

Each supply chain is unique, facing a singular combination of production costs, climate challenges, transit barriers, political issues, and scale factors. That’s why we feel it’s important to go deeper than looking at price alone: all of these factors matter when looking at the strength of a supply chain.

Coopbam is a strong group: not only do they produce stellar coffee, their focus on conservation and gender equity allows them to do that while ensuring a stable future, even in the face of the challenges brought on by climate change and politics. They’re a great example of the value of a coffee beyond cup score alone, which makes them a perfect vantage point to look closer, focusing in on not just what we pay for coffee, but how we buy it.

Interested in sourcing coffee with us? Reach out at info@redfoxcoffeemerchants.com!

Paying for Coffee: Valle Inca

Paying for Coffee: Valle Inca

In our previous series, Paying for Coffee: It’s Complicated, we talked about the various factors that underpin how we as a sourcing company buy coffee, as well as how to discuss it. While that series looked at the larger picture and laid crucial groundwork for the discussion, this is something we feel we—and the industry at large—need to go deeper on. This series will take a closer look at the details that underpin how we buy coffee in our major supply chains, each of which is unique. 

Men picking coffee cherries and smiling.

Valle Inca and Red Fox

Valle Inca is a perfect expression of the work around which Red Fox was built. Located in Calca (specifically the remote subregions Yanatile and Lares) in the south of Peru, they launched in 2014 and we’ve been buying coffee from them ever since. Where, at first, Valle Inca yielded small quantities that struggled to make the grade quality-wise, they’re now one of our biggest vendors in all of Peru, producing enviable quality.

Leader Prudencio (Jose Prudencio Saenz Vargas) is a Calca native who brings former experience as a bank loan officer to his work running Valle Inca—fiscal experience of critical importance to Valle Inca and the surrounding community, most of whom are smallholders averaging just 2-3 hectares each. When he got started he was new to coffee production, but his extreme quality focus has always been key to the group’s success.

He helped Valle Inca producers move from drying coffee on plastic mats to raised beds, worked with our Head of QC in Peru, Tibed Yujra, to improve drying, fermentation, and storage practices, and was the first producing partner of ours to implement GrainPro in storing parchment. He meets farmers where they are in the isolated reaches of Yanatile and Lares and works with them to produce the best coffee they possibly can.

Prudencio has a real, genuine desire to help farmers get better prices for their coffee, which is often all too rare in producer leadership. All of this makes Valle Inca a perfect vantage point to look at not just what we pay for coffee, but how we buy it.

A group of producers

What We Pay

Just as in Inzá, we visit Valle Inca at the beginning of the production season to set prices for the year so that producers can know what to expect and budget accordingly, as can we. We have exclusive access to all of Valle Inca’s specialty weight, so it’s important to us to make sure that 1) the prices we pay incentivize Valle Inca selling to us exclusively and that 2) the prices we pay allow them to invest in producing top-quality coffee.

FOB and Farmgate Pricing

As in all of the origins we work in, we never tether any of our prices to the C market. As part of our strategy for making sure we have access to the highest quality coffee—and that the producers we work with have the resources they need to produce that quality—we set our base prices high, not just well above the C market but higher than prices that Valle Inca members could receive anywhere else.

With Valle Inca, we pay Prudencio a preset FOB price (or free on board, the price of the coffee at export) per green pound, and he pays the individual producers per quintal of parchment (100 lbs or 46 kg). Below is the breakdown of FOB prices we’re paying to Prudencio this year, and how they convert into farmgate prices that Valle Inca producers receive from him in turn. For reference, the highest-paying client in the local market outside of Red Fox pays 300 to 330 soles per quintal of parchment and $1.20 per quintal of green coffee. Other buyers pay between 280 and 320 soles. Valle Inca pays producers between 310 and 340 soles per quintal of parchment for the coffee that they purchase but don’t sell to Red Fox.

Table with pricing

The exact soles quantity Prudencio pays to the farmers (expressed above as a range above) varies based on a few factors, including:

  • The percentage of the parchment that converts to exportable green coffee after dry milling.
  • Whether or not Valle Inca provided tools in advance of the season free of charge, like screens and mesh drying beds.
  • How much payment the farmer need upfront (with financing costs so high, those who can wait longer to receive payment receive a small incentive).

Ex-Warehouse Pricing

As discussed in Paying for Coffee—It’s Complicated and Paying for Coffee: Inzá, the exporting, importing, and warehousing processes add substantial costs over and above the FOB prices, which is why we sell our coffee at an ex-warehouse price, or EXW. Once we factor in the cost of bringing coffee into port, getting it into a warehouse, holding it in the warehouse until it’s sold, and covering the additional operating costs of our business, we get to our ex-warehouse prices, the point at which roasters purchase our coffees.

Pricing Risk

When we sell coffee ex-warehouse, another factor we have to account for is the risk we take when carrying a large spot position from producer groups like Valle Inca. In Calca, Prudencio commits to paying for farmers’s coffee, and if that coffee falls below the predefined quality standards, he still pays those farmers the agreed upon amount. A similar dynamic holds true for us. Where many other importers and sourcing companies only buy what they can sell in advance, reducing their warehousing costs, we commit to anything Valle Inca produces within the quality limits we set, warehousing and selling it over a longer period of time.

