Coffee is the world’s most popular drink – around 2 billion cups are consumed every day. In the UK alone, we are responsible for approximately 95 million of those. There’s no arguing that it’s big business. For brands whose business is dependent on selling a consistent, high-quality product, having a reliable supply chain is essential. Twin has worked with SPOs for over 30 years and witnessed SPOs working with international buyers in a symbiotic relationship. SPOs can help brands to differentiate themselves in a competitive market with unique flavour profiles and stories from origin. Brands can strengthen SPO business models and community development projects. Our report, Coffee, Smallholders & Sustainable Business, examines the advantages to coffee farmers of being part of a SPO and the challenges they face and advocates for more buyers supporting the SPO model.
Twin has over 30 years’ experience that has repeatedly demonstrated that SPOs are key for trade to create development impact. We deliver programmes to help strengthen business models and address issues like sustainable agriculture and gender justice. We own a trading company that provides access to market for over 400,000 coffee, nut and cocoa producers around the world. Our model gives us a unique position to understand both ends of the supply chain which we captured in our report.
Understanding the benefits of the SPOs model
To help paint an accurate picture of what life is like for SPOs, we surveyed leaders from 31 organisations across East Africa and Latin America. The businesses were a variety of sizes with membership ranging from 400 to over 200,000. We also examined five unique supply chains – interviewing leaders from the SPOs and management from the buyers. Considering both sides of the supply chain is what creates a path for success. As one Kenyan SPO put it, the best customers have “a good understanding of how we work; they appreciate things from our side.” And of course, this works in both directions.
It’s clear that there’s no ‘one size fits all’ model for SPOs – they’re hugely varied in size, capacity and capability. They’re often formed to deal with very local issues and therefore have different histories and working practices. The survey revealed that no matter the size or location of the organisation, there are some common benefits for producers working together:
- 74% of those surveyed felt there are more opportunities to access international markets as an organised group of producers, rather than individual smallholders.
- 58% felt they got better prices for their coffee from being a member of an SPO
- Shared services and support such as training, community investments and infrastructure.
It’s clear that the common attributes for SPOs to succeed are no different from any other business: strong leadership, clear objectives, focus on quality, customer service and a vision for the future.
Challenges facing SPOs and how these can be addressed
However, SPOs still face huge challenges – they are at the mercy of a changing climate, a volatile market and difficult social and political settings. The most common themes that arose from the survey were:
- Access to finance and pre-finance is the biggest challenge for 75% of survey respondents.
- More than half (56%) stated market fluctuations as a top challenge.
- Selling to international buyers was reported a top challenge for 70% .
Collectively, these conditions make it hard for SPOs to invest in development of their businesses. If there were more funding opportunities, SPOs could invest in vital infrastructure and create conditions that ensure farmers remain loyal – thus strengthening the supply chain. If buyers can establish long-term memorandums of understanding with producers, and translate these into multi-season contracts, it will allow SPOs to make plans and investments. This security is currently missing but could make a huge positive difference to the lives of hundreds of thousands of farmers.
Another simple step is for buyers to engage in regular, direct communication with SPOs. It helps them establish good working relationships and gain a better understanding of complex and changing local environments. And, transparency is vital in the supply chain: buyers should share as much information about their business as they expect from SPOs. Being open in where products are sourced and offering consumers information is a powerful marketing tool.
Many SPOs commented on climate change as a key challenge for the future. So, one key recommendation for SPOs is to consider crop and business diversification to spread risk. One manager at a Ugandan SPO said, “Due to global warming and climate change, our coffee belt is moving upwards implying that there will be less and less coffee production. Therefore, the organization need to diversify and deal in other products alongside coffee.”
The sector cannot function without smallholder farmers and SPOs. They produce vast volumes of coffee but also the specialty beans that can be sold at a higher price. Buyers want to offer consumers something different – something special. Smallholder producers provide interesting flavour profiles and give brands the opportunity to tell farmers’ stories. In an interview for a case study on a supply chain from Peru to the UK, Tom Blackwell from Finlays said, “When you buy from a cooperative you get the personal touch; you are in contact with them directly and you know where the coffee is coming from.” He went on to say that a deeper understanding of the story behind the product is something consumers are willing to pay for.
The coffee industry has many challenges – and there are big questions about the viability of the future of coffee. But if both ends of the supply chain work together, there’s hope. This is a journey the sector needs to embark on together. Our report shows that close relationships lead to long-lasting sand sustainable supply chains delivering development impact in rural communities and helping coffee brands meet consumer demand. If SPOs and buyers both adopt our recommendations, the sector will be making strides towards a more secure future.
Download the report and see if you can adopt any of the recommendations and help to strengthen supply chains. The advice offered could apply to other commodities too. If you want more information about the report or discuss sustainability in supply chains, please contact Liz Foggitt, Communications Manager at Twin.