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2010 Burundi Pricing Transparency Report

The full story. Originally posted on July 12, 2011

We are pleased to announce our financial transparency report for our Burundi origin. This post adds to our ongoing thread on transparency in Burundi and to our long term Whole Crop Project. Last month’s topic was a highly detailed origin map including micro-region zones and GPS-tagged photos of the Bukeye community. If you haven’t already done so, check it out.

Here is our Goal: To better understand, together, how our purchases impact those who can stand to benefit the most, and who give us the most: the coffee’s farmers.

To get there, though, we must recognize that there is value added up and down coffee’s supply-chain. In fact, at each and every stage the ‘price’ of coffee has a different name.

The Price of Coffee

NAME LOCATION What’s included in the price
Roasted Your favorite local roaster Incl. below + 18% roast loss
Landed Warehouse in New Jersey Incl. below + customs, offloading into warehouse
CIF Shipyards outside of US customs Incl. below + insurance and freight
FOB Port in Tanzania Incl. below + truck to port of export
FOT Truck in Burundi Incl. below + dry mill processing
Sogestal Dry mill Burundi Incl. below + washing station processing
Farm Gate Bukeye Community Farmers Incl. base price, export premium, and quality premium

So when people talk about how much they are paying for their coffee it is important to ask to whom is that price going? There are prices paid to cooperatives, prices paid to exporters, brokers and a lot of other sellers.

Note that none of the above prices include the cost of financing or overhead. When criticizing the big difference between buying coffee at $2-3 pound, and reselling at $8-$16 a pound, many neglect to add the various costs of customs fees, dock charges, warehousing in NY, trucking, roasting, packaging, labels, financing, administration, or the cost of running a business in New York & Chicago. There is a lot that goes into getting you good coffee and everyone needs a reason to pitch in.

Before we backtrack down this value chain to see how these Burundi farmers were compensated, it is important to get some background on the Burundi coffee industry.

Background on the Burundi Coffee Industry

In Burundi the coffee market is “somewhat” liberalized. While market-based pricing is legal and coffee processors and owners/operators of washing stations can choose to pay whatever their businesses demand, at the beginning of each season a majority of buyers come together with Burundi’s coffee industry association – called InterCafe – and agree on a price they will all pay their farmer suppliers.

This both helps and hurts. It hurts, since this system doesn’t reward farmers or washing stations for any dedication to quality, while careless farmers see their incomes increase thanks only to their neighbors’ strong efforts. This emphasizes and entrenches a classic problem that any coffee worker faces in moving from growing a commodity to growing a specialty crop. While the government or InterCafe don’t necessarily require this payment approach, the situation is also still far from free-market. The coming years will most likely see a change to this system, since particularly during the 2010 and 2011 harvests the Burundi coffee industry suffered significant shortcomings.

However this system can also help. It can simplify the business landscape by reducing market clutter of middlemen. This can increase the freshness of the coffee by relieving farmers of the need to figure out where to deliver their coffee every day (i.e. who is paying what prices)….distances between farm and washing stations can be great. This system can also distribute more sustainable wages to farmers who aren’t lucky enough to live in high altitude areas where quality and prices can be higher.

That said, farmers still need to be rewarded for efforts to produce high quality. There doesn’t have to be such a thing as a bad bean; even “lower grade” coffee can be revolutionized through a little TLC.

So, in Burundi, we purchase through both in-season prices (which go into a pool for all farmers and regions) as well as post-season bonuses specific to the small region where our coffee is grown. We also invest our time and effort to build programs and partnerships on the ground, to benefit the farmers and their community at large. You’ll see this come up again below when we talk about how post-import premiums were paid to farmers.

Cut to the Chase –What We Pay

For the 2010 harvest, Crop to Cup paid $2.57 per pound of green coffee from Burundi. This price was CIF, on the water outside of US customs.

