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In April 2024, we launched the Unsustainable Project to challenge the industry to be more honest about the economics of coffee and the different trading models. This project is a call to action to take a hard look at what we’ve been doing in the relationship coffee space and adapt it for the future.

In this article, originally published by Barista Magazine in its October-November issue, Al Liu, Director of Let's Talk Coffee, shares his thoughts on Direct Trade and micro-lots and examines the limitations of these two models on long-term farmer livelihoods.

Al shares insights on how this model isn't for everyone, discusses its challenges and goes over the dilemma of micro-lot traceability and pricing. 

Don't miss this article and start asking hard questions to make our industry stronger and more sustainable.

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The direct trade movement and the proliferation of micro-lots took our industry by storm in the late 2000s. While they have improved traceability and generated price premiums for some producers, these models are complex and warrant examination.

Did Direct Trade Lose Steam by Going Mainstream? 

Direct trade isn’t a big deal anymore. Once lauded as a framework that would transform the way high-quality coffees are bought and sold, it’s become commoditized. A small group of pioneering roasters established their own rigorous standards for direct trade, but the lack of a universal definition allowed the concept to get watered down. Any roaster willing to pay a price premium now can readily access something that previously carried an air of prestige. 

While there are examples of successful direct trade supply chains, it has not moved the needle for most specialty producers. I’m reminded of the arcade scene in the movie “Toy Story” when the stuffed alien gets picked up by the metal claw and declares, “I have been chosen! Farewell, my friends. I go on to a better place!” This analogy is not meant to diminish the efforts of direct trade producers who improved their growing, harvesting, and processing techniques. Rather, it illustrates that many producers who might be excellent candidates for direct trade won’t have that opportunity. There simply aren’t enough buyers willing to participate because, inherently, it’s an expensive way to source coffee. 

Even producers in successful direct trade relationships can experience a decline in earnings due to extreme weather, plant diseases, pests, or political & socioeconomic changes in their respective countries – all outside of their control and potentially damaging to coffee quality. Any progress in selling at higher prices may be set back or wiped out. Quality differentiation is fundamentally what sets specialty coffee apart. But if we’re making claims about our steadfast commitment to direct trade producers, what does it mean when we stop buying because their pre-shipment samples don’t hit the target score? Are these truly equal partnerships, or are we saying that when it suits our narrative? 

If a direct trade coffee falls through, it’s not difficult to find a replacement. Importers have developed so many supply chains that roasters now have countless options. It requires some effort to reach a level at which the producer and roaster can negotiate directly, but importers are always happy to make introductions and facilitate quick sales. Does this ease of access represent the success of direct trade, or have we merely squeezed it into the conventional trading system that we spent years criticizing? 

The Micro-Lot Dilemma 

It wasn’t long ago that most specialty coffees were, at best, labeled with a region within a producing country, e.g., Costa Rica Tarrazú. As the market grew, buyers wanted to know more about where coffees came from. Coffees with greater traceability started appearing, and baristas were instrumental in educating customers about what made them unique. The micro-lot, especially from a small-scale farmer, became the gold standard. It represented a seismic shift away from the nameless, faceless commodity market towards one that recognized and honored producers as individuals and presumably paid them much more than they previously had earned. 

Producers who have been fortunate to sell their coffees as micro-lots can attest to the benefits. But a micro-lot likely doesn’t represent a farmer’s entire harvest. The remaining green will not command the same premium and could get sold at a much lower price. The financial gains from selling into the specialty market certainly can make a difference over time if the producer can sustain that success. We shouldn’t assume, though, that producers are doing well just because their names are printed on jute bags or because roasters paid a higher price for a small percentage of their harvest. 

Farmgate pricing, i.e., what a producer earns, is the elephant in the micro-lot room. Buyers usually can track green purchases to FOB (Free on Board, the point at which a container of green coffee is loaded onto a cargo ship), and when it’s a relatively high figure, it’s convenient to conclude that the producer received something close to the FOB price. That may not be the case, however. If someone asks about the farmgate price, the information is often not readily available – especially if the micro-lot passed through several sets of hands between the producer and the roaster. 

Making a Case for Direct-Relationship Coffee

The demand for a new sourcing paradigm couldn’t be stronger given today’s supply-side challenges. After emerging from the pandemic, we’re still facing volatility in the commodity market and instability in global shipping. High ‘C’ prices often lead to even higher prices for direct trade coffees and micro-lots. Changing weather patterns and drier-than-normal conditions continue to vex producers of all sizes. Parts of Central America are facing shortages of seasonal labor due to mass migration to the U.S., which has become a major obstacle to producers seeking to maintain high quality standards.  

A stronger collaboration between producers and roasters must emerge in light of these threats. We need to look beyond direct trade and micro-lots to find a bigger, broader construct. Historically, producers and buyers in the relationship coffee model worked together towards mutually beneficial goals. Going forward, direct-relationship coffee needs to be more than that. We should not only value producers as partners but also learn more about their businesses and explore how they can become more financially sustainable. If we extend the word “sustainability” beyond environmental considerations and apply it to economic ones, we can help to make supply chains and relationships longer lasting while promoting more secure livelihoods for producers. 

Direct-relationship coffees also should deliver greater value to producers and reach more consumers. For example, direct trade roasters who are buying only micro-lots could consider sourcing a larger volume of a grower’s production and using it in blends. This isn’t to say that micro-lots should be abandoned; they have a place in our industry and have generated a lot of good. At the same time, we should consider that their impact might not be as significant or permanent as we had thought. Most specialty coffee drinkers want a freshly brewed, balanced cup, and the purchase of a blender from an existing micro-lot supplier can have a greater effect on the producer’s income. 

We should also be fostering and mentoring the next generation of leaders at origin. The migration of youth out of coffee-growing communities is real, and we run the risk of fewer individuals rising up to manage farms, cooperatives, producer groups, etc. There is a long history of young people at origin being trained as cuppers and baristas, yet we need to expand that to include opportunities in price-risk management, administration, and accounting, among other career paths. 

We’ve accomplished a tremendous amount in a short period by breaking down generations-old trade channels and connecting producers with buyers. But there is much more to be done. We can’t keep our heads buried in the sand and think that our own supply chains are immune and will always remain intact. Nor should we treat producers, even subconsciously, as robots who are programmed to churn out excellent coffees year after year, regardless of the obstacles thrown at them. By creating equitable partnerships between roasters and producers, direct-relationship coffees will ensure greater stability and prosperity. 

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About the “Unsustainable Project”: Sustainable Harvest launched the unsustainable project to generate an honest conversation about how the specialty industry trades and sources coffee. This effort seeks to create a space in which we can ask hard questions and speak openly about challenges, failures, mistakes, and lessons learned. Our hope is that the dialogue leads to actions, both large and small, that lead to a more sustainable future for coffee.