Paying for Coffee: Guadalupe Miramar

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. 

Miramar and Red Fox

Guadalupe Miramar is where it all started for us: our sourcing in Mexico began here. One thing that’s special about this relationship is that it’s not one relationship with a cooperative or person, it’s with the whole community as individuals and families. There are other buyers who work in the region now, but our relationships and consistency have allowed us to maintain the trust we worked to build over the years in an area where many were jaded by past experiences with exploitative buyers and corrupt associations. 

Miramar is very different from other associations we’ve written about in previous Paying for Coffee pieces. An informal group of 15 to 20 farmers, we’ve worked with many of them for a few years through a different organization, but this past growing season they formed a new loose association around organizer Cecilio Perez Vasquez. Mexico Sourcing and Sales Lead Adam McClellan first met Cecilio in 2013 when he was acting president of another association in the region. They kept in touch and Adam continued visiting every year, so we were excited to deepen our sourcing in the communities of the Mixteca and Santa Maria Yucuhiti when Miramar formed. 

We’ve focused the Paying for Coffee series on a diverse array of our Latin American supply chains to illustrate how support and deep sourcing look different from place to place and group to group. Miramar is the newest association we’re writing about this way, and it’s also the least formal. Whereas other pieces have focused on the community support different organizations provide (and our role in that), the role Miramar plays as an organization is intrinsically different at this stage. That makes them a perfect place to look deeper at not just what we pay, but how we buy in Oaxaca—the location of our new HQ and a place where we see our future. 

The Place 

Geographically, Guadalupe Miramar is within the Santa Maria Yucuhiti municipality and sits high up on a south/western facing mountain slope. The town is at 1600 masl and farms are located above the town up to 1900 masl and below down to 1100 masl. The coffee we buy is from 1400 masl and above. Miramar is located within the Mixteca zone in the mountainous west of the state of Oaxaca. Mixteca is the name of both the primary indigenous group and the local primary language in Miramar and surrounding communities in Yucuhiti.

What We Pay

FOB and Farmgate Pricing

While the numbers of what we pay only make up a small piece of the larger sourcing puzzle, they’re still an essential component. As discussed in other Paying for Coffee pieces, the core of our sourcing strategy is setting clear, consistent standards for quality and pricing while creating price structures that incentivize quality production but never punish the more general quality tiers. Prices are a) never, ever connected to the C market price in any way, and b) they are very high to incentivize both quality production and sale to Red Fox over another potential buyer. We want producers who work with us to be able to produce great coffee and thrive from the relationship, and that’s what underpins our pricing. 

In the case of Miramar, we’re working with a lot of people who would generally otherwise be selling to coyotes, buyers who collect bulk coffee in parchment for a flat lower price rather than pricing based on quality (they then then sell it to exporters). Coffees we don’t buy either flow into this market or, more rarely, stay in country to be roasted, sold, and consumed locally, a market that continues to grow and provide more stability for farmers.  

The farmgate and FOB prices we pay to Miramar, as well as the local price farmers would have received from coyotes, are below. 

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

Cupping, Communication, and Lot Construction

Where many other groups we’ve worked with have internal systems for quality control and analysis, we handle these parts of the process with Miramar. After peak harvest, Cecilio collects samples from each farmer and sends them to the Red Fox office in Oaxaca city, the capital of the state. The farmers’ samples represent what they have in their house at the time including an estimated weight, and we prescreen based on these samples, cupping and scoring everything they send.

We send Cecilio results and he brings everything that scored 84+ down to the warehouse in Oaxaca city, a six hour drive from Miramar. Once we have the full lot in the warehouse, we pull another sample to confirm that water activity and moisture meet our specifications and that the cup quality is consistent. We haven’t yet had situations where the coffee passed the prescreening and didn’t ultimately get purchased, but it’s important for us to make sure.

Even though Miramar’s farmers are smallholders averaging just two hectares each, we cup each individual producer’s coffee separately via signal detection cupping so that we can a) pay up for additional quality and b) carefully build lots that best represent the producers’ individual labor even when their coffees aren’t being sold as single farmer lots. We buy as much of their coffee as possible to support their work at all tiers and help build up and maintain quality standards and best practices over time. The vast majority of their coffees cup out at around 84-85 points and we carefully arrange them into community lots that represent each farmer’s work as best as possible.

We typically meet with Miramar’s farmers at least two times before the samples are delivered to us. Usually, we plan to meet face-to-face to discuss cupping results, but this year that conversation coincided with the pandemic and stay-at-home order, so we had to manage all communication over phone, text, and email.