What this often means is that we’re managing some amount of inventory in third-party warehouses for a longer period in order to fulfill our commitments—a cost we have to account for. We’re also accountable for any quality risks involved in this process, paying what we’ve committed to paying even if the coffee doesn’t arrive at the contracted quality level.

Moutains and coffee farms

How We Buy

Those are the numbers that underpin the work we do with Valle Inca, from Calca to the US, but they still only capture a small part of the picture. Here, we’ll talk about what the actual buying, exporting, and importing process looks like.

While the farmers are drying their coffee on their farms, Valle Inca sends their agronomist out to farms to test moisture on the coffees before they make their way to the warehouse, allowing producers to further dry their coffee without having to cart it back and forth to the warehouse for testing (due to the challenging terrain in this region, this is a huge endeavor on Valle Inca’s part to save the farmers this journey).

Then, Valle Inca collects the coffee from 80% of members’ farms (the most distant ones); the other 20% take their coffee to one of two closer collection points, where Valle Inca picks it up. The coffee moves from there to the group’s warehouse in Calca. Prudencio used to run the whole organization out of his house, but now they have a physical warehouse and cupping lab where he does a preliminary filtering of the coffee, removing lots that are visibly unclean from the mix. Everything clean, he sends to our lab in Lima.

In Lima, we take the moisture and water activity of the coffees, then cup them via signal detection, scoring them numerically in a way that allows us to approve or reject coffees, then allocate them to specific tiers, from the regional ID to the community or producer ID, which determine the FOB prices we pay to Prudencio. We communicate this info to Prudencio and he passes it on to the farmers.

From there, we compose bespoke lots based on how to best represent each producer’s work, no matter what tier they are approved for, and organize them into specific container loads headed toward a specific warehouse location based on logistics and forward commitments from customers. Once the coffee ships, Prudencio gets paid.

Financing

As mentioned earlier, a hurdle that Valle Inca deals with is financing. Where larger and more established coops have access to loans from big banks in Peru, there are other social lenders like Root Capital that can give producers an advance. But, since Valle Inca was only established a couple years ago and is still small, they don’t have that access.

So, Prudencio actually takes out personal loans in his name to make sure everyone gets paid in a timely fashion and can buy what they need to produce coffee (as well as covering their other needs). Once the coffee starts shipping and he gets paid, he uses the money to buy more coffee from the farmers over the course of the season. Then, once everything has shipped, he pays all the farmers out 100%.

A good dog

Coffees We Don’t Buy

Since Valle Inca is intensely quality-focused, Prudencio works only with farmers above 1500 masl and those who are willing to make quality investments where they can, and in this way he works to make sure everyone in his organization is aligned priority-wise. When the coffees don’t meet our predefined purchasing standards, he sells them to the local market, which, while nowhere near our price, is still higher than the C market price. He still pays producers the price he sets for them at the beginning of the season, and in these situations, he loses money. But, the far-higher prices he gets from the coffees that meet our standards help to significantly raise the net average price over what Valle Inca would receive elsewhere.

This is an issue we’re investigating further, through impact reporting that is happening right now.

Impact Reporting

Since Valle Inca is intensely quality-focused, Prudencio works only with farmers above 1500 masl and those who are willing to make quality investments where they can, and in this way he works to make sure everyone in his organization is aligned priority-wise. When the coffees don’t meet our predefined purchasing standards, he sells them to the local market, which, while nowhere near our price, is still higher than the C market price. He still pays producers the price he sets for them at the beginning of the season, and in these situations, he loses money. But, the far-higher prices he gets from the coffees that meet our standards help to significantly raise the net average price over what Valle Inca would receive elsewhere.

This is an issue we’re investigating further, through impact reporting that is happening right now.

Logistics and Shipping

As we’ve said, Calca, and the subregions of Yanatile and Lares, are incredibly remote and present complex logistics for transportation and exporting. These coffees are dry milled in Lima, about an hour drive from port but about a 20 hour drive from Calca. Aside from that complexity, Lima’s damp climate presents far-from-ideal conditions to store coffee, we store the coffee in Calca’s ideal conditions until we’re ready to ship, with a rule that coffees have no more than 10 days from getting into Lima to get milled and shipped.

Paying for Coffee—It’s Complicated

Despite being just a couple years old, Valle Inca is one of our core relationships. It’s one that perfectly expresses how we buy coffee, including, but not limited to, price alone. Their integrity, tenacity, quality focus, and drive to grow and improve are a perfect fit with our work, and we’re excited to offer an open window into this relationship for people ready to learn more about coffee sourcing, coffee pricing, and the logistics of how coffee gets from point A to point B.

As we move through the year, we’ll continue to shine a light on our individual supply chains, going deeper in order to show what our sourcing really looks like, from the ground up. It’s critical to the future of coffee that we as an industry have conversations like this: conversations where we discuss not just what we as companies pay for coffee, but how we buy it.

Interested in sourcing coffee with us? Reach out at info@redfoxcoffeemerchants.com!

Paying for Coffee: Inzá

In our previous series, Paying for Coffee: It’s Complicated, we talked about the various factors that underpin how we as a coffee sourcing company buy coffee, as well as how to discuss it. While that series looked at the larger picture and laid crucial groundwork for the discussion, this is something we feel we—and the industry at large—need to go deeper on. This series will take a closer look at the details that underpin how we buy coffee in our major supply chains, each of which is unique. 

