Straight from the rep…

Steve Mierisch was good enough to expand upon and clarify some of the things we mentioned in our Nicaragua trip blog. His post is not only interesting and informative, but it highlights the honest transparency of Intelligentsia’s Direct Trade program. Thank you Steve for sharing all of this with us.

“The co-op members took, what seemed to them, to be a big risk in order to work in partnership with Intelligentsia and their “Direct Trade” program, investing time and money to receive an unsubstantiated higher price per pound, when they could have just kept selling their coffee to large exporters.”

The first part is very correct, the farmers did take a big risk because they didn’t know whether they would be able to meet the quality standards to qualify…the part that I would like to expand on is “to receive an unsubstantiated higher price per pound, when they could have just kept selling their coffee to large exporters.”

The farmers had to have faith in this price structure, but many were willing to give it a shot because the fact is they are receiving a substantially higher monetary amount per lb.

1) For example, if they sell to Intelligentsia:
We pay $1.60 per lb. farm gate or NET to the farmer for 85-87
We pay $1.85 per lb NET to the farmer for 88-93
We pay $3.00 per lb for the Micro lots 94+

Farmers receive immediate payment of $1.21 when they deliver the coffee as wet or dry parchment/pergamino and they receive the remainder around 30 days from export.

2) If they sell as fair-trade:
$1.26 per lb net to the cooperative, then they take out the export cost, co-op fees, processing fees, etc. it would be close to $.90 net to the farmer depending on processing and coop management fees. They must wait a few months to get paid as well.

3) If they sell to the “local” buyer/exporter:
They get -20 or -30 cents from where the market is. They sell it in wet or dry pergamino/parchment form and get their money immediately.

Here is where it gets a little tricky….When the markets (NYBOT C contract) are above this $1.26 fair-trade price guarantee, fair-trade states they will pay the coop 10cents premium above what the market is.

Today the market was around $1.35, this means fair-trade will pay $1.45 to the co-op (approximately $1.09 net to the farmer), the exporter will make immediate payment of around $1.15 net to the farmer, and Intelligentsia pays $1.60 or $1.85 per lb.

It gets a little confusing when the prices go above our guaranteed price of $1.60, because in order for the coffee to carry the “Direct Trade” name we must pay at minimum 25% above what fair-trade is paying, as we use it as a benchmark.

On top of the high prices Intelligentsia pays, it gives $.05 per lb toward a social fund for the farmers involved, this is on top of any developmental projects we do to help them improve quality, for example the solar dryers.

The risk a farmer takes by participating in Intelligentsias Direct Trade model isn’t that they won’t receive a higher price for their coffee because they most definitely will. The risk is the uncertainty of qualification of getting a score of 84 and above, but then if they don’t qualify they can just sell it as fair-trade or sell it locally…

In my opinion the Direct Trade principal/idea is what will make coffee farming truly sustainable.