Payment and Financing 

Liquidity is something many smallholder farmers lack, so being transparent and flexible with payment schedules and offering customizable options can make a big difference. We work with one of our local exporter/dry mill partners to provide financing (delivering a first payment for parchment upon collection) and parchment transport to the dry mill. The group can decide if they want to use this option and receive slightly less money on the second and final payment, or organize their own transport and wait to get paid the whole amount once the coffee ships.

Support

As we said before, support looks different with this new and informal group than in many of our other relationships—they’re still determining what their organization looks like and what kind of help would be most effective for them, and as always, we’re taking their lead. 

The central type of support we offer in Miramar, as in every origin we work in, is in paying the highest possible prices and letting this group lead their own development projects. We honor the fact that producers are the ones who know their business best 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.

As far as meeting other needs as this group develops, our team offers experience and support where we can. We discussed drying and processing techniques with Miramar members in order to increase awareness of moisture and water activity parameters and cup quality. When a lot of the farmers needed to replant recently, they asked our opinions on which varieties might be a good fit for their operations, and we helped advise them. We also coordinate with the dry mill and exporter when to send a truck to help the farmers bring down their coffee and see if any pre-payments or financing are needed. 

Logistics and Shipping

Once the warehouse samples have been approved, the Red Fox logistics and quality control teams work with the exporter to secure a shipping date and get the coffees milled to spec. Once the coffee is milled and bagged in Oaxaca, it travels about five to six more hours to the port of Veracruz or eight to ten hours to Manzanillo.

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. 

Guadalupe Miramar is a great place to look because they’re so small and new. Their needs and support systems are so different than their slightly larger counterparts in other subregions. We hope to be there as part of the structure helping them grow organically over time, and we expect great things from them as they do.

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

To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.  

FOB is An Exporting Metric, Not A Farmgate Benchmark

FOB price has become a popular metric for assessing whether a producer was paid fairly for their coffee, but what does the FOB (or free on board) price really tell you? We’ve unpacked this before, but we want to go deeper—we feel this conversation is getting ever more urgent as more and more often, we’re seeing FOB used as a shorthand for coffee price analysis in the specialty industry. While people seem to understand that a coffee’s FOB prices is not a perfect indicator of prices paid to producers, they still seem to see it as a good general ballpark indicator. The problem is, that simply isn’t true. Higher FOB prices not only don’t equal higher farmgate prices, they don’t even imply them—the only thing they indicate is the price paid to exporters, with the price paid to the farmer hidden inside. 

What Does FOB Really Measure?

FOB means free on board, the price of a coffee at export. This means it includes the price paid to the farmer (including local transport and milling costs) as well the amount the exporter is charging buyers who take control of the coffee as it’s loaded onto the vessel at the point of origin. 

In the case of companies who both export and import, this number is based on their exporting costs and desired profit margins—they set the FOB price. From there, they can sell the coffee at that FOB price and transfer it directly to a customer, or they can land it in a warehouse and sell it ex-warehouse (the price of the coffee as it leaves the warehouse, which includes farmgate, FOB, the cost of importing, warehousing, and desired margin), covering their costs and making their desired profit. 

Essentially, if buyers wanted to see higher FOB numbers, anyone who exports could theoretically raise those costs for the buyer, without having to raise prices paid to farmers to do so. For example, if we as an industry decided that we wanted to set a five-dollar floor price for FOB to ensure fairness to farmers, private exporters and companies who both import and export would theoretically be able to pocket the entire difference, since FOB only measures the price they set for their buyers. That’s not to imply that anyone would, or that any party is unscrupulous simply because their business model includes exporting. It’s only to note the intrinsic limitations of FOB as a corollary for farmgate price.

In our case, we hold exporting licenses in select locations but use them sparingly, the reason being that many producer organizations we partner with need the money they make exporting. We would never want to step on their toes and cut into their income as a means to pad our margins. In other regions, we use a third-party private exporter who has no role in the sourcing process. 

In either case, we don’t get to independently set the exporting price, and we don’t make money off that part of the supply chain. The coffee arrives, we land and store it in third-party warehouses, then we sell it ex-warehouse, the price of the coffee leaving the warehouse. Our margin has to be made in the ex-warehouse price, not the FOB price. In other words, our ex-warehouse price has to cover all the costs we incurred sourcing the coffee, buying it from the producer, coop, or association, paying them or a third party to export it, importing it, storing it, and selling it. So where other business models can make more money directly from a higher FOB with no margin going back to the farmer, FOB is just another cost we face along the supply chain. 

