Direct trade is a concept that has taken over the coffee industry. As a novel coffee-sourcing model, it deviates from traditional supply chain methods. More profits for coffee farmers, building direct relationships and transparency are its priorities. Direct trade models also prioritize healthy environmental practices on the coffee farm and local community benefits.
Direct trade is a concept that has taken over the coffee industry. As a novel coffee-sourcing model, it deviates from traditional supply chain methods. More profits for coffee farmers, building direct relationships and transparency are its priorities. Direct trade models also prioritize healthy environmental practices on the coffee farm and local community benefits.
Needless to say, better coffee quality is the main long-term goal. By transcending buzzwords, direct trade coffee embraces the idea of “beyond fair trade coffee.”
Join me as I investigate the complexity and subtleties of direct trade in the coffee industry. Here’s an excellent opportunity for you to delve into the world of the coffee supply chain. After reading this, I hope you’ll understand more about your coffee’s journey from farm to cup.
Overview: What Does Direct Trade Mean?
So, what exactly does direct trade mean? In the coffee business, it is a sourcing strategy. It creates an open, direct and honest connection between coffee roasters and producers.
Unlike other models, direct trade simplifies the coffee supply chain. It promotes a closer relationship between coffee growers and the roasters that buy from them.
Key features of the direct trade coffee model include:
Direct Relationships: Direct ties between coffee growers and roasters is one of the main goals of direct trade. At Coffeeness, we have a direct relationship with farmers in Brazil through a collaboration with our partner Ocafi.
Fair Prices: Direct trade coffee guarantees that coffee growers get fair prices. By doing away with intermediaries, a significant part of coffee sales goes to farmers.
Transparent Supply Chain: Direct trade prioritizes a transparent coffee supply chain. I often visit the coffee plantations I work with in Brazil to see the working conditions firsthand. Some of the things I look for and emphasize are fair labor practices, environmental sustainability and quality standards.
A Focus on Quality: Direct trade roasters always focus on the grade of the coffee beans they buy. Growers and roasters work together to improve their coffee over time. In my experience, this leads to higher-quality coffee beans in the long term.
Environmental and Social Responsibility: Direct trade coffee values social responsibility and better environmental practices. If these two factors aren’t there, a direct trade roaster will likely terminate their relationship with a grower.
Where Did It All Begin?
So who pioneered direct trade coffee, or rather, how did this sourcing concept come about?
Almost two decades ago, third-wave coffee businesses Intelligentsia, Stumptown Coffee Roasters and Counter Culture Coffee were among the first to introduce this coffee-sourcing concept in the US. And what were their goals? You guessed it – fair rates for farmers, better coffee, an enduring roaster-grower relationship and more market visibility.
Has this strategy worked for these roasters? Oh, yes! These coffee companies are recognized coffee titans in the industry, consistently bringing in $100 million or more in annual revenue over 20 years later.
Take Intelligentsia Coffee and Tea, for instance, which brought in $158 million in coffee sales this year. This roaster pays its coffee growers at least $2 per pound for A-grade coffee, $2.40 for AA-grade coffee and $3 for AAA-grade coffee. It also pays more for organic coffees at the A and AA levels. Furthermore, it spends significantly more – up to $80 – for quality AAA beans and micro-lots.
These minimum price commitments ensure income stability regardless of what happens in the coffee markets. All this without denting profits!
Better prices would be impossible if coffee farmers sold their coffee beans directly. Government auctions or brokers typically offer farmers a small percentage of the profits.
Case in point: let’s look at what Kenyan coffee farmers earn when they sell their coffee directly to the government auction. It’s a paltry $0.74 per kilogram of cherry compared to an average of $3.90 per kilogram paid at the weekly HK Nairobi Coffee Exchange auction (November 2023). With these prices, direct trade growers are miles ahead!
Direct Trade Coffee vs Fair Trade Coffee
This is a question I get often, and no, these two coffee-sourcing methods are not the same. Direct trade and fair trade coffee have minor but significant differences. Let’s break ’em down:
Under a direct trade program, a coffee roasting company buys directly from a coffee farmer. Since there’s no central auction or broker, the farmer receives a better price for their coffee.
Farmers and producers get to build a mutually beneficial relationship with at least one roaster. Ultimately, it means they get to negotiate better prices over time.
So what’s in it for the roaster and buyer? Do they benefit too? Yes, they do! Again, I’ve seen this firsthand. Because Coffeeness directly supports coffee farmers, they deliver better quality over time. We’ve also gained the confidence of ethically-conscious coffee consumers. They know our coffee story and trust us for it. Now, this is what you call a win-win situation!
In contrast, fair trade coffee roasters buy specialty coffee beans from a cooperative. These cooperatives must have fair trade certification from both Fairtrade International and, in the US, Fair Trade USA. The fair trade price benefits both coffee farmers and workers within the cooperative.
