A few weeks ago, an article was posted about the inflationary use of SCA scoring. The article was interesting to me because, until now, little has been reported about the impact of this point system on producer organizations. I have been speaking with representatives of coffee cooperatives for some time about the SCA points system, and they have been observing a development that they find threatening for years.
Guest contribution by Kleber Cruz, green coffee buyer for Gepa. Kleber Cruz regularly writes interesting articles with many insights from work in cooperatives and coffee-growing countries such as Peru, Mexico, Honduras, and Nicaragua. In the future, we will publish Kleber's text on kaffeemacher.ch to make this important content accessible to a wider audience. Thank you for your work, Kleber!
Cooperatives investing in members' quality improvement
Over the years, many cooperatives have invested in improving the quality of their members' coffee, reaching quite high standards in the process. Manuel Quiliche from the COPICAFE cooperative in Peru tells me about all the investments his cooperative has made to constantly improve their varieties. In doing so, the cooperative has also built a social foundation that makes it easier to carry out certain projects, such as the joint marketing and processing of coffee. I hear the same thing from Nicaragua—Jinotega, to be more precise—when I speak with Alvaro Rodriguez (representative of the coffee cooperative COASSAN): "At the end of the 90s, with the price crisis, a program began in Nicaragua to identify quality coffee and differentiate it. This work was led and guided by cooperatives; the advantage at the time was that they had already organized producers, and this circumstance made implementing this project much easier." Leonid Herrera from the Jose Olaya cooperative in Peru comments: "Year after year, the cooperatives introduced new techniques for organic farming and offered producers a great deal of relief for this transition, such as access to credit, advances for the harvest, transport of their products, the provision of organic fertilizers, or the renewal of coffee plants, but above all, training seminars." Thanks to this work by the cooperatives, the members of the organizations have been able to significantly improve the quality of their coffee over the years. The work of the cooperatives was decisive for many producers in reaching a good level of quality. But as always, this process does not reach all producers.
Importers bypassing cooperatives
There are some importers who have bought coffee directly from the cooperatives in the past. Through these relationships, they were able to learn more about the work in the field, gain a better understanding of the entire production process, and identify the growing zones for good coffee. However, for some time now, there has been a worrying development for the cooperatives: the importers who used to buy from the cooperatives are now going directly to the producers who, thanks to the work of the cooperatives, have reached a high standard, and are buying high-quality coffee (86+ SCA or more) from them. It is coffee from high-altitude growing regions. Importers pay prices for this coffee that are sometimes more than 50% higher than the prices paid by the cooperatives. For the cooperatives, the coffees from low and medium-altitude zones remain, which are good but by no means reach a score of over 86. Hugo Roblero, responsible for exports at his organization, the FEJCEM cooperative in Mexico, also tells me: "Buyers in Mexico come to the most remote communities and buy the best coffees directly from the producers at higher prices that the cooperative cannot compete with. This practice destabilizes us; the farmers are dissatisfied with us, and we are missing out on these extremely good coffees to achieve better prices."
Q-Graders going astray
However, the cooperatives are observing another problem: improving a cooperative's marketing structure also includes further training for its staff, including Q-Graders, and equipping coffee laboratories. Cooperatives have invested a great deal in this area. Now, these Q-Graders are responsible for coffee quality within the cooperatives. Some of them have discovered a business niche and are splitting the cooperatives. That is to say, these Q-Graders identify the farmers who have good coffees and are dissatisfied with the cooperative, resign from the cooperatives, organize these farmers into parallel companies, sell the high-quality coffee directly to the importer or in consumer countries, and achieve good prices.
With this development, the problem for the organizations is that they have spent years investing in the improvement of their commercial infrastructure and have achieved good quality standards. Now they see their marketing opportunities decimated as a result of these practices. Many cooperatives describe this as unfair.
What prevents cooperatives from acting differently themselves?
However, the valid question arises as to why the cooperatives cannot compete with these specialty coffee importers. One point is certainly that change processes in cooperatives can only be implemented very slowly and laboriously. Market adjustments take a little longer in cooperatives than in other forms of enterprise; in my opinion, this is a major problem that cooperatives have not yet properly addressed. Another point is undoubtedly that these organizational structures are sometimes misused for other goals.
But the current market conditions are also unfavorable for coffee cooperatives: the prices paid for specialty coffees or micro-lots are decoupled from the stock market price, while coffee cooperatives are dependent on the NY stock exchange price. Leonid tells me: "The market does not help; the price for coffee listed on the New York Stock Exchange is much lower than the costs of production." The costs for supplies or tools have become expensive, and the prices for equipment and infrastructure for organic conversion are constantly rising. Under these conditions, the economic performance of the cooperatives is not sufficient to compete with importers/buyers of specialties or micro-lots.
Every coffee needs a market
On the other hand, the market for specialty coffees in consumer countries is still so small that it cannot keep pace with the inflationary development in the producer countries worldwide. Coffees are being offered as specialties or micro-lots that are actually not. In fact, the cooperatives have a broad range of coffee in all qualities. They have to try to sell everything, i.e., the entire assortment. From these sales, they generally calculate an average price, which they pass on to the producers minus costs. This model means that farmers who have delivered top quality receive less than they would from specialty buyers. The farmers who have delivered lower quality can achieve a better income through this pricing policy. Other organizations try to introduce different pricing models, but cooperative pricing models try to achieve a balance between the producers. This model proved its worth during the quarantine due to COVID-19: without the cooperatives, the situation in rural areas would be more dramatic than it already is.
Perspective: Improve coffee quality for "lowland coffees"
However, it seems that the producers of good coffees have not been willing to accept this model for some time and are putting pressure on the cooperatives, but the cooperative cannot exclude farmers. Leonid tells me: "The cooperatives cannot afford to discriminate against farmers, but we demand that they continue their education. They should constantly improve their craft, structure their investments so that the family benefits in the end; they should not switch to cultivating illegal products like coca."
A manager of a cooperative in northern Peru also tells me about his worry that his members are beginning to sell their best coffees outside of the cooperatives. According to him, it is necessary to constantly improve the quality of lowland coffees. But for that, there must also be a market that helps with better prices.