Key to note here is that there’s no one right way to run a business—making your margin and recouping your costs via FOB (in the producing country) over ex-warehouse (in the consuming country) is no worse, no better. It’s not inherently more ethical to run your business from a producing country or from a consuming country (although, in the regions where we have sourcing offices outside the US, we do feel we have the most positive impact by partnering with producer organizations who export rather than doing it ourselves). These differences in business model matter mostly when people use FOB prices as a shorthand for farmgate prices and fairness. 

FOB is inclusive of an exporter’s profit: that’s not a bad thing, it’s simply a thing that needs to be understood.

Why Rely on FOB?

It’s not hard to see why FOB is such an appealing metric for summarizing the fairness of a supply chain: it’s clear cut, recorded on a bill of lading (making it a number that can be verified), and it’s the metric the C market uses, so in that way, it makes sense as a benchmark. We wish it were as useful as it is convenient, since that would make everyone’s lives a lot easier. But for the reasons detailed above, it’s unfortunately not a corollary for farmgate. It’s crucial that the industry ask hard questions about pricing and pursue fairness at all costs, but to do that, we have to continue to push for real traceability. FOB just doesn’t have the ability to act as a proxy for that. 

What Should We Use Instead?

Instead of relying on FOB to simplify the complex subject of fair pricing, we should ask if the supply chains we’re participating in are traceable to the farm level. Do you have good reason to believe that the farmgate price was fair—and, if you were curious, could you find out the specifics? 

Ultimately, coffee pricing is complex, and even farmgate prices have to be informed by several layers of context including cost of living, cost of production, and geographic challenges. The best way to buy a coffee and be sure that it was sourced at a fiscally sustainable price is to develop trust with your sourcing partners and a solid understanding of how their various supply chains operate. Important things to make sure of are that your sourcing partner’s prices don’t connect to the C market (even C market plus premiums), that they meet the cost of production, and that they pay sustainable base rates, not just high quality premiums. 

Is Your Supply Chain Traceable to the Farm Level?

It’s not easy to find the right questions to ask in the push to ensure you’re paying fair prices. However, we think the most important question is this: is your supply chain traceable to the farm level? Whether or not you need specific pricing info to the producer or organization level for each coffee on your menu, could you get it if you wanted? Do you trust your sourcing partners to pay fair prices no matter how much the C market price fluctuates, or do you fear they’ll take advantage of its nadirs? Do you trust them to pay fair prices for all the coffee they buy, or do you fear they’ll only pay sustainable prices for the best of the best? Have you had these conversations with your sourcing partners? While it’s natural to want a shorthand to assess whether you’re buying fairly, FOB unfortunately can’t give you the essential information you need.

 

Interested in sourcing coffee with us? Reach out at info@redfoxcoffeemerchants.com. To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.  

Paying for Coffee: Santuario

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. 

Santuario and Red Fox

Northern Peru-based cooperative Santuario is a great vantage point to look not just at what we pay for coffee but how we buy it, including the value we add to the supply chain and the value Santuario adds to their local community. We’ve been buying from them since they launched in 2017 and have been consistently inspired by their commitment to honesty and transparency, their dedication to education and growth, and their devotion to quality as a way to add real value to people’s lives. Clearly, their local coffee-growing community has been equally impressed, since their membership has grown to 400 members in just three years, up from 262 last year. 

Who They Are and What They Do

Santuario was born in 2017 when its small group of leaders left a corrupt organization they had become frustrated and disillusioned with. This experience led them to found Santuario, a coop whose core pillars are honesty, integrity, and making sure money gets back to the producers and works to uplift the entire community growing coffee, not a select few. 

Working with a mission to help smallholder producers get the best possible prices for coffee through quality improvement, Santuario is led by president Gonzalo Guevara Martinez, general manager and cupper Ismael Alarcón Mirez, warehouse manager Adan Martínez, and agronomist Enrique Palacios. Santuario offers agronomic assistance, sending individuals with agricultural experience and training to offer advice on soil fertility, cultivation techniques, harvesting, and post-harvest practices in order to improve quality. 

Their long-term goals include helping farmers renovate their farms with the best-tasting and most resilient coffee varieties, controlling pests and soil fertility through organic means, helping farmers navigate the effects of climate change, and helping scale improved drying practices as the coop grows. In addition to helping farmers access the specialty market, Santuario’s focus on long-term sustainability offers a path to consistent profitability for smallholders. 

Santuario’s home base is in Jaen, Cajamarca. They have members in the provinces of Jaen and San Ignacio and expanded into Cutervo this year. The lab is located in Jaen and the coffee is milled at Norandino in Piura, all in Northern Peru. 