Importantly, these cooperatives must have Fair Trade certification. Without it, they can’t claim to sell Fairtrade coffee beans. They must also pay farmers and workers the agreed fair trade minimum price and adhere to strict quality standards.
While not flawless, the fair trade system guarantees farmers and workers, excuse the pun, a fair trade. This means a fair trade minimum price for their coffee beans and labor. The cooperative also helps farmers with other issues, including:
Coffee sales and transactions
Farm management
Maintenance of strict environmental standards
Sustainability practices
The Good: Benefits of Direct Trade Coffee
Let’s continue by looking at the most important benefits of the direct trade model.
Better Quality Coffee
A direct trading relationship can benefit a coffee company and a producer. It helps them better understand each other’s expectations about quality. Ultimately, producers invest in more advanced farming techniques. This leads to better coffee standards.
Custom Coffees
Unique direct trade coffees are a frequent outcome of relationship ties. The close relationship often creates one-of-a-kind flavor profiles for single-origin beans and coffee blends.
In my experience, these coffees stand out in the marketplace. And all this raises the profile of both the grower and roaster.
Marketing Advantages
Wanna get ahead with your marketing as a roaster? Incorporate a direct trade strategy in your sourcing. In today’s climate, consumers care about where their food and drink comes from.
Coffee is no different. Coffee consumers value transparency, ethical sourcing and high environmental standards on farms.
Social and Environmental Responsibility
Any negotiation between a producer and a direct trade company must include a commitment to non-harmful environmental practices. Social responsibility is also a must.
Like fair trade coffee fans, direct trade consumers favor positive local improvements when choosing coffee beans. These include community development programs in healthcare and education.
Fair farm labor practices and environmentally friendly growing methods are also important to these buyers. Today’s fourth wave coffee consumers aren’t just buying coffee; they’re hoping to improve the world!
The Bad and the Ugly: Potential Drawbacks
As Clint Eastwood knows all too well, with the good comes the bad and the ugly. Direct trade in the coffee industry is no different. Let’s take a look at some of its potential drawbacks.
Market and Price Volatility
Direct trade aims to give producers fair prices at all times. But, try as it may, this sourcing policy can’t always protect producers against changes in the world coffee market.
Ultimately, even direct trade roasters might struggle to pay producers a steady income during a market decline.
Quality Assurance Challenges
Maintaining consistent quality in a direct relationship can take time and effort on the part of roasters. The quality of coffee can vary from harvest to harvest due to various factors.
Fluctuations in weather and harmful farm practices are the main culprits.
In addition, most countries in the Coffee Belt are “developing countries.” Harmful government policies (however unintended) and political instability can all affect the quality of farmers’ harvests. All this can make coffee expensive.
Lack of Standardization
Fair Trade USA ensures that all coffee producers meet its strict regulations. Unlike fair trade coffee, direct trade coffee doesn’t have highly regulated standards across the world.
Java lovers must do their research on a direct trade company and vet their coffee business before buying. By doing so it’s possible to ensure that the particular business is transparent about its trading and sourcing practices.
Final Thoughts: The Future Looks Bright for Direct Trade Coffee
Direct trade coffee isn’t just a buzzword or label. It’s a commitment to ethical coffee, sustainable growing practices and an authentic love for the craft of coffee.
As a direct trade coffee consumer, you do more than drink the coffee; you also improve the lives of local farmers. You do this by providing them with a living wage and better working conditions.
This is no lie. As it happens, I’ve seen firsthand the benefits a farmer enjoys from this coffee-sourcing model. More than anything, relationship coffee shows the power of thoughtful consumer decisions.
So, as you enjoy your next cup of direct trade coffee, take a moment to appreciate the relationships that helped this great coffee get to you!
I hope you enjoyed reading all about direct trade coffee. Do you drink relationship or fair trade coffee? Do these sourcing models influence your buying decisions? Let’s hear from you in the comments section below!
Direct Trade Coffee FAQ
An excellent example of direct trade is the purchase of specialty coffee beans, cocoa or tea directly from a producer. A coffee buyer in the west would typically bypass local auctions and brokers. They buy directly from farmers in the Coffee Belt countries of Africa, Latin America and Asia.
Direct trade is a model in which businesses directly source goods, commodities or raw materials from producers or farmers. The goal is to establish a mutually beneficial trading relationship.
Direct trade coffee, like fair trade coffee, has many benefits. It’s mutually beneficial for producers and coffee buyers. It ensures that coffee producers receive a higher price for their coffee instead of only a small percentage. It also provides better coffee quality for roasters and buyers.
Stumptown Coffee Roasters of Portland, OR, Intelligentsia Coffee and Tea of Chicago, IL, and Counter Culture Coffee of Durham, NC are among the original direct trade coffee traders in the US.