Of that $2.57, 34 cents went to trucking from Burundi to the port in Tanzania, sea freight to NY, shipping insurance and paying agents in Burundi to help us manage that process without too much delay. Yes, $34 cents is ridiculously high, but that’s what poor infrastructure in Central/East Africa will do to ya.

This leaves a coffee cost of $2.23/lb green, which is considered the FOT export price (freight on truck). This price came from a base coffee price of $2.03/lb, plus a $.20/lb premium to farmers, the dry mill and the Sogestal (the owner and operator of Buhorwa and other washing stations around Burundi), who all make extra effort for the quality and timelines we demand.

Digging Deeper – The Base Price

It’s time to explore how the pricing works. Let’s put that 20c premium to the side. We’ll discuss the Base Price now and come back to Premium later.

At $2.03/lb, we paid an estimated 31% higher than the Sogestal’s average selling price for green last season, however that’s expected since the Buhorwa Washing Station produces some of their highest quality beans. The Sogestal’s FOT export revenue (our $2.03/lb paid and the various amounts paid by other buyers) all goes into one farmer fund, then all of their stations’ farmers receive a percentage of the total revenue according to the volumes they contributed.

Amongst the buyers in Burundi who all agree to the same price paid to farmers, it is also agreed that farmers receive 72% of the FOT export price. The remaining 28% is split up between InterCafe, the Sogestal, washing station, dry mill, the local standards bureau to approve the container for export, etc. Through this system, $1.46 of the $2.03 FOT export price was distributed to the farmer payment pool.

During the 2010 harvest, farmers received from the pool 490 Burundi francs ($0.40) per kilo of coffee cherry. I won’t go into the math or the weight loss of each production stage here, but that’s about $1.12 per lb green. Now, if our FOT price didn’t go into the payment pool for all of the Sogestal’s washing stations, and 72% of our $2.03/lb paid to the Sogestal had gone only to the farmers of the Buhorwa Washing Station, they would have received the full 642 francs per kilo cherry (i.e the full 72% or $1.46 per lb green). Sure, we would have loved for the Buhorwa farmers to receive that much, but, hey, it’s also good to work in ways that benefit entire regions and a country, and not just one select community lucky enough to attract a direct-trade international buyer.

In fact, this dynamic actually helps us to avoid another big problem faced by those who work to improve coffee quality through premiums – if some farmers can participate in a program, then why not their neighbors? If their neighbors, where is the line drawn? We’ve made a commitment to work with a specific community in Burundi. However, this community is part of a larger community.

Digging Deeper – Whole Crop Premium

Okay, time to look at the Whole Crop Premium. We chose to pay a premium of 20 cents per lb green upon export of the coffee from Burundi (a total of 8,417,215 francs). To recognize the Buhorwa farmers’ extra effort to meet our cup quality and direct-trade communication standards, this premium went only towards the coffee harvested for the Buhorwa Washing Station.

The premium was distributed 70% (5,892,050 francs) to farmers and their cooperative, then 30% to the Sogestal and dry mill. During the 2010 harvest, the washing station collected a total of 425,523 kilos of cherry. Divide francs by kilos and we get a premium 13.85 francs distributed back to the farm level for each kg harvested and delivered to the washing station. Of that 13.85 francs, farmers received 72% (10 francs, or about 1 US cent per kilo cherry), while the cooperative received 28% (3.85 francs per kilo cherry). While that may not seem like much when you consider it per kilo, remember that the community harvests quite a lot of cherries, and the injection of almost $5,000 into a struggling community is a great bonus. Plus, for next year’s harvest the Buhorwa Farmers Association now has an extra $1,342 to better support its members through rented trucks for cherry transport (again, distances are far), pruning tools, new coffee tree seedlings and more.

