The role of a trader from the perspective of specialty coffee producer organizations
In the run-up to the official launch of our Trader profile on Beyco, we are taking you into the world of coffee trade and the role of traders. Because, to understand why we are launching this new trader profile and what it can do, it is useful to understand which role a coffee trader actually fulfills. On our social media, we share information about traders, their role and their added value, so that we gradually build up to the official launch of our trader profile!
In line with this theme, this blog provides a practical example on the role of a trader from the perspective of one of our coffee producing partners. In an interview with Andy Carlton, managing director of Zombo Coffee Partners, we discussed the role of a trader in a coffee supply chain, why Zombo sells their coffee to a trader and what the added value is for Zombo by doing that.
Contrary to the more mainstream model where washing stations buy coffee from farmers, which they then process and export, Zombo Coffee partners does not run their own washing station. Zombo Coffee Partners, operating in Nebbi and Zombo districts in the Northern Region of Uganda, works with so-called microstations, or micromills. These are very small, affordable coffee washing stations that are constructed, owned and operated by farmer groups up to 200 people. The farmers run the “microstation” and produce specialty-quality microlot coffees. Andy explains that Zombo Coffee Partners is the exporter, the financer, the quality trainer, quality control and development organization that works with these farmer groups to add value to their coffee so that they can benefit from a higher price. In addition, the farmer groups receive 33% of the profits that Zombo Coffee Partners makes on each profitable export lot.
What do you consider the role of a trader?
“When I think of the word “trader”, I think of large multinationals that have head offices in Europe, the US or Asia, and offices in almost every coffee-producing country in the world. There are only a few big coffee traders worldwide, who buy coffee from farmers, process and export it, to ultimately sell it to their buyers, mostly roasters. So, they do both the exporting from origin and importing into the market. Most of their business is commercial quality coffee, which means they buy and sell coffee based on the London Robusta and the New York Arabica market prices. They tend to do smaller quantities of specialty coffee.”
“The big traders do not always directly buy coffee from farmers themselves. This is where smaller local purchasing stations or traders play a role. These local parties buy coffee from farmers which they again sell to other traders.”
This shows there can be more traders, or ‘value chain service providers’, in one supply chain; either on the importing or exporting side. This all very much depends on the structure per country. There might be a few parties involved in the chain or more, for example when there is a restriction on export licences or a national auction system. Besides efficiency in buying and selling coffee, a trader can facilitate logistics, insurance, risk management, warehousing, finance and other things for a roaster.
What is the added value of working with a trader for Zombo?
“We produce high-quality specialty coffee in lots which range from a single 60kg bag to about 150 bags. This serves a somewhat separate market that provides farmers with a higher price.
We would love to sell our coffee directly to roasters, partly because roasters can sometimes pay you more, since there is no middleman. Traders are financing storage, distribution and bank interest, as well as the expenses of actually getting coffee from country of origin to where they are. They have to get those expenses back from the roasters to whom they sell the coffee. Luckily, we have some roasters that buy our coffee and to whom we export coffee directly. However, there aren’t so many roasters that want a full container of coffee, so logistics can become expensive and difficult.”
Dealing with every single roaster that is requesting a couple of bags can become quite complicated. Andy explains that one of the buyers of Zombo is This Side Up, a Dutch coffee importer that specifically focuses on sourcing ethically, continuously supporting the farmers they buy coffee from. “When I think of This Side Up Coffee, our buyer in The Netherlands, I think of it as an ‘importer’ rather than as a ‘trader’. It is not operating directly in origin as most of the larger traders are. It has a close relationship with its suppliers in origin (such as us) and with its roaster partners in Europe. It is very convenient to work with an importer between us and the roasters who want our coffee, to offer to their customers. We’ve worked with This Side Up since we started in 2018.”
“From our perspective, a trader has an important role! First, they bring coffee into the consumer market. There are at least four different roasters that This Side Up imports our coffee for; Roast Factory, Wakuli Coffee, Gosling Coffee and a roaster in Luxembourg. So, This Side Up links us as a partner to their clients. A big advantage for us is that they buy the coffee for these clients at once, so we do not have to sell 10, 20 or 100 bags to each roaster individually. You can’t easily do that from origin. It’s incredibly expensive to ship small volumes of coffee. Selling larger amounts of coffee to an importer who manages the coffee and divides it over their clients ultimately saves money, even though of course the importer needs to earn money from this too.”
“Second, besides buying coffee on request for their clients (the roasters), This Side Up also buys our coffee for its own stock. It buys more coffee than has been requested by its clients in order to keep so-called ‘spot coffees’. In this way, it can sell coffee from Zombo throughout the year for potential future buyers interested in our coffee.”
“From our perspective, This Side Up has an important role! They bring our coffee into the consumer market and buy it for stocks for potential future buyers that are interested in our coffee.”
“Third, This Side Up accepts coffee ‘on consignment’. This means we can ship unsold coffee more cheaply to the consumer market in the same container as the coffees we have already sold, and then sell it bag by bag from Rotterdam. It’s very hard to sell small quantities from origin, so this really helps us. We also work closely with This Side Up to generate development projects that are hosted by roasters and implemented by Dutch NGOs like Progreso Foundation, but also with local NGOs in Uganda and ourselves. We currently have three projects in the design phase with This Side Up and its roaster partners. These are not normal activities of a coffee importer; it is an added value for us of working with This Side Up.”
With the trader profile on Beyco, traders, or value chain facilitators, can be included in the trade to offer their services. Whether this is about coffee purchase or sales, logistics, finance, insurance or Price risk management services, a trader can be involved or specifically be requested to provide a service. Traceability can be maintained when purchasing and selling through to another trader or roaster. In the coming blogs we will explain more about the functionality of this new profile that will be released soon.
We are proud to be working with both Zombo and This Side Up. Curious to know more about Zombo Coffee Partners and This Side Up? Visit their websites! Zombo Coffee Partners & This Side Up. You can also find them on Beyco!