 

Inzá, Our Oldest Relationship

In this piece, we take a deep look at Inzá, our longest-standing relationship at 13 years. In Inzá, we’ve seen other buyers come and go, dealt with hyper-competition, and experienced both success and failure; through it all, we’ve remained just as invested in the hardworking and honest members and leaders at producer association Asorcafe and the exceptional quality and consistency they produce. This is a group we’re completely committed to, and here, we dive into what that commitment looks like, talking about not just what we pay for coffee, but how we buy it.

What We Pay

First, the simplest part of the equation: what we pay. We visit our trade partners in Inzá each May to establish pricing for the following 12 months of harvest. Our motivation is not just to make coffee production worthwhile in Inzá, but to make sure that the extra effort it takes to produce the above-and-beyond quality we look for here drives the incentives producers receive. Asorcafe sells their specialty coffee production to us exclusively, so we also need to ensure that our pricing is superior to what they could get elsewhere in order to maintain our exclusive access to their specialty weight.

Farmgate Pricing

As part of this strategy, we set our base prices high and we don’t tie them to the C market in any way. First, as a comparative baseline, the local price offered by the Colombian Coffee Growers Federation (FNC) on our most recent visit was 837,000 pesos per carga (the standard price/volume measurement in Colombia—around 125 kg parchment) with no pricing incentive for better quality—a price that goes up and down with the C market. In Inzá, Nespresso is a huge commodity buyer, offering prices slightly higher than the Federation: at the same time the FNC was offering 837,000 pesos per carga, the Nespresso price was 850,000, also tied to the C market.

Looking at our prices, we pay a baseline rate for coffees scoring 84-85 of 1,150,000 Colombian pesos per carga, equivalent to 2.47 FOB (or free on board, the price of the coffee at export). For coffees that score an 86, we pay 1,250,000 pesos per carga, equalling 2.64 FOB. For coffees at an 87, we pay 1,400,000 pesos per carga, or 2.90 FOB, and for 88-89 point coffees, we pay 1,500,000 pesos per carga, or 3.07. For coffees at or above a 90, we pay 1,700,000 pesos per carga, or 3.42 FOB. Once again, our prices don’t fluctuate based on the C market.

Price Comparison:Farmgate (pesos per carga)FOB (USD)
FNC837,000<2.00
Nespresso850,000<2.00
Red Fox 84-851,150,0002.47
Red Fox 861,250,0002.64
Red Fox 871,400,0002.9
Red Fox 88-891,500,0003.07
Red Fox 90+1,700,0003.42

FOB Pricing

As we’ll go further into below when talking about how we buy, costs that take the coffee from farmgate to FOB include transportation from the interior to the mill (which Red Fox pays for directly), meticulous preparation for export, GrainPro for protection through transport and storage, transport to port, and loading onto the cargo ship. We expect a process and prep that’s close to perfect and we pay well for it.

As we explored in Paying for Coffee: It’s Complicated, just as exporting coffee adds costs over and above the amount the producer got paid, the importing and warehousing process also adds costs of its own. Once we factor in the cost of bringing coffee into port, getting it into a warehouse, holding it in the warehouse until it’s sold, and covering the additional operating costs of our business, we get to our ex-warehouse prices, the point at which roasters purchase our coffees.

Managing Risk

Another factor we have to account for in our ex-warehouse pricing is the risk we take when carrying a large spot position from these producer groups. Where many other importers and sourcing companies only buy what they can sell in advance, reducing their warehousing costs, we commit to the quality volume Asorcafe produces, selling it over a longer period of time.

What this often means is that we’re managing some amount of inventory in the warehouse for a longer period in order to do this—a cost we have to account for. We’re also accountable for any quality risks involved in this process, paying what we’ve committed to paying even if the coffee doesn’t arrive at the contracted quality level.

Just like the price roasters charge per retail pound is higher than the green price per pound of the same coffee, our ex-warehouse prices are necessarily higher than our FOB costs. Just like the costs roasters face in taking coffee from a green to a roasted product, we face costs during the sourcing, exporting, importing, warehousing, and selling process that take the coffee from its FOB to ex-warehouse prices, while carrying the quality risks incurred at all these stages.

How We Buy

One thing we’ve seen over time—in every region we source, but especially Colombia—is buyers who attempt to pick off those they perceive as the “best” producers rather than working with producing groups like Asorcafe who provide resources, structure, and community investment. Critical to our success in Inzá over time is our investment in the community structures that support producers, rather than just an interest in skimming the highest-scoring lots and producers off the top.

The essence of what we do in Inzá is similar to everywhere else: we try to incentivize quality. We do this with the prices we pay, discussed above, but those aren’t the only incentives for producers to grow great coffee. Asorcafe works with an agronomist to help with nutrition, shade coverage, and pruning, as well as fermentation times and processing details. We pay 50% of the agronomist’s fees, making it easier for Asorcafe to afford the quality improvements that come along with better plant health and processing.

We also pay for transportation of the coffee to the dry mill, which is a significant cost, and one that producers usually have to cover themselves. From there, we buy the coffee in parchment. We take on the cost of removing the parchment and sorting via gravity tables or machines—the latter which not only has a process cost but also removes a minimum of 20% of the coffee’s weight but results in a significantly better cup.

