In the specialty coffee industry, there is increasing talk of transparency and traceability in the coffee supply chain. But what do these terms mean? And what advantages or disadvantages do they bring to a company in terms of communication? And what is their explanatory value?
David Wistorf from Kaffeemacher explored these questions in his bachelor's thesis. The work is dense, introduces the subject matter with a thorough literature review, and culminates in David's own model for measuring transparency.
Here, David summarizes the most salient points of his work. He also makes his bachelor's thesis freely accessible.
At Kaffeemacher, David's input is currently having a significant impact, and we plan to advance our approach to how we report on coffees. And that's what David's work is intended to do – to question and provide new ideas.
David Wistorf: Management Summary
On October 17, 2019, the price of a pound of Arabica coffee was around 0.92 US dollars. This price had steadily declined since 2016, making it impossible for many producers to cover their production costs. Due to falling coffee prices, there are efforts in the coffee industry to transparently display the coffee value chain.
By disclosing cost distribution, the aim is to ensure fair payment for all parties in the value chain. However, there has been no analysis of the concept of transparency in the coffee industry to date. Furthermore, it has not been investigated how transparency in coffee processing can potentially be measured.
The aim of this thesis is, on the one hand, to highlight the most important aspects for creating transparency in the coffee value chain. On the other hand, a model for analyzing transparency in the coffee value chain is to be established.
Questions on Transparency
The thesis focuses on the specialty coffee segment and answers the following questions:
- What aspects need to be considered to achieve transparency in the specialty coffee segment?
- What approaches to achieving transparency in cocoa value chains prevail as a comparison product, and what can be transferred to the coffee industry?
- What could a verified model for analyzing transparency in the coffee value chain look like?
To answer theoretical aspects of the research questions, a systematic literature review was conducted. In addition, guideline interviews and a supplementary short questionnaire were used to survey roasters, "the Pledge" organization, and consumers. In the present work, the following persons were interviewed from the roasters and "the Pledge" organization:
- Mathias Bühler from Adrianos
- Andreas Felsen from Quijote Kaffee
- Christoph Sauser from Horizonte Coffee Roasters
- Fabian Schmid from Drip Roasters
- Jonas Lorenz from "the Pledge"
Findings David Wistorf
What aspects need to be considered to achieve transparency in the specialty coffee segment?
In answering question 1, the current literature showed that the concept of transparency has neither only advantages nor disadvantages, but that the results of transparency must be evaluated on a case-by-case basis. Important metrics for analyzing transparency in the coffee value chain have so far been the FOB price and the ex-farmgate price. However, criticism was expressed about both prices in the literature and in the survey results.
The interest and focus of the respondents clearly lie in the labor and processing steps in the country of origin. For the interviewed roasters, it is particularly important in a transparent value chain to obtain information about farm worker wages, the ex-farmgate price, processing, drying, the FOB price, and production costs.
For a transparent value chain, the interviewed consumers consider knowledge about the payment of all parties in the country of origin, working conditions, environmental impact, water consumption in processing, roasting, and shipping and delivery to be most important.
What approaches to achieving transparency in cocoa value chains prevail as a comparison product, and what can be transferred to the coffee industry?
To answer research question two, which aspects of transparency exist in cocoa production and how they can be transferred to the coffee value chain, the literature showed that in cocoa processing the focus is on disclosing what each involved party needs to live (living income).
The focus is particularly on the producers, as they often receive a very small share of the final price. In the coffee industry, the FOB price or the ex-farmgate price is often communicated in isolation. This is without any accompanying context as to whether these prices are high or low. Therefore, the approach for determining a living income can be adopted from cocoa processing to coffee processing. If the living income in coffee is determined and communicated, the previously communicated prices can be put into context and thus more easily interpreted.
What could a verified model for analyzing transparency in the coffee value chain look like?
To create a verified model for analyzing transparency in the coffee value chain (research question 3), the results from the guideline interviews were further elaborated.
This resulted in a three-part model, each part forming a separate result. The three parts are divided according to the stage of value creation in the chain. Accordingly, three parts emerged: country of origin, logistics, and consuming country.
These are in turn divided into a total of six segments. These segments are further refined into a total of 29 steps. These steps were weighted based on the results of the guideline interviews, so that if information on all steps in the respective value chain is available, the three results of the parts each add up to 100%.
When applying the model, it must be checked which steps of the respective value chain are known. In a next step, all weightings per step and value chain must be added up.
This yields the individual results for each part of the value chain. The higher the results, the more information is available about the coffee value chain, and the more transparent the value chain is.
Model as a table
Through the insights gained from this work, particularly the model, it is possible in practice to analyze how transparent a specialty coffee value chain is. This offers the opportunity to compare different value chains and make decisions based on them.
However, the interpretation and especially the generalization of the results must be done with caution, as, on the one hand, the number of roasters and consumers interviewed was small. On the other hand, due to the Corona pandemic and the difficult access to producers and coffee traders, these could not be interviewed. Thus, the results of the work are only from the perspective of the parties in the consuming country. Consequently, the part of the value chain up to and including logistics is not depicted.
In the future, the results of this work should be reviewed with a larger number of respondents and the established model adjusted accordingly. Furthermore, it should be investigated whether the model can also be applied to coffee value chains with less than 80 quality points. Cocoa processing has shown that a living income can be of great importance, as it puts transparently communicated prices into context. Future research should therefore investigate what a living income for coffee producers in each region looks like.
