The Social Impact of an $18 latte
A Colombian finca (country farm) can look like Paradise Found: luscious tropical greenery rippling in gentle breezes, flowing over the landscape as far as the eyes can see. Birdsong drenching you in ambient noise, while the sounds of modern civilization thrum too far away to intrude. It is in places like this where fields of Arabica - nourished by volcanic soil and sheltered by cloud-covered skies – sprout the berries that make Colombian coffee one of the most preferred across the world.
Yet, 57% of those Colombian beans are produced by small-farm producers living at subsistence level while their developed-country roasters and retailers harvest the majority of profits. It’s a division of spoils that Karl Wienhold ’13 and C’pher Gresham ‘14 aim to rebalance. C’Pher explains, “We want to create and harness the growing social consciousness of products in the U.S.” The goal is not to reduce retail yield, but to sustain producer incentive. A rising tide lifts all margins.
For now, “small-scale farming is the second-lowest social class, next only to farm laborers” in Colombia, Karl explains. The problem is the complete lack of influence that growers and processors have over final pricing. It’s the retailers and importers who increase the prices, and the final consumers who ultimately determine the product’s value. “The coffee companies put up all those cute pictures of farmers,” marketing their “ethical” supply chains, Karl says; “but there’s no proof that their working conditions are fair, or that the farmers are actually taken care of" by their downstream value chain partners.
As Thunderbirds, we know this. We’ve studied it in our classes and witnessed it firsthand: the commodity supply chain that strangles margins until the final steps so that profit is cupped a world away from where seeds germinate. The chasm between the rural finca and metro coffee shop is tough to bridge. After all, the consumer rushing to the office with their daily dose has little time to consider the hands that picked, sorted, washed, dried and hulled that fabulous bean that fuels their daily fire.
Or vice versa. And therein, Karl and C’pher brewed an opportunity: shortening the line between the extreme points of producer and final consumer. Their solution? Greater supply chain transparency to align the farmer’s output more directly to the consumer’s experience.
Tracing the Source
They met “hanging out by the Fish” at Thunderbird: Karl, the measured, methodical supply chain consultant, and C’pher, the energetic, disruptive VC entrepreneur. Before enrolling, each had consulted on enough global projects to see the economic disparities that result “when product decisions are being made in developing countries that don’t take developed-world consumer tastes into account.”
LEFT: Karl Wienhold,’13. RIGHT: C’pher Gresham, ‘14: “With the work we do in Colombia, we believe in building community and building relationships…”
“Bond[ing] over conversations around the Thunderbird mission,” they “explored different…models in enterprise,” C’pher said, allowing them to “challenge the common assumptions” many developing country exporters made about the American market. And of course, they shared “LOTS of coffee.” Hankering to create the change they wanted to see, they stayed in touch after Karl graduated.
Within a year of C’pher’s Thunderbird graduation, Karl had relocated to Bogotá chasing his life-long fascination with what he calls this “delightful little product”. There he built a coffee collective called Direct Origin Trading (DOT) inclusive of 60 family-owned fincas, while holding down a full-time import/export consulting gig. During that same period, C’pher had opened and operated Swillings Coffee from the U.S. while running a social impact incubator and accelerator called SEED SPOT. Now, they've joined business forces to rebrand their existing Swillings Coffee products under the name Fósforo (coming soon), which will purchase green coffee from DOT. The “local” use of fósforo refers to the stem that emerges when a coffee bean germinates, a definition you won’t find in any Spanish dictionary.
Through the DOT collective, C’pher and Karl connect their partner farmers with their final product both in marketing fact and sensory experience. Since it’s true that “overall, the further you are up the coffee supply chain, the more money you’re likely to make”, (coffeeb.net), the push is on to escalate the Colombian coffee farmer’s position on the ladder.
The Impact of Provenance
By asking, “How can we positively impact the communities where products come from?” Karl and C’pher reject a shareholder-only approach. They focus on supply chain transparency, which Karl defines as “making one phone call” to find out where a specific lot was grown, processed, shipped, roasted and/or packaged. Without it, “tracing [a lot] back to the farmer is typically impossible.” That’s when “fragmented smallholders face imperfect information and technical training, reduced access to capital and market transparency, and limited bargaining power.”1 The resulting opaqueness increases the risk of producer (farmer) abuse.
