Especially in the specialty coffee industry, there's increasing talk about transparency and traceability throughout the coffee chain. But what do these metrics mean? And what advantages or disadvantages do they offer a company in terms of communication? And what explanatory value do they have?
David Wistorf of Kaffeemachern explored these questions in his bachelor's thesis. The thesis is dense, introducing the subject matter with a thorough literature review, and then culminating in David's own model for measuring transparency.
Here, David summarizes the key points of his work. He also makes his bachelor's thesis freely accessible.
David's input is having a big impact on us coffee makers right now, and we plan to further develop our approach to reporting on coffee. And that's what David's work is meant to do—to challenge and provide new ideas.
David Wistorf: Management Summary
The price of a pound of Arabica coffee was around $0.92 on October 17, 2019. This price has been steadily declining since 2016, leaving many producers unable to cover their production costs. Due to falling coffee prices, there are initiatives in the coffee industry to make the coffee value chain more transparent.
Disclosing cost allocation is intended 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, no research has been conducted into how transparency in coffee processing can be measured.
The aim of this paper is , on the one hand, to highlight the most important aspects of creating transparency in the coffee value chain. On the other hand, to develop a model for analyzing transparency in the coffee value chain.
Questions about transparency
The paper deals with the specialty coffee segment and answers the following questions:
- What aspects need to be considered to ensure transparency in the specialty coffee segment?
- Which approaches to creating transparency in value chains are prevalent in the comparable product cocoa and which of these 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, guided interviews and a short questionnaire were used to survey roasters, the Pledge organization, and consumers. In this study, the roasters and the Pledge organization interviewed the following individuals:
- Mathias Bühler from Adrianos
- Andreas Felsen from Quijote Coffee
- Christoph Sauser from Horizonte Coffee Roasters
- Fabian Schmid from Drip Roasters
- Jonas Lorenz from “the Pledge”
Insights David Wistorf
What aspects need to be considered to ensure transparency in the specialty coffee segment?
In answering research question 1, current literature showed that the concept of transparency has neither 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, both have been criticized in the literature and in the survey results.
The respondents' interest and focus clearly lies on the work and processing steps in the country of cultivation. The roasters surveyed consider it particularly important to receive information about farmworker wages, the ex-farmgate price, processing, drying, the FOB price, and production costs in a transparent value chain.
For a transparent value chain, the consumers surveyed consider knowledge about the payment of all parties in the country of production, working conditions, ecological impact, water consumption in processing, roasting, shipping and delivery to be most important.
Which approaches to creating transparency in value chains are prevalent in the comparable product cocoa and which of these can be transferred to the coffee industry?
To answer research question two, which aspects of creating transparency exist in cocoa production and how these can be transferred to the coffee value chain, the literature has shown that in cocoa processing the focus is on disclosing what each party involved needs to live (living income).
The focus is particularly on 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, without any context as to whether these prices are high or low. Therefore, the approach to determining a living income from cocoa processing can be applied to coffee processing. If the living income is determined and communicated in coffee, the previously communicated prices can be put into context and thus made easier to interpret.
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 guided interviews were further developed.
This resulted in a model consisting of three parts, each of which represents a separate result. The three parts are divided according to the point in the value chain where the product is added. Accordingly, three parts were created: country of cultivation, logistics, and country of consumption.
They are in turn divided into a total of six links. These links are further refined into a total of 29 steps. These steps were weighted based on the results of the guided interviews, so that if information is available for all steps in the corresponding value chain, the three results of the sections each add up to 100%.
When applying the method, it is necessary to determine which steps of the relevant value chain are known. In the next step, all weightings per step and value chain must be added together.
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
The insights gained from this work, especially from the model, can be used to analyze the transparency of a specialty coffee value chain in practice. This offers the opportunity to compare different value chains and make decisions based on this.
However, the interpretation and, in particular, the generalization of the results should be approached with caution, given that, on the one hand, the number of roasters and consumers surveyed was small. On the other hand, due to the coronavirus pandemic and the limited access to producers and coffee traders, these could not be interviewed. Thus, the results of this study are presented 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 represented.
In the future, the results of this study should be verified with a larger number of respondents, and the developed model adapted accordingly. Furthermore, it should be examined whether the model can also be applied to coffee value chains below 80 quality points. Cocoa processing has shown that the living income can be of great importance, as it puts transparently communicated prices into context. Against this background, future research should investigate the level of living income for coffee producers in each region.
