Interview: Is a Direct Trade Collective the Best Model for Small Farmers?

In Coffee Economics, News & Research, Research by DOTnueva0 Comments

The first thing you discover about Karl Wienhold is that he can talk. Fast. And it’s all about coffee.

He’s the co-founder of Direct Origin Trading, which he describes as a “direct trade collective”. In other words, it’s a network of small-scale specialty producers and international roasters, all based in Colombia, delivering micro lots to consumers worldwide.

What I wanted to know was why he believes this is better than direct trade or any of the other existing models.

coffee farmer

Discussing cultivation and farm management with the mayordomo (farm manager) Don José.

The Need for a New Model

A U.S.-born economist transplanted to Colombia, Wienhold met Frank Villada in 2013. Villada is a Colombian native from the Eje Cafetero region and an established roaster, cupper and former coffee farmer. He’d been supporting small farmers in his home for years, evaluating their farm processes and offering advice on improving quality to help farmers make more money.

However, he ran into the same problems again and again – no matter how good the cup, farmers continued to struggle to access markets. And so Wienhold and Villada became partners.

Their idea was simple: connect local farmers to international roasters. Yet it soon became clear that this wasn’t enough. Farmers needed training on quality and help with international marketing, while roasters wanted direct, transparent access to one-of-a-kind, single-farm micro lots. They needed to consider a different kind of model.

coffee drying patio

Wienhold discusses drying techniques with Joaquín Londoño on the elba (drying patio) on the roof of Londoño’s house.

Relationships That Last a Lifetime

Wienhold and Villada believe it’s important to support the farmers they build relationships with, not for a season or two, but for as long as the farmer is working in coffee. The traditional coffee supply chain model looks like this:

Traditional coffee supply chain model

Traditional supply chain model.

simpler model, however, can enable producers to see more of the profits, and Wienhold stated that it also, crucially, allows the coffee to be associated with the farmer rather than just the importer.

He and Villada believe the best way to support the producers they work with is through a coffee network – a community of farmers who receive technical training and logistical and marketing assistance to help them access international coffee markets and specialty roasters. Wienhold explained, “[It] helps farmers create a market for their own unique coffee crop, essentially giving them a brand that can be demanded by roasters year after year.”

Direct Origin Trading’s model.

Direct Origin Trading’s model.

A Direct Trade Collective

They only work with micro lot coffee from single small farms. “Each coffee bean has a unique sensory attribute” he said, leaning forward. “These are the flavors and aromas that are totally unique to each farm and even change slightly year to year, like the farm’s flavor fingerprint… Farmers decide to work with us because they feel their coffee deserves to be sold as a micro lot.”

Roasters can then be connected to specific farmers with crops they like. They partner together to continuously improve quality and highlight flavors and aromas the roaster prefers. And since the farmer has the security of a reliable buyer and a fixed price, they can invest in infrastructure for coffee quality improvement.

My next question was: what makes a network like this stand out when compared with direct trade?

“So much, actually!” he laughed. “It’s really only the huge farms and roasters that can participate in [direct trade] without any kind of intermediaries involved. We operate as a direct trade collective that allows small-scale farmers and roasters to participate in direct trade transparently and at low scale.”

A coffee picker

A coffee picker gathers the last cherries of the evening in Sevilla, Valle del Cauca.

Removing Market Barriers

I asked why it’s so difficult for farmers and cooperatives to access markets themselves. And, even though this question was posed over the phone, I could almost see Wienhold rolling up his sleeves to talk about his second favorite topic: economics.

“The majority of the coffee produced in the world comes from small farmers,” Wienhold said. “But they’re dependent on an international market that is inherently unstable. The slightest fluctuation can impact a small-scale farmer hard.

He explains that the modern coffee industry is propped up by what’s called the New York C-Price – a coffee price based on the global demand for coffee and investor speculation on future coffee prices.

“This price is derived from the supply and demand for all coffee in the world and assumes product homogeneity – i.e. that all coffees are the same. There are premiums for quality and other factors, but the base price is arbitrary for specialty coffees that have nothing to do with the other 99% of world coffee produced,” Wienhold said. “It would be like if Bordeaux wine pricing were set as Welch’s Grape Juice + X dollars/gallon.”

Wienhold, Villada, and other buyers of specialty coffee, however, pay farmers a fixed price based on what roasters are willing to pay for the coffee – not on the fluctuating price determined by the international market for all Arabicabeans.

“By offering a price independent of this market, we give farmers the financial stability to rest easy and invest in their families’ quality of life,” Wienhold said. “Living by markets they don’t understand and can’t hedge against keeps farmers in a cycle of short-sightedness and uncertainty, never knowing when they might get rich or go out of business.”

The only difficulty for the farmers lies in finding these buyers…

Chiva bus

Chiva (buses) are the principal form of parchment coffee transport in rural areas, like this one near El Águila, Valle del Cauca.

Marketing Farmers’ Micro Lots

Even the best product is worthless if no one knows you have it. Wienhold and Villada know the power of marketing. “We work with farmers as their own personal marketing reps, making their coffees available to roasters with the goal of finding one or more roasters who desire to partner with each farmer.”

This means putting a page about the farm on the company website, arranging sampling with international roasters, and promoting the coffee at industry events – all things that producers, especially producers of micro lots, might struggle to do alone.

“Small farmers would burn their entire profit from a harvest if they were to buy a booth at a coffee trade show and travel there hoping to sell their 20 bags of green coffee,” Wienhold said. “But sending me out to knock on doors, split between the 25 families whose coffees I’m representing, the cost is reasonable.”

Finca El Oasis

Luz Mila Gonzalez and her three children live together on her farm, Finca El Oasis, in Gaitania, Tolima.

Collective Bargaining: How to Set the Right Price

Direct Origin Trading has connected 25 farmers with roasters who buy their coffee. However, as Wienhold explained, the right price isn’t always the highest price. Instead, it’s what roasters are objectively and consistently willing to pay.

Because if this relationship ends – if, in Wienhold’s words, he gets hit by a bus tomorrow – “I want our farmers to be able to keep getting that price elsewhere, not end up worse off than before they met us because the well dried up,” he said. “We believe that a demanded and prized product should be compensated as such.”

Wienhold and his team work directly with 85 farmers to help them improve farming techniques and produce a better crop. For their commitment to preserving cup quality, farmers receive cupping feedback and unlimited technical assistance from experts, so they can continually improve the cup they produce – and up the price they receive for it.

For Wienhold and Villada, the best way to increase prices is not through driving a hard bargain for the roaster. Instead, it’s through improving cup quality, simplifying the supply chain, and having an advocate for the farmer – all things which are made possible by a network of coffee farmers and roasters.

The wet mill that processes all of the coffee

The wet mill that processes all of the coffee from Finca La Cabaña.

People. Coffee. Simplicity.

The coffee industry is complex, full of concepts such as price elasticity, hedging, and efficient markets. But it can be simple.

In the end, after all, it’s about people. And land. And that intimate act of growing something nourishing and delicious and then sending it out into the world to be bought and enjoyed. The beauty of a simpler trading model is that it can foster the conditions for this to happen – and also has the potential to ensure farmers receive the right price for the right coffee and bridges between farmers, roasters, and consumers and built.

I’ve flown back home to Nairobi now. And as I sit here in a crowded café, with my own cup of Kenyan coffee, I breathe deep and wish I could tell the farmers how much I’m enjoying it. It isn’t single origin, but I take a moment and imagine a small farm and a proud farmer.

I can almost taste the sunlight.

Written by A. Scoville-Weaver, with thanks to Karl Wienhold of Direct Origin Trading.

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