A few weeks ago, an article was posted about the inflationary use of SCA scoring. The article was interesting to me because little had been reported until now about the impact of this scoring system on producer organizations. I have been talking with representatives of coffee cooperatives about the SCA points system for some time, and they have observed a threatening development for years.
Guest post by Kleber Cruz, green coffee buyer for Gepa. Kleber Cruz regularly writes interesting articles with many insights from his work in cooperatives and coffee-growing countries such as Peru, Mexico, Honduras, and Nicaragua. In the future, we will publish Kleber's texts on kaffeemacher.ch to make these important contents accessible to a wider audience. Thank you for your work, Kleber!
Cooperatives' Investment in Quality Improvement for Members
Many cooperatives have invested in improving the quality of their members' coffee over the years, achieving quite high standards. Manuel Quiliche from the COPICAFE cooperative in Peru tells me about all the investments his cooperative has made to continuously improve 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 from Nicaragua, Jinotega, to be precise, when I speak with Alvaro Rodriguez (representative of the coffee cooperative COASSAN): "At the end of the 90s, and with the price crisis, a program to identify quality coffee and differentiate it began in Nicaragua. This work was led and managed by cooperatives; at that time, the advantage was that they had already organized producers, which greatly facilitated the implementation of this project." Leonid Herrera from the Jose Olaya cooperative in Peru comments: "Year after year, the cooperatives introduced new techniques of organic farming, offering producers much relief for this transition, such as access to credits, advances for the harvest, transport of their products, provision of bio-fertilizers, or the renewal of coffee plants, but above all, training seminars." Through this work of the cooperatives, the members of the organizations were able to significantly improve the quality of their coffee over the years. The work of the cooperatives was crucial for many producers to achieve a good level of quality. But as always, this process does not reach all producers.
Importers Bypass Cooperatives
There are some importers who in the past bought coffee directly from cooperatives. Through these relationships, they could learn more about the work in the field and better understand the entire production process and identify good coffee growing areas. For some time now, however, there has been a worrying development for cooperatives: The importers who used to buy from cooperatives are now going directly to producers who, thanks to the cooperatives' work, have achieved a high standard, and are buying coffees of excellent quality (86+ SCA or more) from them. This coffee comes from high-altitude growing areas. For this coffee, importers pay prices that are sometimes more than 50% higher than the cooperatives' prices. For the cooperatives, only 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 in his organization FEJCEM Cooperative in Mexico, also tells me: "Buyers in Mexico come to the most remote communities and buy the best coffees directly from producers at higher prices that the cooperative cannot compete with. This practice destabilizes us; farmers are dissatisfied with us, and we lack these extremely good coffees to achieve better prices."
Q-Graders Gone Astray
However, the cooperatives are observing another problem: improving a cooperative's marketing structure also includes further training of its staff, including Q-graders, and equipping coffee laboratories. Cooperatives have invested a lot in this area. Now these Q-graders are responsible for coffee quality in the cooperatives. Some of them have discovered a business loophole and are splitting the cooperatives. This means that these Q-graders identify farmers who have good coffees and are dissatisfied with the cooperatives, quit their jobs at the cooperatives, organize these farmers into parallel companies, sell the high-quality coffee directly to the importer or to consumer countries, and achieve good prices.
In this development, the problem for the organizations is that they have invested for years in improving commercial infrastructure and achieved good quality standards. Now they see their marketing opportunities decimated due to these practices. Many cooperatives describe this as unfair.
What Prevents Cooperatives from Acting Differently Themselves?
However, the legitimate question arises as to why cooperatives cannot compete with these specialty coffee importers. One point is certainly that change processes in cooperatives can only be carried out very slowly and laboriously. Market adjustments take longer in cooperatives than in other forms of business, which, in my opinion, is a major problem that cooperatives have not yet properly addressed. Another point is undoubtedly that these organizational structures are sometimes misused for other purposes.
But the current market conditions are also unfavorable for coffee cooperatives: The prices paid for specialty coffees or microlots are decoupled from the stock market price, while coffee cooperatives are dependent on the price of the NY stock exchange. Leonid tells me: "The market does not help; the price of coffee listed on the New York Stock Exchange is much lower than the cost of production." The costs for operating materials or tools have become expensive, and the prices for equipment and infrastructure for organic conversion are constantly rising. Under these conditions, the economic capacity of cooperatives is not sufficient to compete with importers/buyers of specialties or microlots.
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 producing countries worldwide. Coffees are offered as specialties or microlots that are actually not. In fact, cooperatives have a wide range of coffees of all qualities. They must try to sell everything, i.e., the entire assortment. From these sales, they usually 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 from specialty buyers. Farmers who have delivered low quality can achieve a better income through this pricing policy. Other organizations try to introduce other pricing models, but the pricing models of cooperatives try to achieve a balance between 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 in "Lowland Coffees"
However, it seems that producers of good coffees have for some time no longer been willing to accept this model and are putting pressure on the cooperatives; however, the cooperative cannot exclude farmers. Leonid tells me: "The cooperatives cannot afford to discriminate against farmers, but we demand that they must continue their education. They should constantly improve their craft, structure their investments so that the family ultimately benefits, and they should not switch to cultivating illegal products like coca."
A manager of a cooperative in northern Peru also tells me about his concern that his members are starting to sell their best coffees outside 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.
