When Quality Falls Short: Exploring Risk in the High-End Specialty Trade

Creative Commons photo by Coffee Management Services.

The Wall Street Journal yesterday published a must-read story for anyone interested in the future of direct-trade relationships for premium coffees among growers, importers and roasters.

The story revolves around two essential questions: 1) Who is at fault when contracted small lot coffees fail to meet quality expectations; and 2) What can be done, if anything, to revise contract language to mitigate risk among all parties involved — primarily producers, importers and roasters?

(more: Exploring the Economic Impacts of Microlots with Counter Culture, Stumptown and Intelligentsia)

These questions are farther reaching in the specialty world than they have ever been before, as an increasing number of smaller roasters seek to build and maintain relationships with specific farms. Meanwhile, unforeseeable economic instability and acts of nature — rain, drought, la roya, etc. — will continue to challenge crop consistency and coffee quality, even at the premium market’s highest levels.

For some perspective on these issues, the WSJ reached out to reputable sources, including SCAAexecutive director Ric Rhinehart, Michael Johnson of Johnson Brothers Coffee Roasters, and Thompson Owen, a buyer from green importer Sweet Maria’s. Here’s what Johnson told the WSJ:

“Right now, it’s all done on a handshake,” said Michael Johnson, president of JBC Coffee Roasters, Madison, Wis. He said his firm missed out on $15,000 in profits in a 2012 taste dispute over 100 150-pound-bags of coffee from a Salvadoran grower’s farm that “lacked sweetness and multidimensional flavors.” He had to French roast the coffee — a dark roast that isn’t ideal for these expensive beans—to salvage the purchase, in a move he equated to “coffee blasphemy.”

Luis Araujo, the fifth-generation coffee farmer in El Salvador who grew the coffee, blamed the taste problem on moisture in the refrigerated shipping container. Both men say they welcome a contract that better addresses coffee-quality issues.

There is a crucial problem here. Both parties are operating on relatively small scales, where every contract represents significant risk and margins are slim across the board.

(more: On Marketplace vs. Origin: ‘Like It or Not, We Are All in This Together’)

I spoke to Johnson last week at his roastery, prior to the publication of the WSJ story. One important question he posed was, “How many guys are there like me?” That is to say, how many relatively small-scale U.S. roasters are actively seeking out the world’s best lots — either through direct relationships at the farm level or through relationships with importers? How many roasters are, Like Johnson, indeed willing to pay a premium for the world’s most interesting green coffees, in part because of growing competition, and in larger part to strengthen and maintain mutually beneficial relationships with growers?

Finally, with those questions in mind, how many of these kinds of roasters — with small scales and thin margins — are taking a huge risk every time they commit to a contract on a lot? All of them, right?

These, I believe, are new frontiers in the specialty coffee trade, and it will be interesting to see who takes the lead in discovering solutions on any number of fronts — contract language, transparency, quality control measures, etc. — that can help protect the interests of all parties involved.

We’d love to hear your thoughts in the comments section below.