Worlds Apart: “When one bag of beans costs half of what another bag costs, don’t turn a blind eye. Instead, get to the bottom of how things are really working.” (left photo credit: lifehack.com. Right photo credit: Karl Wienhold.
This “all stakeholders matter” approach has been labeled “the Impact Economy.” First named in 2011 after a White House event managed by the Aspen Institute, the Impact Economy been defined as “social benefit at scale.” It’s the simultaneous pursuit of profit and social benefit. It’s where financial capital meets social capital. It intertwines social responsibility with wealth creation. Connecting what in the past would have been considered extremes, the Impact Economy “rejects the…tradeoff between financial success and social impact.”
In the Impact Economy, proving provenance is popular. “Consumers, governments, and companies are demanding details about the systems and sources that deliver the goods.” (Harvard Business Review). Modern headlines around Asian worker suicides, toxic drywall scandals, toys with lead and counterfeit luxury goods have revealed warts in supply chain design. To treat such maladies, certifications such as halal, kosher and organic help consumers validate “where stuff comes from.” More than confirming coffee origin and quality, sophisticated consumers also question safety, ethics, trade practices, and environmental impacts. In the future, blockchain technology is expected to play a significant role in enabling two-way transparency between coffee farmers and consumers.
Such “social enterprise gets a bad rap for being least sustainable,” Karl says. “We’ve found a way to respect economics and still treat people well.” Coffee consumers wishing to become more conscientious can pick up Karl’s book on the topic at this site: nofreerefillsbook.com. C’pher adds, “Yes, we made economics work for us; but we also make the structure of the impact market work for us too.”
Planting Beyond the Crop
DOT’s approach, blending economic, social and environmental sustainability, will matter more in the years and decades to come. With coffee demand expected to outstrip supply by 2020, finding ways to sustain and grow the coffee industry starts with the farmers. Changes in climate impacting the amount of arable land, political and economic factors impacting the number of farmers willing to grow coffee crops, and even increasing consumer purchasing power in the developing countries themselves all forecast what Karl calls a “supply shock.” An additional dynamic: consumer tastes are changing in the developed world. Between 2000 and 2015, daily specialty-coffee consumption in the U.S. alone “nearly quadrupled.”1
The proof is at the point of sale, or POS. Specialty drinkers have demonstrated they’ll pay exorbitant prices to satisfy cravings. As of February 2017, the EATER e-zine reported that the Extraction Lab, in NYC
, produced an $18 cup of coffee. It steamed San Francisco’s 2016 record $16 price at the Blue Bottle. Did the Yemeni farmers supplying that special “Port of Mokha” flavor get a taste of that POS profit? EATER’s writers don’t say.
As Karl and C’pher, through DOT, help their farmer partners shift up the value chain through product, process or functional upgrading, the specialty coffee trend is key. “This has 2 parts,” Karl writes; “…Producing specialty coffees….and gaining access to markets for them.” Realizing what they have is step one: “Many farmers are producing [specialty blends] and unknowingly receiving commodity price[s]. Others are not yet producing them but could.” DOT’s consultative approach addresses both issues.
Sustainability connects two other critical extremes: the known present and the potential future. In choosing “the expediency of pursuing the most efficient [present] outcome….we may fail to adequately consider…future generations.”1 Instead, Karl and C’pher take the long view. “Our belief is that with the increasing ability to offer transparency at a granular level,” their DOT efforts will cultivate durable futures in the communities that supply the Fósforo brand with those magic, 100% Colombian beans.
Named for the stem that “looks like a match” and reaches deep into Colombia’s phosphorous-rich soil for sustenance, Fósforo hopes that greater supply chain transparency will catch fire across industries. It also evokes Karl and C’pher’s personal missions to spark positive legacy impacts in the communities and markets they serve.
The overall vision: “We hope to change the face of how products are consumed.”
Alicia Engel can be contacted at email@example.com