What We Pay

FOB and Farmgate Pricing

While the numbers of what we pay only make up a small piece of the larger puzzle of sourcing with Santuario, they’re still an essential piece. As discussed in other Paying for Coffee pieces, the core of our sourcing strategy is setting clear, consistent standards for quality and pricing while creating price structures that incentivize quality production but never punish the more general quality tiers. Prices are a) never, ever connected to the C market price in any way, and b) they are very high to incentivize both quality production and sale to Red Fox over another potential buyer. We want producers who work with us to be able to produce great coffee and thrive from the relationship, and that’s what underpins our pricing. 

Santuario pays farmers for various quality tiers based on their own cupping and scoring, not ours. They pay from 520 to 550 soles per quintal of parchment for an 84 point coffee, 600 soles for a coffee that scores 85, and 650 for an 86 or higher. Santuario pays farmers 100% upfront almost immediately once they’ve cupped the coffee.

The FOB prices we pay Santuario are $2.40 for 84/85 and $2.75 for 86/87. 

Quality Score Farmgate FOB
84  520-550 soles per quintal parchment $2.40
85 600 soles per quintal parchment $2.40
86+ 650 soles per quintal parchment $2.75

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

Sampling and Communication

Warehouse manager Adan Martinez Aguila is in charge of collection and sampling. Some producers take samples to the coop, but most deliver full bags directly and the Santuario team takes a sample of their lots. Their cupping team then does a preliminary sensory evaluation, where Ismael and his team cup the samples and screen for general cleanliness. They then send us samples every 15 to 18 days throughout the harvest, depending on the volume they approve. 

The coop pays producers right away no matter what, then communicates quality results at the end of the harvest. They take ownership of finding a buyer for the coffee. 

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 Santuario 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

We purchase Santuario’s coffee FOB, but while that means they take responsibility for transportation costs within Peru (from their storage center to the dry mill and the dry mill to the port), we coordinate a lot of the transportation and milling details. 

Logistics are somewhat less complex for Santuario than the more geographically-challenging South, but they’re still critical to get just right. The first challenge is that Jaen is incredibly humid, so storing the coffee in GrainPro and getting it to the port of Paita in Piura on the northern coast as fast as possible is mission critical.

We often coordinate the truck itself, since we’re typically bringing coffees from different coops in Jaen and San Ignacio. We’re also heavily involved once the coffee arrives at the dry mill: we supervise the milling and loading of the container, and work with Santuario’s logistics team on documentation.

Support We Offer

In terms of producer support, the central type we offer in Santuario, as in every origin we work in, is in paying the highest possible prices and letting producers lead their own development projects. While this approach runs 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 less and offering more auxiliary services. Many studies in the nonprofit sector validate this approach.

Support Santuario Offers

Santuario offers extensive technical field assistance, sharing agricultural experience and training to offer advice on soil fertility, cultivation techniques, harvesting, and post-harvest practices in order to improve quality. They have two agronomists covering 26 base communities who visit each community monthly during the off season to provide training. During the harvest, agronomists make visits to individual producers since farmers are too busy during that time to attend community training. Normally, they visit producers who have had quality issues and need to make improvements, the most common issue being proper drying in the humid climate. 

They’re helping producers build parabolic dryers, partially financed using Fair Trade premiums. They’ve also been working on a free fertilizer program for producers to enrich their soil, since organic coffee cultivation often means farmers don’t use inputs to boost productivity and are left with drastically different output year to year. Some of the base groups are interested in starting nurseries with trees for reforestation; Santuario will be supporting them with seedlings and materials to build nurseries. 

Longer term, they want to help farmers renovate their farms with varieties that balance quality and resilience (specifically Caturra, Pacamara, and Bourbon), use organic best practices to deter pests and improve soil fertility, help farmers navigate the effects of climate change, and help scale improved drying practices as the coop grows. They combine a laser focus on conservation with access to specialty coffee markets in order to promote farming careers that make sense long-term for the smallholders that make up the coop. 

 

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. 

Santuario’s leadership left the organization they worked with prior due to corruption and they started Santuario with the impetus of that experience rooting them in values of honesty and integrity as core to the uplift of their communities. They’re extremely focused on getting money back to the producers and making their shared work fiscally and environmentally sustainable, and that’s key to their incredible coffee. Along with the concrete support they bring to their community, these ideals are central to their work and the value they bring to the supply chain. We’re happy to work with them and share those ideals. 

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

To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.  

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!