In Summary

To sum up, Buhorwa farmers received in their pockets 490 francs per kg cherry plus a 10 franc premium from Crop to Cup (Fig. 3 and Fig. 4). That’s a total of $1.14 per lb green. That’s what they received for their entire harvest, not just for the portion of their harvest which we purchased. (the next section will discuss why this is an important point)

Talk about NOT making a long story short! Our reason for all the above is to show you how much individual small-scale family farmers, i.e. the true producers, receive for their coffee. We don’t just tell you what a large cooperative or exporter receives, then leave you to guess what goes to operating budgets and what goes to the farmer. This level of detail down to the farm-level is not common in the coffee industry or the “fair-trade” system right now. It can be confusing (and we didn’t even get into water loss ratios – we just expressed all pounds as unroasted green). Still, we know (er, hope) you get it and think that it’s worth the extra paragraphs to put it all out there.

So What?

It is important to now put this into perspective of the volume we purchased. Since last year was our first year purchasing from Buhorwa, we only bought 261 bags (60 kg each), which was 46% of the specialty coffee they produced and 22% of their overall harvest. As part of our Whole Crop project, our goal is to purchase 100% of Buhorwa’s harvest, including both the specialty and lower grades. It may take us a couple of years to develop enough varied customers to buy 100% (increase our Burundi purchases by 350%), although for the 2011 harvest we plan on purchasing 50% of their entire harvest (a 123% increase).

This is important, since the more we purchase, the higher the impact of the premium. This is because the premium paid to farmers per kilo of cherry is calculated by taking the total farmer premium amount, then dividing it by the total number of cherries produced by the station in a given year (i.e. not just the 22% of the harvest we purchased). For example, if we had purchased 100% of the 2010 harvest, the farm gate premium (farmer premium + coop premium) would have been 59 francs per kilo cherry (the full $0.14 per lb green, i.e. the $.10 and $.04 premiums in Fig. 1 below) and community income would have increased by 12%, instead of the 13.8 francs they received (rounded up to 14 fr. in Fig. 2 below) and the 2.8% increase that resulted. That would be huge.

This is why market development is so important, and why helping farmers to sell ALL of their coffee into a sustainable marketplace is important. This is why we are pursuing the Whole Crop model and this is why we do not only concentrate on those “super top lots” that we in the specialty community love so much, then leave the farmers and the Sogestal to sell of the rest of their harvest to low-paying local markets.

So if you’re a roaster out there – give us a call and let us know the specific grade of Burundi beans you need. You will greatly increase impact on a community that produces some truly amazing coffee.

Appendix items: a few charts and an example of farmer payment records, plus a video of the coffee tasting we held with the farmers at the Buhorwa Washing Station in March 2011.

Fig. 1:

Distribution of Crop to Cup Payment
for Crop to Cup’s purchase of 22% of harvest (in $/lb green)
Buhorwa Farmer Base Price $ 1.12
Buhorwa Farmer Premium $ 0.10
Farmer Coop Premium $ 0.04
Total Payment to Farm Level (Buhorwa Only) $ 1.26
Other Farmers via Sogestal Distribution System $ 0.34
Total Payment to Farm Level (All) $ 1.60
Sogestal, Mill, Intercafe, etc $ 0.57
Sogestal/Mill Premium $ 0.06
Transport and Agents $ 0.34
Total Price at NY before customs $ 2.57

Fig. 2:

2010 Farmer Receipts for Buhorwa Washing Station
What farmers received per lb and kg when C2C premium considered within their entire harvest
$/lb green fr/kg cherry
Buhorwa Farmer Base Price $ 1.12 fr. 490 (see Fig. 4)
Buhorwa Farmer Premium $ 0.02 fr. 10 (see Fig. 4)
Farmer Coop Premium $ 0.01 fr. 4
Total Farm Level Income $ 1.15 fr. 504

Fig. 3

1st End-of-Season Payment. 46,200 francs paid for 132 kg delivered. 350 fr/kg as first part of Base Price payment (totals with 140 on back of card to make 490 fr/kg total Base Price payment)

Fig. 4 

2nd End-of-Season Payment. 19,800 francs paid for 132 kg delivered. 140 fr as the remainder of Base Price, plus 10 fr C2C premium