Sustainable cocoa and coffee

A stable link with the market: it is (not only) about money

October 7, 2020
Jelle Goossens
Communications officer Rikolto in Belgium

Establishing inclusive trade relations is human work, as we concluded in the previous article of this series. Getting along well is great, but what matters in the end is business.

In order to be able to plan ahead, farmers must be able to count on a stable market that gives them some certainty about volumes and prices. That also helps to improve producers' incomes. For processors and supermarkets, a stable link with producers is important for a constant supply of safe, high-quality products at competitive prices.

Within the Colruyt Group and Rikolto chain projects, we therefore always go for a minimum collaboration period of 3 years. In practice, the commitment usually lasts longer. The longest cooperation with Colruyt coffee farmers and Efico dates back to 2004. The certainty about prices and volumes is a solid basis. Nevertheless, there are four main obstacles that can threaten a stable link between farmer and supermarket: a poorly functioning farmers' organisation, insufficient transparency, lack of added value or market conditions that change.

1. How stable is the farmers' organisation?

Being able to deliver larger volumes of produce all year round, of the right quality, depends on the farmers' organisation's capacity to organise its members and bring their harvests together efficiently. Young farmers' cooperatives are by definition vulnerable; existing organisations do not always appear to be dynamic.

"Farmers' commitment is not easy to achieve in situations of poverty," says Leo Ghysels of Rikolto, who followed up on the Senegal banana project. "In Tambacounda, farmers like to sell ‘bord champ' - at the edge of their field - because it immediately generates cash. If you are constantly short of cash, you want money now, even if you could earn more later through the cooperative".

Washing station

But also the farmers' organisation and cooperative was too weak on many points. As a result, they were unable to achieve the quantities needed for the collaboration. "We noticed a constant clash between business logic and subsidy logic," Leo Ghysels looks back. "There are too many NGOs around the banana plantations that undoubtedly do good work, but have little to do with the business as such. We should’ve said: if you work with us, those others should disappear. But we were not in a position to ask that: the Rikolto colleague was only present one day a month and our financial input was not big enough to take a firm stance".

That balance was much better in the case of coffee from Congo. Despite - or precisely thanks to - the fact that the cooperative was new, the collaboration progressed rapidly. "The mix of investments and donations was in balance from the start," says Karen Janssens of Colruyt Group. "Farmers have to co-invest in their washing station and receive coaching from Rikolto in return. The co-ownership increases involvement and efficiency. And the young but strongly developing cooperative Kawa Kabuya was closely followed by the Congolese Rikolto team."

In the case of passion fruit from Tanzania, the farmer groups had to be organised from scratch. This made stable deliveries of large volumes in accordance with the high standards very difficult. Because the individual producers did not make a joint commitment to meet standards, including in the area of pesticide residues, which determines the European market, the exporter lost confidence.

That was completely different in the case of quinoa from Peru. The local partner, Solid, had a lot of export experience and could rely on an existing network where trust was already established. The farmers who supply Solid in Peru are not organised in a cooperative, but the added value of selling to Solid works as a binding agent: Solid's agricultural engineers give advice, there is dialogue and attractive prices are offered.

If you are constantly short on cash, you want money now, even if you could earn more later through the cooperative. Leo Ghysels Rikolto

Whether or not a cooperative is organised is therefore less decisive than the presence of a strong local actor who makes an attractive business offer to prevent farmers from selling elsewhere (side selling).

What can greatly contribute to the stability of the farmers' organisation are the benefits tey offer its members. Direct payments, training, access to capital, etc. A close collaboration across the chain can contribute to this. We will dive into this in the next article in this series, revolving around access to services.

2. How transparent is the chain?

Do farmers know where their product is going? Do they understand what the chain looks like? And do retailers know where the raw materials in the end product come from?

"In these chain projects, we as retailer know perfectly well the origin of the products and the producers behind them," says Mieke Vercaeren of Colruyt Group. "In that sense, they give us the highest degree of transparency. Because we know the actors and cooperatives and work closely with them, we also know what prices the farmers get, which is not always the case with certification".

"That price transparency is something we continue to work on, because it is crucial to build confidence in the chain", says Joris Aertens of Rikolto. "In the case of passion fruit from Tanzania, we started working with Special Fruit to make that price structure fully transparent. We worked on a price that is interesting for the producers and it also became clear that the difference between producer price and retail price was perfectly justifiable. That creates confidence. For Colruyt Group, it is important that a partner on the spot can check the correctness of the price with the farmers. ”

3. Does the trade relationship offer added value for everyone?

Collaboration across the value chain only works if there is a shared objective and shared interest for all parties. But even if you all share the same vision… if the collaboration doesn’t pay off for everyone, success will be impossible. The joint roadmap developed by Colruyt Group and Rikolto therefore provides for a pre-study in which the cost price structure is calculated throughout the entire chain, so that it can be guaranteed that the price structure is of interest to all chain actors. On the one hand, the price must be sufficiently high for the farmers and, on the other hand, it must be in line with the market so that the selling price remains feasible.