We then pay for the coffee to get packed in GrainPro bags to preserve the careful work that went into processing and drying. We transport the coffee to the port and get it onto the ship that will bring it to its destination, selecting the fastest shipping option—which often is not the cheapest—in order to minimize the impact the shipping process can have on quality.

Cupping and Communication

As we talked about in Scaling Quality: Signal Detection Cupping, farmers in Inzá average just 1 exportable bag of coffee a year, but even though it takes a lot of time and energy, we feel it’s well worth it to taste what each farmer has to offer individually and blend in ways that truly represent their work. We apply the signal detection process to all offer samples, making sure we’re cupping samples anonymously to remove bias and quantifying our results in a way that’s easy to communicate back to Asorcafe.

Once we have our scores, we compose lots at various tiers custom-made from specific producers and communities to best showcase their work. We then send the results to Asorcafe leader Geovanny Liscano, who communicates them to Asorcafe’s membership.

Coffees that score below our threshold are typically sold by producers to Nespresso, which is why we work hard to both incentivize and assist quality production. For us to buy coffee at lower quality tiers at high-quality prices, we would need customers to both embrace and commit to that.

Paying for Coffee in Inzá

Inzá is a perfect example of how we buy coffee. As our oldest relationship, it’s an ideal vantage point to examine not just at what we pay for individual lots, but the other types of support and incentives we offer, as well as the specific logistics that move coffee from point A to point B in this unique supply chain. As we move through the year, we’ll continue to shine a light on our individual supply chains, going deeper in order to show what our sourcing really looks like, from the ground up. It’s critical to the future of coffee that we as an industry have conversations like this: conversations where we discuss not just what we as companies pay for coffee, but how we buy it.

Scaling Quality: Signal Detection Cupping

At Red Fox, our very small team cups a veritable ton of coffee. Whereas another importer might cup a single representative sample to purchase multiple containers from a coop, we often cup as many as 250 samples to build just one. This is a lot of work, so why do we do it? The answer is that we feel that each producer, no matter how small their operation, deserves to have their coffee tasted by our team and assessed independently. We also feel that every producer deserves specific feedback on their coffees and the ability to make additional quality premiums when their coffees exceed our already-high expectations.

Even more than the why, this piece is focused on the how: in order to cup the amount of samples we do with the tiny team we are, we use a carefully dialed system called signal detection cupping. First introduced to us by roasting and sensory expert Paul Songer and honed to our needs over time by resident expert and Director of Quality Joel Edwards, signal detection lets us cup a ton of coffee both efficiently and objectively, allowing us to not only make the right purchasing decisions but also share concise, focused, and quantified feedback with the producers we partner with.

More than just helping us cup more accurately, efficiently, and consistently, signal detection is also a linchpin in how we allocate coffees and construct lots. Where many others take a single sample from a cooperative as the de facto blend for a particular region—which, in general, is also considered de facto inferior to the single producers of that same region—we build them by hand, taking the extra time to craft lots that are a perfect representation of a particular community, family, or microregion. Without signal detection, this process would be a lot more time-consuming.

How Signal Detection Cupping Works

First, some context: we only use signal detection to cup coffees for purchase. We have a completely different procedure we use to assess preship samples and arrival samples, as well as to track quality over time. The signal detection process is specifically calibrated to help us cup offer samples from producers both efficiently and effectively and make the least biased, most informed purchasing decisions possible.

We’ll get into the details, but first, some general principles:

  • Signal detection is double-blind, so no one tasting coffee has any idea which coffees they are tasting beyond which cooperative or producer group they came from.
  • We place three cups of each coffee at random points in the table based on numeric assignments from our signal detection spreadsheet instead placing cups together and judging them as sets.
  • Each panel participant cups the table a single time at their desired temperature and we come back to the table to taste & discuss coffees in question after the data is entered into the system and analyzed.
  • We rely on the group’s aggregated scores and calibration to generate accurate and comprehensive results rather than on individual opinions.

While signal detection might not be the right cupping procedure for every roaster, it utilizes principles that underpin any solid cupping protocol: ensuring consistency, eliminating bias, and relying on group calibration more than individual opinions.

The Details

Specifically, the signal detection scoresheet works via a scale of 1-6, which takes on the following values:

1: Defective

2: Not Red Fox quality

3: Probably not Red Fox quality

4: Probably yes Red Fox quality

5: Yes Red Fox quality

6: Definitely Red Fox quality

Prior to setting up the cupping, we enter all of the sample roasts we are cupping into our signal detection spreadsheet, which assigns them random numbers, then scramble them, so that we can set up the cupping with no knowledge of which coffees we are tasting.

We brew the coffees without assessing fragrance or aroma, then move through the table quickly once the coffees are completely cool, taking one or two tastes of each and assigning them a score on this scale. While this process would be glib if used by a solo cupper, it works perfectly with a team, ensuring that all cuppers taste all coffees in a uniform and brisk fashion and don’t second-guess their first instincts.

We then enter our anonymous individual scores into our spreadsheet, which calculates our aggregated scores, giving us a group average, a cup-to-cup spread, and a confidence rating. At this point, we unscramble the coffees so we can see the random cups as sets and assess their quality and consistency.

Allocating Coffees and Lot Construction

This is where we start the process of building lots. Looking at our group average, our cup-to-cup variance, and our confidence rating, we’ll be able to see at first glance that some coffees were clearly exceptional and that some did not quite meet our quality standards. For those coffees scoring either solidly in between or all over the place, we go back and taste them as a group, then come to a decision.

