How technology can improve price transparency for producers
Written by Amanda Paparelli - article sponsored by M-Cultivo
The coffee industry has long been plagued by a pricing transparency problem. Traditionally there has been information asymmetry across the coffee supply chain, creating an uneven playing field for the different stakeholders, most often putting farmers in an unsustainable price-taking position. In coffee specifically, this looks like buyers being equipped with a better understanding of supply chain costs, the market value, supply, and demand of coffee globally. This allows buyers to imply price risk, quality risk, market demand shift, etc., in order to drive prices down on producers. Additionally, as coffee consumers grow increasingly conscious of the origin, quality, price transparency and ethical considerations of their purchases, producers continue to face pressure to reveal more information to buyers.
A differentiated product intuitively demands a higher price. However, according to the self-reporting in the latest Specialty Coffee Transaction Guide from non-profit Transparent Trade Coffee, specialty coffee prices remain volatile proportionally with the C-Market. Why? Efforts in the sector to purchase on principle and quality have exacerbated the information imbalance between producers and buyers. The increased flow of information has been largely upstream, meaning buyers now have access to more information than ever. Farmers, however, are rarely granted visibility into prices paid for their coffee further up the chain.
Additionally, while the consuming side of the supply chain often requires more information about the coffee they are sourcing, this extra layer of value provided by farmers is not necessarily reflected in the price they receive for their coffees. The same goes for increased requirements surrounding responsible environmental and social practices. Roasters and retailers benefit from being able to offer a detailed, certified supply chain for top dollar, but the efforts to achieve the highest possible price rest largely on farmers who often miss out of this increased price.
Rwandan producer using CultivoPro - Picture credit by M-Cultivo
Creating producer-centric technology drives meaningful change
One way to tackle this knowledge asymmetry is by leveraging technology-based solutions that can provide specific information to offer enhanced pricing transparency. Coffee producers need an engine, not cogs. However, it is important to note that a single solution will not create a viable coffee business. It takes a holistic approach – starting with improving the negotiating position of coffee producers.
As farmers become increasingly aware of their own costs of production from the farm level, to harvesting and processing, up to their point of sale, the price they receive, or rather agree to, becomes increasingly relevant. Pair a deeper understanding of their costs with enhanced awareness of the market value (both regarding going prices at the local level and what external buyers are paying for similar coffees) and farmers are much better prepared to identify a price that both covers their costs and creates room for margin. The more they understand their own practices and costs, the better they get at identifying and addressing inefficiencies impacting their bottom line, as well. Technology allows farmers to collect and analyze this type of data over time, empowering them to make informed and better decisions for their coffee businesses.
This is where companies such as M-Cultivo can play a crucial role. Aware that a differentiated product like specialty coffee requires technology and services designed with the producer in mind, the UK-based coffee tech company has carved out a niche with a suite of services for coffee producers. M-Cultivo partners with coffee producers to improve access to information, capital, and new markets so that they can reclaim their negotiating power.
Diego Baraona, a fifth-generation coffee producer at Los Pirineos in El Salvador, was one of the first producers to pilot M-Cultivo’s services. From his perspective, he needed a way to gain insights into his operational costs to better understand his unique market value. “[In negotiations] Buyers tend to mention what they pay in other origins, but for me this makes no sense,” Diego says. “Every country has its own production costs and pricing.”
M-Cultivo’s core product, CultivoPro, is a digital management platform for producers like Diego to capture, store, analyze, and understand key production metrics from harvest, yields, processing, costs, and prices paid. Integrated tools help manage cherry reception remotely, giving farmers a convenient way to receive coffee accurately into one database, while also providing receipts to farmers to help track payments. Key metrics like yield rates, contracts negotiated, and operational costs are tracked in real-time and visualized in a customizable dashboard.
And maybe most relevant to many producers currently, CultivoPro provides a place to input GPS coordinates for all suppliers, putting EUDR compliance within reach.
CultivoPro dashboard - Picture credit by M-Cultivo
Accurately valuing coffee enhances supply chain collaboration
As briefly mentioned above, to truly benefit from external price sharing or comparisons, coffee producers need to have a clear understanding of their own costs and operational realities. Historically, and even to date, many farmers are unaware of their own costs of production, and very few keep a regular budget. Increasingly, field programs aimed at preparing farmers to improve practices on their farms include administration skills like budgeting, but the knowledge gap remains significant. Equipped with this information, producers can shift the power imbalance, and move from price takers to price makers. Technology like CultivoPro facilitates the aggregation and – perhaps more importantly – the contextualization of large amounts of data, allowing producers to analyze their costs and production processes more effectively.
CultivoPro also aggregates coffee market data, which allows coffee producers to stay updated on global market trends, ensuring that they can negotiate fair prices based on current market conditions. This access to real-time information next to their own production data empowers producers to make strategic decisions, such as when to sell their crops or explore alternative markets, reducing the vulnerability of small-scale farmers to market fluctuations.
“[CultivoPro] gives a clearer idea on yields and how we’re operating with each coffee and lot,” Diego said. “Some buyers don’t understand that it takes the same amount of money to produce an 84 and an 88 coffee… When negotiating, I’ve learned to say ‘no’ because I know the value of my coffee and my production costs.”
Amanda Paparelli
Amanda is a co-founder of M-Cultivo, a technology services company digitalizing coffee supply chains to empower new generations of coffee producers. Amanda is a certified Q-Grader with 15 years in the coffee supply chain. Originally from the US, she lives with her husband and daughter in London.