The economic added value for farmers revolves mostly around a good price - that goes without saying. But a stable price and a secure market offer additional added value because they make it possible for farmers to plan ahead. In a highly fluctuating market, such as the coffee market, this is an obvious advantage. But in such a market, the price could also skyrocket, as a result of which the market price would be higher than the price we agreed on within the chain project. "For example, there were parties who, at one time or another, wanted to pay a one-off higher price to the cooperative in Congo. It then takes a lot of discipline from the farmers not to respond to this one-off temptation," says Joris Aertsens of Rikolto.

The collaboration with young cocoa farmers in Nicaragua proved that a stable trade relationship over several years is an incentive for farmers to make the necessary investments. "A cocoa plant only yields in 4 or 5 years," Joris Aertens explains. "The certainty of a piece of their income makes that leap manageable." The return is not only important financial, but also psychological. "Exporting to a modern market by working closely with a large retailer is a boost for the self-confidence of farmer cooperatives.”

Finding a trade partner is not enough by itself; the product must also sell well. That, too, is quite a challenge, because it is difficult to predict the consumer's reaction. "Although the chocolate and cocoa are of top quality, we can see that sales have been difficult in recent months," says Karen Janssens. "One of the reasons may be that Nicaragua is not known as a cocoa country in Europe. We always enter into long-term relationships in a chain project, but if the product does not sell, the impact remains small. For farmers, it is often more interesting to be able to sell larger volumes than to get the very best price. Getting those volumes up is a real challenge.”

We always enter into long-term relationships in a chain project, but if the product does not sell, the impact remains small. For farmers, it is often more interesting to be able to sell larger volumes than to get the very best price. Karen Janssens Colruyt Group

Also in the case of quinoa from Peru, the direct relationship with the producers through Solid offers advantages. "The added value for us lies mainly in the transparency and the organic certification that the chain offers us," says Hannelore Delaplaecie of Colruyt Group. "We started off with our tricolore quinoa. Step by step we have optimised the chain. Now we have decided to buy all our organic quinoa, including the white one, via this chain, even though there is no direct economic advantage for Colruyt. That is a nice upscaling with 4 times the volume of the original chain".

4. Will we succeed in responding to changing market conditions?

Circumstances may change. Demand may be disappointing or may increase, but supply may also fluctuate. Often the cause is related to the market, but political developments also have repercussions on the stability of the trading relationship.

"In Nicaragua, we were confronted a few years ago with a political context that became unstable in a short period of time, due to protests against the government", says Karen Janssens. "Roadblocks delayed the delivery of our container of cocoa. That meant a break in the chain that made the product unavailable for a short period of time. For a retailer this is a very annoying situation.”

The most extreme example in this respect is coffee from Congo. "The security situation in eastern Congo is deteriorating regularly," says Karen Janssens of Colruyt Group. "This means that containers cannot leave or are stuck at checkpoints for long periods of time. This is problematic for a single origin speciality coffee, because the quality decreases over time. Moreover, the availability of the product is in danger of being interrupted. In the case of a coffee blend, such as the one from our Burundi coffee chain project, we can then blend in other coffees. With a single origin, of course, you do not have that option. At such a moment it is crucial that you have a strong partner on the spot, who can unblock the case".

With bananas from Senegal and passion fruit from Tanzania, it was the evolution of the regional market that changed the prospects of the chain project. "The local demand for quality fruit increased, which made the conditions more interesting compared to export, which involves a lot of complications", says Joris Aertsens of Rikolto. "In consultation with Colruyt Group and Special Fruit, it was decided to drop the export in both cases. Our teams provide further support to the farmers' groups to orientate towards the regional market.”

In summary, this is what we learned:

  • It is better to start off with an existing, strong farmers' organisation. Starting from scratch is more difficult.
  • A highly organised cooperative, with clear democratic decision-making and control over its members (in order to reduce the risk of side sales), has a better chance of success.
  • A strong NGO or partner on the ground is crucial to support the farmers and, if necessary, to make quick adjustments.
  • Developing long-term relationships is not self-evident, especially if farmers are faced with many short-term challenges on a daily basis.
  • Certainty at the level of prices and volume is an added value, but not always sufficient. Offering extra added value, for example by helping farmers pre-finance their harvest, is a plus.
  • The reality of the market and product positioning are very important. Products must offer quality, at prices that are in line with the market. Otherwise, customers will drop out. The product must also fit within the company's brand strategy.
  • A good pre-study with attention to the figures is crucial.
This article is part of the series "Colruyt Group and Rikolto: drawing lessons from 15 years of collaboration"
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