In our core regions where we work primarily with smallholders—Colombia, Peru, and Mexico—we build our menu at a few different tiers: regional lots, community or family lots, and producer ID lots. Where a coffee gets slotted depends on its quantity as much as its quality.

Typically, offers will need to average around 4 to be contracted, and those lots will be bulked into community or regional lots. Offers that score closer to 5 will be marked for separation, qualify for a higher price tier, and will be marketed by name when possible as producer ID lots. Offers that score closer to 6 will receive an additional premium. Each tiny lot that goes into both our community and regional lots is vetted with the same rigour; each producer gets the same level of feedback from us. Even though cupping each producer’s lots separately isn’t the easiest way to buy coffee, we feel it’s more than worth it to build lots that represent each producer’s work at its finest, especially because we often find that these hand-built lots can present even more dynamism than the best producer ID lots.

For example, take Inzá, Colombia, where lot sizes average around just a single exportable bag. Cupping these tiny lots takes a lot of effort on our end, but not nearly as much as it takes to produce them. We aim to be as intentional as possible with how we bulk these lots and present them to the marketplace. For instance, no matter how exceptional their quality—and it is exceptional—a slew of one-bag producer lots is neither feasible to market on our end nor feasible for our clients to market and sell to their clients.

So, we take the next step to make sure these tiny lots can find real market representation in a way that makes the most logistical sense for all involved: crafting bespoke lots at the community, family, microregional, and regional levels that most accurately represent each producer’s unique cut. For example, Eibar Rojas, neighbor to the Oidor family in San Rafael, produces tremendous quality—just not always a lot of it. His farm is on the same southern-facing slopes as his neighbors and grows almost entirely Caturra, same as his neighbors. His farm is at 1800 masl in its lowest point, the Oidors at 1750 masl. Both peak out just above 1900 masl. When carefully blended together, these coffees showcase exactly the quality and unique character that its individual producers are bringing to the table. Their lots are often too small to find market representation when separated, but together, they showcase their quality perfectly and fit perfectly into the supply chain as well.

Or, look at brothers James, Hernan, and Jose Casso. They have four hectares between themselves and their father Miguel—not so much if separated individually, considering they produce coffee from June through February, but collectively enough to produce over 50 exportable bags annually. With that volume between them, they’ve got teamwork down to a science and work with us to bring their coffee to market in the most representative way possible: as familia lots that are as labor-intensive to construct and every bit as special as any single producer lot we bring in.

Why It Works

Group input and calibration are critical to the consistency of our process because even the most talented and experienced palates can have an off day. As Paul Songer, who introduced us to signal detection, says, 100% calibration where all team members feel exactly the same about each coffee not only doesn’t exist, but wouldn’t benefit a team. Fostering diversity of opinions is crucial in making sure that each producer’s coffee receives fair and balanced feedback, and signal detection allows us to look at group scores and stay within a fairly tight calibration range without having to close off the natural variations in palate and preference.

Removing bias by cupping blind with three randomly placed cups of each coffee also helps us to score coffees fairly and accurately. When we see that a set has very different scores between cups (but not cuppers) we know that one of the cups had a defect—but we got to taste and score the other two cups unbiased by that knowledge. As Joel says, when you taste the first cup in a three-cup set, you’ve usually already decided how you’re going to score the other two. Cupping blind also allows us to remove any political elements that might affect perceived preferences.

An added bonus is that signal detection is very easy to train new partners into, so as we deepen relationships with producing partners and onboard new team members, we can quickly bring them into our system and calibrate.  

Signal detection works well for us, but that doesn’t mean it’s for everyone. It’s a very specific system we know will deliver the results we need, but we do feel that the general principles that underpin the process would benefit any cupping team or buyer: ensuring consistency, removing bias where possible, cupping with a team when possible, and doing your best to appreciate and represent the hard work each producer puts in to get their coffee to your table.

Pluma de Oaxaca: An Origin Reborn

The deeper we get into the world of Mexican coffee, the more excited we get, and those of you who have tasted the coffees or met some of our producing partners know why. Right now, we’re looking at Pluma, a subregion of Oaxaca that brings with it an incredible history along with incredible coffees. Boasting the singular Pluma Hidalgo variety, an offshoot of Typica, at elevations as high as 2200 masl, Pluma coffees bring with them a wide range of flavors: distinct dried fruit notes like raisin and prune, saturated sweetness like brown sugar, richness like drinking chocolate, complex malic acidity like green apples, and even florals like amber honey and peach blossom. Even though many of these coffees are still on the water, they’re going fast—if you’re interested in picking some up, get in touch now.

Over the last few decades, Pluma’s coffee production has evolved dramatically, shifting from the hands of large estates into the hands of local smallholder farmers. Nowadays, Pluma is almost exclusively the province of smallholders with farms averaging just 1-2 hectares, but going back 80 to 100 years, the coffee production landscape looked completely different. Huge, lower-middle elevation coffee plantations ruled the territory, buying the higher-grown smallholder coffees and blending them into their own bulk, undifferentiated despite their superior quality. In the late 80s and early 90s, Pluma gained a widespread reputation for producing quality coffee. However, a combination of factors including low market pricing and coffee leaf rust (known as Roya), saw estate holders abandoning their farms and moving on to more lucrative ventures.

