As the specialty coffee sector has been developing rapidly in the past few years, tighter relations have developed between downstream industry players (roasters) and coffee farmers.
Indonesia produces around 5.5% of total world coffee production, but because of Indonesia’s highly diversified economy, the value of coffee exports is only around 0.13% of GDP.
In the past, farmers planted, harvested and processed arabica coffee beans, and sold these to collectors. The collectors would then deliver the coffee beans to processing factories, before the green beans were either exported or sold to domestic roasters.
Nowadays, roasters are driven to source coffee beans directly from farmers. They are also trying to improve the welfare of these mostly poor farming families.
This creates what we call “relationship coffee”.
Relationship coffee is the product of a relationship between a coffee buyer (roaster) and farmers that usually involves personal interaction, trust and price transparency, as well as a commitment to improving both quality and farmer prosperity.
A roaster, with government and nongovernmental organisation (NGO) support, for example, may help to build a processing unit to be managed by farmers.
Our research, which was funded by the Australian Centre for International Agricultural Research (ACIAR) from 2008 to 2020, involved six case studies of specialty coffee production centres in North Sumatra, West Java, Bali, East Nusa Tenggara, and South Sulawesi.
However, we found that these relationship coffee efforts, although done with good intentions, are having marginal effects in alleviating farmer poverty.
Through this long and intensive interactive study with industry stakeholders, we identified at least nine myths about coffee farmers commonly believed by the government, NGOs and entrepreneurs, but which we believed need to be questioned further.
Nine myths about coffee farmers development
1. Increasing coffee income will always improve farmers’ living standards.
Coffee farmers do not just depend on coffee income. More than 2 million farmers in Indonesia plant coffee as part of their livelihood, but very few only cultivate this crop.
Coffee is not always the main source of income for farmer households. The farmers’ livelihood is frequently highly diversified (farming and non-farming) to reduce risk.
In our studies, attempts were made to increase coffee income by upgrading the productivity or quality (which affects price).
This requires additional resources (capital, land or labour). This increased resource allocation comes at the cost of other livelihood activities, so it does not always improve their living standard.
2. Producing quality coffee results in higher income.
This does not always happen because quality improvement involves higher costs and risks for farmers.
These includes labour costs for selective picking, frequent pulping, bean selection, drying, and careful storage.
The selling price often fails to cover these additional costs.
3. Eliminating collectors will result in higher prices for farmers.
The view that collectors are exploitative is not always right. Often, the collector plays a role as an efficient logistics provider and quality supervisor.
These roles are always needed by farmers, and can be provided by cooperatives or downstream buyers.
When these roles are replaced by the farmer cooperatives, inefficiency and bad management frequently lead to higher operational costs and lower prices for farmers.
Further, collectors also have other roles, such as providers of loans and basic supplies, which can be otherwise hard to access for farmers.
4. Advanced coffee processing will always add value.
In general, arabica coffee processing includes pulping, fermentation, washing, drying, hulling, cleaning and grading, roasting, grinding, and brewing drinks.
Although all of these steps can be performed by farmers, farmers do not always see them as important because the steps take more time and money.
When these processing activities are carried out on a small scale, the costs often exceed the added value generated.
5. Limited capital is the main problem for coffee farmers.
Farmers may not have access to financial services, but farmers might not choose to invest in coffee even when they do have access.
Households in rural Indonesia often view farming as part of a diversified livelihood to reduce risk, instead of as a “business”.
For farmers, getting involved in financial services and being in debt can actually be counterproductive.
6. Coffee grown in certain areas has superior taste.
Certain areas have strong reputations as producers of high-quality coffee (such as Toraja in South Sulawesi or Gayo in Aceh). This is often connected to geography and local cultural practice.
It has triggered a strong interest in Geographical Indications (mark of product origin registered as intellectual property) in the coffee world, including from the Indonesian government.
But, in fact, quality is the result of a combination of geography and the post-harvest management system - with the latter factor being dominant, such that Geographical Indications are rarely effective.
7. Farmer cooperative are the best way to organise farmers.
One purpose of a cooperative is to strengthen the bargaining position of farmers.
But coffee prices in general are decided internationally by the global supply and demand.
A local farmer cooperative will only have a stronger bargaining position if it operates as a farmer union and if its performance is monitored effectively - which has not been the case.
Globally, value chains are increasingly being driven by buyers.
Even in the context of developed countries with a strong cooperative tradition, the bargaining position of farmer cooperatives against retailers and large companies in the downstream industry (lead firms) is still weak.
8. Relationship coffee produces a better-quality coffee.
Cafe owners and roasters often assume they will get better-quality coffee by buying directly from farmers.
But a lot of specialty roasters are small businesses with limited resources.
This means they may not have enough funds to recruit experts on supply chain management.
Dealing with a buyer with limited funds, it is only logical for a farmer to “negotiate” by reducing their own cost and supplying minimum acceptable quality of coffee.
9. The relationship between farmer and roaster is sustainable because of mutual interest.
Relationship coffee sustainability depends on a commitment between roasters and farmers.
The problem is that market pressures and unexpected challenges such as production obstacles, quality reduction, and bad weather can damage the trade relationship.
This happens because in the end roasters will be driven to seek profit in a competitive business and equitable risk-sharing is hard to achieve.
Creating sustainable relations
Our study draws a complex relationship between coffee and rural development.
Although some farmers receive benefits in terms of price, knowledge and skills, in general, the impact on farmer development is not a significant as that claimed by roasters and development agents.
What is the future of relationship coffee? Does this model offer a sustainable alternative for the upstream value chain and improve the welfare of small coffee farmers?
If roasters are serious about rural development, we recommend they think again about the above myths.
A key message here is that it is important to manage risks effectively and distribute them fairly amongst involved actors.
Conceptually, a livelihoods framework can help explain why certain interventions succeed while others fail.
Although many stakeholders act in good faith to promote rural development, the assumption that coffee is the best pathway out of poverty is not always in line with community livelihood priorities.
Wiliam Reynold translated this article from Indonesian.