ORGULLO LATINOReading time: 6 minutes
What is Direct Trade?
At this point, I have no idea what the universal definition is. So many roasters use the term to define a relationship with farmers while they buy from traders. To Mayorga, Direct Trade is working directly with producers, negotiating directly with them, understanding their logistics, their costs, their financing options, and their overall needs. It’s knowing exactly how the money we pay to source our coffee is allocated and distributed by being active partners in the entire process. It’s giving producers a sense of pride that their coffee is being placed directly with a roaster that genuinely cares about their growth and stability year after year. Ultimately it’s a partnership, a relationship, and a mutual understanding between producers and roasters.
Why Does it Matter?
The evolution of global trade in the late 1800s gave Americans and Europeans the opportunity to enjoy ”exotic” foods like quinoa from Peru, spices from India, and coffees from Africa, Latin America, and Asia. Sadly the supply chains established to move these products from small producers to market economies were developed by wealthy traders who had the financial, logistical, and market resources to control supply markets. This kept producers far removed from the final market and consumers unaware of the practices that their purchase was supporting.
The structure has effectively remained intact, leading to extreme poverty for small, remote producers who have little to no reason to believe that they can work toward a better future. This distance has also created a level of food fraud that’s become the norm in origin countries. Falsified organic certifications, bringing goods from other countries to be sold as a different country of origin, etc.
I think most people agree that the indentured servitude that has been imposed on small producers by most coffee “merchants” since the 1800s has to end. In today’s world, we have more efficient means to move money to origin countries, more efficient shipping, and much better means for traceability. We also have consumers who value quality specialty coffee over commercial coffee and who care about socioeconomic and environmental impact. Now it’s up to the coffee industry to drive that change.
The only real issue is that you can’t change what you can’t see or you don’t understand. That’s why I dropped out of college in the ’90s, to spend most of my time in Nicaragua and traveling through Central America to understand the realities of the trade and the needs of the producers. That curiosity led to relationships, understanding, and an approach to drive change through direct relationships and transactions-- Direct Trade.
The Mayorga Supply Chain
What Are the Benefits to Producers & Their Communities?
Our focus has always been to be a positive force for everyone from producer to consumer. So, it makes sense that we start at the beginning of the supply chain by making healthy, equitable, and sustainable decisions. This is a major reason why we only focus on relationships with producers throughout Latin America. We’ve lived in these countries. We relate to the values, customs, and food preferences. We speak Spanish. This relatability is a common ground that allows us to develop AUTHENTIC relationships with our producers and their communities.
Our direct engagement has led to honest conversations about little industry secrets like “chargebacks” that mills and exporters charge producers. We get to hear about how and when they have to borrow money for their harvest. They tell us about exploitative interest rates they’re charged for loans needed to harvest coffee and the fact that the bank (or mill) takes their farm as collateral. We hear about how some mills force them to buy their inputs exclusively from the mill, sometimes at prices 2-5 times above market. The inflated transportation costs charged to producers to take their coffee to the mill. The falsified documents showing lower yield after milling.
I could go on and on, but THESE are the issues in the coffee supply chain that keep producers poor. Knowing about them allows us to confront them and make changes. The uneducated in this industry spew simplistic solutions like “pay more for your coffee”. This is indeed part of the solution, but if you don't know how your money is being distributed, the economic arrangements between producer and mill, or the overall financial aspect of the supply chain, you’re most likely just increasing margins for roasters and traders while maybe getting producers a few more pennies.
By developing trust-based relationships with our producers, we know exactly what their economic structure looks like and we understand their needs from harvest to harvest. We work with them to plan the next harvest almost immediately after finishing the current harvest. We create contracts and create three-party agreements with local banks to use our contracts for harvest financing at dramatically reduced rates. We negotiate milling rates with mills and set expectations for yield. We hear about momentary challenges faced by producers and we create solutions. We’ve helped rebuild schools, we’ve built homes after hurricanes, we’ve helped to finance wet mills, etc.
Our producers know that we’re one phone call or text message away. In the coffee industry, this is a massive benefit as roasters are considered “the market” since they are traders’ clients. These direct relationships create a bond of trust and honest communication that help us to not only ensure that our producers are earning an equitable value for their coffee, but that the partnership creates growth for the community.
What are the Benefits to Mayorga?
The biggest benefit to Mayorga is that direct relationships allow us to have a chance of achieving our purpose of eliminating poverty in the countries where we’re from. We’ve learned more from producers than any industry trade show, book, or so-called experts. We have a sense of pride in knowing that we’re supporting our Latin American communities. We also have more control over our quality more than any roaster we’ve come across in 23 years. We see our coffee before it’s even being picked and we cup it while it’s still being milled. We can make adjustments before it’s bagged for export. By doing this year after year, we also have unparalleled consistency in our quality. While most roasters buy coffees that are in trader’s warehouses and are at the mercy of the process, we are part of the entire process.
What are the Benefits to the Consumer/Market?
Our supply chain model is efficient and scalable, which leads to financial efficiencies. We are also firm believers that “fair treatment” needs to be extended to consumers. Just as we pay producers fairly and understand their needs, we realize that consumers deserve the respect and consideration of getting the best quality at the best price possible. From our perspective, there is tremendous price gouging taking place wherein smaller roasters are operating under massive margins as they scream, “Pay more for your coffee if you care about farmers!”
Mayorga operates at 6% to 8% net profit margin. That’s astronomically low for our industry where most are seeing 15% to 25% net profits. In my opinion, the industry also needs to be honest about how unfair some are to consumers. To tell them that they need to pay more is lazy and selfish. We can’t blame or punish consumers for the behaviors of the coffee industry over the past 200 years.
This is why we’re working to build a new, reasonable model of treating EVERYONE in the supply chain fairly and with respect while offering great quality. This includes redefining the model under which corporations succeed. Historically it’s been all about paying as little as possible for products and staff while charging consumers the most you can get away with--using marketing as the “value add.” It’s time for businesses to be conduits of positive impact, personal development, transparency, and reasonable profitability. Genuine Direct Trade is one small variable toward this vision that Mayorga is working to turn into reality.