Once the estates were decimated, local smallholder farmers continued farming—mostly out of necessity, though their operations were no more fiscally sound than the estates had been. Pluma’s smallholders struggled to make enough to thrive and reinvest in their farms, and many have lived on the brink of giving up and following in the footsteps of the estate holders before them. Without access to a differentiated market where customers are willing to pay viable prices, there hasn’t always been a real value proposition for Pluma’s producers to keep growing coffee.

Over the last couple years, we’ve seen this start to shift. Being able to introduce these coffees to a group of buyers willing and ready to purchase them at a viable price has started to build trust in this region and reinvigorate local farmers, who are beginning to understand that their coffee is worth more than they’ve always been told. They are ready to be able to dictate their own futures and gain access to new pathways to finance and reinvest in their own success.

We could not be more excited about the future of Pluma. This year, we’ve more than doubled the amount of coffee we’re bringing in from Oaxaca, and still, almost all of it was sold out before it even made it to the States. If you’re interested in putting these coffees on your menu, get in touch now, because they’re going fast.

Paying for Coffee—It’s Complicated: Part 5

Part 5: Asking the Right Questions

Now that we’ve unpacked context on what goes into pricing coffee, from terms and language to production and operating costs to purchasing models and value added, it’s time to talk about how to ask the right questions. As a roaster, it’s important to find out if your coffee purchase represents an investment in a resilient supply chain, so how do you take that conversation deeper than asking about prices?

One good starting point is to ask importers how they go about setting prices for producers, in general and in specific. How do those prices compare to the C market, Fair Trade, and Fair Trade Organic prices? Do they use the C market as a starting point, or decide on baseline rates that are consistent season to season outside the C market? Do baseline prices (prices before producers receive additional quality premiums for exceptional coffees) ever go down from year to year due to the C market, or are they consistent?

Another question to ask is whether an importer’s baseline rates allows producers and producing groups to meet their costs and reinvest in their farms and infrastructure. No matter what they pay for quality premiums, if the baseline rate doesn’t allow producers to survive and thrive, it’s not sufficient.

While asking these questions of your importer, it’s equally important to check in with yourself, your business, and your customers. How much are you willing to pay for a healthy, resilient supply chain where everyone meets their costs? Can you still meet your costs if everyone gets paid fairly? Will your customers pay what they need to in order to make it happen? If not, why not? What can change their minds?

It’s crucial that people learn more about the supply chains they work within. The more questions you ask your importers, the better. To ask us a question, email us at info@redfoxcoffeemerchants.com, or contact us on twitter or instagram.

To learn more about the complexities of coffee pricing, take a look at Part 1, Part 2, Part 3, and Part 4.

By: RJ Joseph

If You Haven’t Tasted Kolla Bolcha Yet, It’s Time

Kolla Bolcha is the newest jewel to be unearthed in Agaro, and if you haven’t tasted it yet, it’s time.

We’ve been after this cooperative since we learned of its inception three years ago, one year prior to ground being broken on the washing station construction itself. Why? Location, location, location. A short walk over the hill from Biftu Gudina in the southern end of Gera, Kolla Bolcha’s altitudes soar into the forests, and those of you who’ve tasted Biftu enough times are aware of the quality potential. We believe that Kolla Bolcha will become as sought after as Nano Challa, Nano Genji, Biftu Gudina, and the very small handful of washing stations that headline Agaro.

With a ripe red fruit character (think cherry and currant), a heavy cola sweetness, and a lustrous, honeyed mouthfeel, Kolla Bolcha brings the heat on any brew method, at any roast level. Building on the wider history of Agaro, where an investment by USAID’s Technoserve project helped bring brand-new processing equipment to this previously underserved and undifferentiated region, Kolla Bolcha’s immaculate processing leads to an incredible showcase of the coffee’s natural potential for a ridiculously long time off harvest. The secret? After Penagos processing equipment mechanically removes most of the fruit and mucilage from the seeds, they soak overnight in fiberglass tanks, allowing any remaining sugars to be fully removed from their surface so that the coffees are perfectly clean by the time they hit the drying beds for the eight-plus days they’ll need to dry.

Since its inception, Kolla Bolcha has been a Red Fox staple, a perfect representative of everything Agaro has to offer. It’ll go fast, so get in touch now to pick some up. To learn more about Red Fox and Agaro, read about it in our journal.

Paying for Coffee—It’s Complicated: Part 4

Part 4: Not Just  What You Pay, But How You Buy

Historically, many have viewed importers as middlemen, a gateway through which coffee passes on its way from the farmer to the roaster, adding nothing much but hassle and costs. While the direct trade movement has done a lot for promoting healthy supply chains in specialty coffee, it has inadvertently reinforced this narrative, downplaying the role of importers in sourcing, logistics, and overall quality. Depending on the importer you work with, they can play a major role in your coffee’s quality from start to finish, and when you buy coffee from an importer, you’re also buying into their supply chains and the roots they have—or haven’t—put down in a particular region.

How Does Your Importer Set Coffee Prices?

Many importers fix their prices around the C market, paying a certain amount over it at any given time. It’s good to ask if your importer does this or not, because the C market is extremely volatile; importers who price coffee that way may beat the C market price, but they’re still subjecting producers to a fluctuating income, leaving them vulnerable to not recouping their costs in a given season, much less being able to reinvest profits into their farm.

