algrano Deconstructs Direct Trade

More of the direct trade rabbit hole is illuminated in this issue of Coffee Lover’s Magazine as I had the opportunity to remote-interview a treasure of information: Gilles Brunner of the algrano coffee company.  His unique knowledge and insider perspective shed some light on one of the industry’s enigmatic topics.

Online startup company, algrano (yes, that’s a lower case ‘a’), got its start as three tech-savvy and coffee loving friends decided to create an online community connecting growers and roasters.  Gilles, one of the founding members of algrano, who has ties to Switzerland and coffee growers in Brazil, now heads the marketing and communication side of the online trading company.  algrano achieved stardom at the SCAE World of Coffee event in Gothenburg, Sweden in June of 2015 when they won the award for best new IT and Tech innovation.  Their website,  www.algrano.com/en, not only showcases the vibrant coffees of Brazil, but offers an option for roasters to join the online community to meet growers and stay in contact with them during the sourcing process.  To learn more about direct trade from an importer’s perspective – especially one that has successfully created a unique platform for direct communication between both ends of the supply chain – I asked Gilles a series of questions and this is what he had to say.  

How exactly does direct trade work?

Direct trade is a concept that does not have a standard definition; it is not a label like FairTrade, Rainforest Alliance, Utz Certified, Organic, etc.  But while there are many different forms of doing direct trade, we believe there are 5 key ingredients for a meaningful direct trade:  1) supply chain transparency, 2) price transparency, 3) roaster – producer interactions, 4) developing relationships and fostering trust, 5) rewards for quality.  We’ve written a blog on that a few months ago, you can find it here: http://blog.algrano.com/post/115249104839/5-key-ingredients-for-a-meaningful-direct-trade

How is it different from FairTrade and other forms of trading like commodity trading and specialty trading? 

In a roaster perspective, the main difference with FairTrade is that FairTrade offers a verified label that can be used on packaging and gives the assurance that this particular coffee was traded following the rules of the FairTrade system. The FairTrade system proposes three aspects: 1) a minimum price for growers that covers the costs of production (defined by FairTrade), 2) 0.20 USD/lb. premium for the growers cooperative – this premium needs to be invested in social, educational, environmental projects that benefit the members of the cooperative, and, 3) a certification that the growers part of the certified cooperative follow environmental & social standards set by FairTrade.

Roasters that buy FairTrade coffee are not necessarily in direct contact with the growers who produce this coffee nor do they decide the price with them.  On the opposite, direct trade is not a label or certification.  It can take many different forms; there is no standard direct trade model.

Commodity trading refers to the trade of coffee as a commodity, i.e. an undifferentiated product.  That is quite the opposite of the concept behind direct trade, where each coffee has its own story, origin, quality, etc.  It is common in commodity trading that the coffee changes hands many times before reaching a roaster.

Specialty coffee trading refers to the trade of a certain quality of coffee “specialty” which is defined as a coffee over 80 points based on the SCAA coffee grading scale. How this coffee is then traded varies a lot.  Specialty coffee can be directly traded or not.

What are the benefits? To the farmer – the importer – the consumer? 

Benefits for the growers are that they get a higher value for their coffee: when negotiating directly with the roasters, growers maximize the value they can get within the chain.  They are in contact with their clients and understand their needs and their product better, beyond the production.  Furthermore, they understand the supply chain from the tree to the cup.  Knowing every detail of the product you produce is the first step to get better value for your product.  Most growers around the world do not know what happens to the beans they produce after they deliver it to buyers.

Benefits for the roasters include developing a direct relationship with a grower, which allows roasters to get a constant supply of a specific quality coffee.  It also offers the possibility to develop tests at the farm and incentivize the growers to produce a specific quality of coffee.  And of course, transparency: when sourcing directly at the farm, a roaster knows how the coffee is traded and transported from the farm to his roaster.  He has an access to the full price breakdown, allowing him to know who gets what for which service in the chain.

How are these relationships established? 

Usually roasters meet growers either at coffee fairs (SCAA event in the US, SCAE in Europe, SCAJ in Japan,) or directly on the farm when traveling to a producing country.  At algrano, we are offering a new way to develop direct relationships online, through our platform.

What are the downsides? 

For roasters, once the coffee is bought at the farm, the big hurdles start with the logistics.  Roasters that are not big enough to import a full container (300 bags of 60kg) will have to find an exporter willing to do the extra work to ship small quantities.  Exporters do not like to work with small quantities because it takes them the same amount of time in writing contracts, receive money transfers, etc. for 10-20 bags as for a full 300 bags container.  So getting the coffee shipped and delivered is the biggest challenge roasters face when willing to trade in direct.  Language and culture is a barrier and resources to travel at the origin.  

For producers, most producers can’t afford to travel to the global coffee fairs; which makes it difficult for them to meet roasters.  And, language and culture is a barrier for them too.  

Is it sustainable?

Direct trade is definitely more sustainable for growers as 1) they are able to get a better price for their coffee and 2) they start to understand their product better.  For roasters, it depends a lot on how they organize their direct trade.  In terms of price and quality, direct trade allows roasters to secure the coffee they are looking for straight at the source and with very competitive prices.  algrano’s solution turns the difficult part of direct trade easy for roasters to enable both roasters and producers to trade more and more direct.

* * *

Gilles is a master of establishing communication between two parties; he knows first-hand how to drive direct trade relationships.  Moreover, algrano focuses on the two things on every conscious coffee consumer’s mind: traceability and sustainability.  From tree to cup, algrano aids both buyer and producer in overcoming the limitations inherent at both ends of the supply chain, especially when geographically disadvantaged.

The online platform allows for unprecedented dialogue so roasters can give direct feedback to farmers and not only contribute ideas but provide economic support to improve coffee quality.  Furthermore, roasters and growers have access to a full price breakdown for green coffee, exporting, delivery, customs certificates, logistics costs and algrano’s service fee.

Just when you thought it couldn’t get any better… algrano isn’t like some importers that only accept large orders; roasters, feel free to order one bag at a time from any of the farms available – there’s no minimum order.  And to put the shipping anxiety at ease, they even guarantee the coffee you cup is the coffee you get.

But being a tech company born in Switzerland, a nation with four national languages – English not being one of them – algrano’s website takes things to the next level, since it’s equipped with a language translator for English, Portuguese, Spanish, and German.  All of these features are at the heart of traceability and sustainability.

Join me next month for another in-depth look at direct trade from the perspective of a roaster who’s not afraid to speak his mind and get his hands dirty.


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