Other importers pay just slightly above average baseline rates for the lower quality brackets they purchase, then pay out premiums for higher quality brackets in an attempt to incentivize higher-quality production. It’s important to remember that no matter how talented most producers are, the main bulk of what they produce will still live in the lower quality brackets, so the baseline price an importer pays is essentially who they are as a coffee buyer.

At Red Fox, we see our prices as a key part of our sourcing strategy, allowing us to access the best producers and producing groups while allowing them to do their best work year after year. To do this, we set our baseline rates not against the C market and not against the local average, but at a rate that incentivizes producers selling their coffee to us rather than someone else, which benefits all parties. Beyond that, producers also receive quality premiums for higher-scoring lots, allowing them to allocate resources toward producing special microlots without being afraid to lose money in the process. Since we also think of this as a retention strategy, we pay more to producers over time, especially when their work is stellar. For a frame of reference, the average FOB price of our coffee in 2018 was 200% above the Fair Trade floor price, and the highest price we paid for a coffee in 2018 was almost 700% above the Fair Trade floor price.

How Does Your Importer Build Supply Chains?

One of the things that’s important to know about your importer is how they work within a supply chain. While the myth of the importer as useless middleman is largely just that, that doesn’t mean that all supply chains are created equal, and it’s important for importers to speak honestly about the role they play.

Many importers, especially ones on the smaller end of the spectrum, receive samples from exporters, cup them, and buy their favorites. While this is a perfectly legitimate way to buy coffee, it doesn’t take up nearly the same amount of time and energy that it takes to seek out new farmers and try to close gaps in market access. It also doesn’t constitute the same investment in developing resilient supply chains.

If that investment matters to you as a consumer, it’s important to talk to your importer about how they buy coffee; things like how much time they spend at origin, what they do when they’re there, who hosts them when they go, who coordinated the hosting, will give you some clues as to how vested they are within a region.

At Red Fox, we work very particularly in regions where we can work within our ideal purchasing model: deep investing in regions that are hard to reach, that have historically lacked market access and differentiation from the larger pool of regional coffee. While we’re very much focused on curating quality, we’re also deeply embedded in the supply chains we work within.

How Does Your Importer Add Value?

When you think about the price paid to the producer, it’s important to think about what kind of value an importer adds to the producer’s work.

For instance, at Red Fox we spend hours each day cupping samples. We might cup hundreds of samples to put together a bulk regional lot, separating out extra high-quality offers along the way and reporting our results back to each producing group. To make sure our cupping protocols are accurate and unbiased, we use a double-blind cupping system called signal detection where samples are randomized with multiple cups placed apart from each other on the table. To make sure our roasting protocols accurately represent every coffee that comes through our door, we do countless Ikawa experiments, tweaking our profiles constantly in order to find the profile that will show us who the coffee really is. And, once coffees arrive at the warehouses we work with, we taste every coffee every 30 days for as long as we’re in our position to track their quality over time and use the information to keep getting better.

Beyond that, people may not find logistics very exciting, but they can have a huge impact on quality. It takes a lot of work, but we make sure that coffee gets from origin to here in as timely and direct a manner as possible, ensuring that it lives up to its full quality potential from start to finish.

Importers come in all shapes and sizes, and even more than asking how much a producer got paid, it’s critical to learn about yours and how they work.

To learn more about the complexities of coffee pricing, take a look at Part 1, Part 2, and Part 3.  Stay tuned for part 5, which will cover how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph

 

New Fruits You Should Try: Nariño and Inzá

If you haven’t bought Colombian coffee from us yet, the time is now. We have delicious, versatile coffees from Nariño and Inzá on both coasts that shine on the cupping table and absolutely stun at production roast levels. Just as important as their quality, Colombia is home to some of our oldest relationships, and these coffees represent the absolute best of what community leaders can do from a local to a global scale, in terms of both impact and quality.

Our relationship with Inzá-based ASORCAFE dates back to 2006, when Geovanny Liscano farmed just one hectare of land with his wife and father. The coffee was superb and the infrastructure was humble, but over time, Geovanny reinvested profits back into the land, bought surrounding plots, and built up processing infrastructure into a thing of beauty for the whole community. ASORCAFE is incredibly well-organized with a laser-focus on ethics; they don’t allow corruption in their ranks, and this value shows in the cup. The coffees they produce are some of the most complete coffees in the country, bringing to the table a succulent sweetness, a juicy, ciderlike mouthfeel, and bright, clean acidity that can be malic, pear-like, and even kiwi-like. They’re perfectly structured and essentially flawless.

In Nariño, we’ve been inspired since 2007 by FUDAM leaders Raquel and Jeremias Lasso. With soaring altitudes and ideal varieties, the quality was always stunning; even more importantly, Raquel is an innovative leader that inspires the best work from her community and gives it in return. More recently, she’s formed a group within FUDAM called Manos de Mujeres, focused on the empowerment of women growers within her community, with projects ensuring they see a fair 50% of farm profits and a goal of opening an organic fertilizer facility. Currently in the process of becoming certified Fair Trade Organic, FUDAM is a perfect example of how community investment can and should represent an investment in quality. Flavor-wise, we see Nariño as the proverbial fruit basket: the best lots run the gamut from ripe, succulent stone fruits on the yellow flesh side (peach, apricot, nectarine) to tart, refreshing white grape and Granny Smith to perfectly sweet citrus of the most coveted varieties (tangerine, satsuma, and even sweet lime).

We have a ton of history with these coffees, and we want you to as well. Flavor profiles are diverse, so get in touch and we’ll help you find the perfect coffee for your menu.

Paying for Coffee—It’s Complicated: Part 3

Part 3: Sustainably Meeting Costs—Why Context Matters More than Numbers

Without context on cost of production and other costs throughout the supply chain, the price paid for coffee is just a number. Think of it like rent: if I told you what I pay for my apartment, the number would be meaningless without knowing more about its size, location, and the general cost of space in my region. The same is true for coffee pricing.

The main factors that affect cost of production for producers are the size of the farm, the varieties and yields on a particular farm, transportation costs, processing costs, and the labor laws that govern the region. Towards the middle of the supply chain, similar factors apply over top of this, namely the costs faced by importers (often affected by their size and operating costs) and how much margin they make over top of those costs in order to sustain their business.

Farm-side, the size of the farm has a huge impact on cost of production. Most farming equipment expenses are fixed, costing a certain amount upfront regardless of how much coffee the farm produces, so large estates benefit from economies of scale that smallholder farmers (most of the farmers we work with) can’t access. On top of that, certain varieties yield more coffee per year than others, meaning that for the same amount of planting and harvesting work, farmers get a smaller volume.

Transportation costs also change from region to region, adding significant cost to producers in more remote areas (again, most of the farmers we work with), and similarly, milling and processing costs vary depending on producers’ setup and infrastructure.

Last but not least, labor laws have a huge impact on producer costs: for example, in Ecuador where all full-time employees are paid a minimum wage in addition to health care and paid time off, costs of production (rightly) go up.

Towards the middle of the chain, size and operating costs have similar impacts. Smaller importers face higher overhead through lacking the same economies of scale; for instance, importers who don’t have their own warehouses pay for warehousing through third parties, costs that are significant and that larger importers don’t incur.

Another factor that affects overhead is how much work goes into coffee selection. For instance, since we work primarily with smallholder farmers, we might cup through as many as 250 samples to form a container, whereas other importers will have cooperatives or producer groups bulk smallholders’ coffees into larger representative samples and may only need to cup one sample to put together one (or even more than one) container. On top of that, just like producers, importers have to set a margin around total costs so that they have money afterwards to pay other expenses and invest back into their business.

To learn more about the complexities of coffee pricing, take a look at Part 1 and Part 2, stay tuned for part 4, and part 5, which will cover the diversity of purchasing models and the influence they have on cost, and how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph

Paying for Coffee—It’s Complicated: Part 2

Part 2: Farmgate, FOB, EXW, and Beyond—Terms for Pricing and the Factors that Complicate Them

When people in the coffee industry talk about green coffee pricing, they use a variety of terms that can often cloud how much buyers actually pay for coffee at various stages of the supply chain. Because no official term acts as a standard point of discussion, it’s important to unpack these terms and the context they require for proper discussion and build a shared lexicon with your importer.

The main terms used for coffee prices are farmgate, FOB, and EXW, which refer to prices paid at different points in the supply chain.

Farmgate price is a general term for what the farmer actually makes on the coffee after the exporter takes their cut. When accurate and based on solid data, this number is helpful in understanding whether or not producers are making ends meet, but unfortunately there are no official standard for determining farmgate price—often, when you ask people for the farmgate price of a coffee, the answer you get is actually the FOB price (defined below) inaccurately framed as the price the farmer got paid, or a general estimate based on an adjusted FOB, which can present various levels of accuracy about what farmers are actually making.

Unfortunately, since this isn’t standardized, asking for farmgate price doesn’t guarantee that you’re getting a number accurate to what the farmer made—much less once you factor in context of cost of production (which we’ll cover later in this series). For this reason, it’s critical to build a shared lexicon with your importer and make sure you’re having the same conversation.

FOB price stands for the free on board price, which means the price of the coffee at the time when it’s delivered to the boat at the port of origin and ready to ship. This is the most commonly used payment term between importers and roasters, but it doesn’t tell you how much the farmer got paid, nor does it tell you about costs incurred by the importer once the coffee lands.

EXW price stands for the ex-warehouse price, which means the price when the coffee gets delivered to the warehouse in the country of consumption. Between the port of origin and the warehouse, the coffee has to land at the port, go through customs, and enter the warehouse. Since each of these processes costs money, the ex-warehouse price is higher than the FOB, further from what the farmer got paid but slightly closer to an actual cost estimate for the importer.

Each of these terms constitutes an important piece of the coffee pricing puzzle. If someone gives you a farmgate price, do you know what their process is for determining that number? The accuracy of their answer hinges on this question. Or, if you know the FOB but not the EXW, you may not have a good idea of how much warehousing and domestic transit costs affect smaller trading companies as opposed to giant multinationals. This, too, is an important piece of the puzzle of how much the producer got paid and how those costs echo up the supply chain.

To learn more about the complexities of coffee pricing, take a look at Part 1 and stay tuned for parts 3, 4, and 5, which will cover the importance of cost of production in coffee pricing, the diversity of purchasing models and the influence they have on cost, and how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph