What Does “Direct Trade” Really Mean?

Direct: without intervening factors or intermediaries. Trade: the act of buying and selling goods and services. But direct trade represents far more than just its dictionary definition. It’s used to suggest quality, sustainability, and fairer prices for the producer. It comes with stories from origin and is often part of specialty coffee marketing. And, increasingly, it’s being met with cynicism.

So what does it really mean? And does a term so loose have any real value?

I spoke to several industry leaders to find out their perspectives on the issue. Here’s what they had to say.

SEE ALSO: What Is “Third Wave Coffee”, & How Is It Different to Specialty?

Natural processed Pacamara cherries being dried on raised beds on Finca Majahual, El Salvador. Credit: Finca Majahual

What Does Direct Trade Mean?

For Garrett Odell of Cirque Coffee Roasters, the answer is simple: “direct trade in coffee is when a roaster buys coffee straight from a producer.”

Patrick Murray of Finca Mahajual, El Salvador, has a similar answer but highlights the importance of the relationship. “It means the establishment of a direct channel of trade between two parties,” he says. “It refers to the relationship fostered and nurtured between producers and roasters. A relationship in which, ideally, issues pertaining to quality and pricing are defined and agreed upon, with the long term in mind for mutual benefit.”

Sound simple? Well, actually, as it turns out there are a few points blurring the definition. For a start:

What About Direct Trade Importers?

There are importers that label themselves as direct trade, explaining that they buy directly from the producers. But as an intermediary, what does it mean if an exporter describes themselves as direct trade? And when that coffee reaches the roaster, should they then sell it as direct trade coffee?

Garrett believes the answer is a clear no, on both accounts. “By definition, if a roaster is buying from an exporter or importer, we believe that this is not direct trade,” he says. “That being said, there are great importers and exporters that are working with producers to increase profits for farmers.”

Jon Allen, Co-Owner and Green Bean Buyer of Onyx Coffee Lab, agrees. “No, there should not be an importer involved. It doesn’t make sense to have ‘direct trade’ importers.”

This does not mean that working with an importer is bad: direct trade is not the only way to have a positive impact on the coffee supply chain. In fact, in some instances, working with an importer may be better than direct trade (more on that to come!) And sometimes it may even be your only option.

Cupping coffee samples to ensure quality. Credit: Campbell & Syme

What About When You Buy From Mills?

Melanie Leeson, who at the time of our interview was the Director of Marketing & Development at Collaborative Coffee Source, tells me, “The term ‘direct trade’ doesn’t really describe what happens in the industry. Direct trade needs to be a one-to-one relationship. Specialty coffee sometimes may need to go through dry mills, washing stations, and establishing a direct relationship may be easier said than done.”

In Laos, farmers often sell coffee as cherry or pulped cherry rather than processed green beans. In Rwanda or Burundi, for example, many producers will use the same washing station. In these situations, direct trade is hard to define and may even be impossible.

In fact, when I ask Melanie what “direct trade” really means, she tells me, “Well, I’ve been asking myself that question for around seven to eight years, and the answer changes all the time. Past and current experiences influence my response and, as a company, we have moved away from using that term.”

Natural coffees dry on a patio on Finca Villa Bernada in Colombia. Credit: Daniel Velasquez

The Potential Benefits of Direct Trade

Even though “direct trade” is hard to define, it remains a key part of the third wave coffee industry – and this is because it has many positive aspects. As Garrett says, “the benefit of direct trade is multifaceted, if executed properly.”

Here are some of the ones my interviewees mentioned:

• A Stronger Relationship

“For the roaster, you get the opportunity to work hand-in-hand with a producer,” Garret explains. “It gives you the chance to buy from a producer [whose product you love], and ultimately have a personal relationship with, year in and year out. It also opens the door for experiments (processing, growing, varietals).”

In the case of the producers, he continues, “you have a customer that is willing to purchase your product. You also have ‘ears on the ground’ with the trends that are happening in the specialty coffee scene overseas, and the financial backing to implement different processing methods.”

Trust that someone will buy the coffee can give producers the security to invest in improved infrastructure and processes – and greater insight into current market trends can indicate the most profitable areas to focus on.

• Transparency

From a producer’s point of view, Patrick states that “this commercial model has many benefits, but there are three specific components that are mutually beneficial to both parties: transparency, shared value, traceability.

“Direct negotiations of quality and pricing requirements between producers and roasters (green buyers) allow for a better understanding of the realities and possibilities,” he continues, “both at origin and at destination, [so both parties can] set achievable, common goals in time.”

A stronger relationship helps buyers and producers to communicate better, problem-solve, suggest quality improvements, and better understand the costs of production and exporting.

• Greater Investment

Patrick believes direct trade can allow both parties to become more invested in the trade, “I believe that a ‘direct trade’ model involving compatible business partners gives producers a higher sense of purpose,” he says. “If we, as producers, have a commitment to produce “x” amount of coffee of “x” quality for a certain roaster in a certain market, there is an implicit incentive of doing things better to fulfill that commitment and, having done so, achieve better remuneration.”

Melanie, based on her experience in the green bean buying trade, agrees. “It has a huge impact. It gives a sense of empowerment to producers. When the producer’s neighbors see the success of it, they want to be part of it.”

She explains, “We have been working for quite a  while in the Santa Barbara region in Honduras. We have built a great relationship with a producer there and the farming neighbors got in contact with us so we could work together. We have developed a great working relationship which has a huge impact on the producers and their families”

What’s more, Patrick believes that direct trade means buyers feel more inclined to pay price premiums and invest in the local community, rather than just the coffee itself. “The shared value is optimized because buyers are able to identify how the premium they are paying, in most cases, is being reinvested and therefore justified as having a direct impact in the social conditions or production improvements at origin,” he tells me.

“Direct trade undoubtedly allows for a cycle of good where the income generated can be reinvested, not only in optimizing an efficient production model but also on improving the quality of life of all involved in the supply chain.”

With both parties able to emotionally invest in the product, they are also inclined to invest their time, effort, and expertise to both produce better coffee and better socioeconomic conditions.

• Traceability

Third wave coffee culture is all about understanding a coffee’s origin and its impact on the cup – and direct trade makes it even easier for consumers to hear producers’ words and know about their hard work.

What’s more, Patrick argues that it supports both the roasters and the farmers. “Traceability allows buyers to get exactly what they want from specific producers and producers are able to focus on ‘tailored’ productions for specific buyers year to year, knowing what their counterparts expect in terms of quantities and quality,” he says.  

• Logistics

Jon tells me that one benefit of direct trade is “an easier chain of logistics” due to the “intimacy” between producer and buyer. Although it may require you to learn more about the processes of trading, it can also help to simplify the supply chain.

SEE ALSO: A Coffee Buyer’s Glossary of Contract Terms

A direct trade coffee, sourced by Jon and the Onyx Coffee Lab team from Finca Rosa, El Salvador. Credit: Onyx Coffee Lab

The Challenges of Direct Trade

Does it seems like direct trade is full of benefits? Well, yes, it can be. But in fact, there are also many issues that come with this trade model.

• Contract & Payment Issues

Contracts falling through, miscommunications, rogue traders, inaccurate information… there are many issues that can happen when two small businesses take part in generally unregulated trade.

“I had the chance to attend the Micro Coffee Festival in Brazil this past month,” Garrett tells me. “And I heard a story from a producer that perfectly sums up direct trade issues. An American roaster approached this coffee producer, and asked if she could produce a lot of coffee for him.

“After agreeing on a purchase price, the roaster asked the producer to hand pick the lot instead of mechanically harvesting, which is how she harvest all of her lots. The producer agreed to this, but this would increase the price of the lot, which the roaster verbally agreed to… The producer proceeded to go out and hire all of the employees to hand pick the coffee. After the processing was done, the roaster went out and cupped the coffee… ultimately, the coffee didn’t hit the cupping score he was looking for, and he did not buy this lot.

“This leaves the producer in a spot where they now have to find a new buyer for a lot that was previously committed to. Direct trade is a bombastic undertaking, that if handled wrong, can put producers at major risk.”

Coffee ready to be shipped. Credit: Caravela Coffee

• The Risk of Poor Coffee

Not only can contracts fail, but the coffee itself may fall short of expectations.

“Our most current debacle,” Jon tells me, “is with a $7/pound coffee we still have in shelter here because of how bad the coffee quality is.”

So if there’s a quality issue, who takes the harder hit: the coffee producer or the coffee buyer? It all depends on what went wrong and who the partners are in the direct trade relationship. Remember, there are no industry-wide rules or bodies regulating direct trade: it’s up to the producer and buyer to negotiate terms.

“The major issue with direct trade for the roaster is that you’re at risk if the product you’re committing to buy doesn’t turn out how you want it to,” Garrett says. “If there is a slip in quality, or an experiment doesn’t turn out how you want it to, you could be at financial risk. This is why we would suggest to not get into a direct trade relationship if you do not have the financial resources to back up your commitment.”

Yet he knows that the producer faces risk as well. “Unfortunately, producers are at the highest risk historically. A lot of roasters will take advantage of the marketing tactics of ‘direct trade’ without being willing to struggle through the rigorous realities of direct trade. Producers have often been left out to dry when the experiments roasters are asking them to do [then] do not turn out the way they would like.”

As Melanie says, “coffee is an agricultural product. It’s risky to work with it.” And in addition to plant illness and poor weather, Patrick brings up the risk of political instability leading to production issues.

Being aware of the risks and ensuring that you can handle them is key for a successful direct trade sale or purchase.

Ripe coffee cherries are loaded into a fermentation tank for wet processing. Credit: Angie Molina

• Bureaucracy & Paperwork

While there are fewer partners involved, that means each partner has to do more of the logistics – and this can involve a lot of bureaucracy. Melanie tells me, “There are issues all the time, bureaucracy and paperwork always affect it. In our case, we have to hire logistics experts.”

• People-Focused Relationships

One of direct trade’s many benefits is the strong relationships you build with your partners. Yet this can also have its negative sides. Patrick tells me, “In the sense that most direct trade relationships are conceived and agreed upon between two individuals… In the case that a green buyer switches to a different roasting company, there is a possibility that the relationship might be transferred over to a different company, or if that same individual is replaced, the relationship might be discarded completely.”

Coffee cherries ready to be picked. Credit: Finca Majahual

The Importance of Trust

No trade model is perfect and direct trade can have its dark side. It’s up to the people involved in the partnership to work to ensure the best possible relationship – for everyone. And perhaps most important of all for a strong relationship is trust. In the absence of this, your partnership will crumble.

“The trust level is very important. With trust, you will have healthier transactions between a producer and a buyer,” says Jon.

Patrick agrees, telling me that the model is “based on the intimacy and trust of the human relationships [within it].” If the partners’ involvement isn’t reliable or guaranteed, then he believes it threatens the model’s success.

A Marketing Tool for Good?

But direct trade isn’t just about the producer and the buyer. It’s also about the consumer. As Fernando Pocasangre, a specialty coffee consumer from El Salvador, tells me, “I think that buying ‘direct trade’ coffee makes you think what happens to those beans before they arrive in your cup. I would definitely pay a higher price for a coffee if I knew that the extra pay would impact positively the parts involved.”

Direct trade forms a key part of third wave coffee marketing, but is this a good thing?

For Melanie, its marketing value complements its role as a sustainability-driven trade model. “The marketing behind direct trade affects [how it’s understood],” she argues. “It will help peak consumers’ interests into specialty coffee.”

Jon agrees. “Direct trade… it’s a marketing tool but it has a real impact,” he stresses. “The problem is when the marketing is vague and non-descriptive. The goal is to educate and give data and, with bad marketing, you’re not achieving that goal. You have to define your goals and put those terms into your coffee bag.”

If direct trade labels and stories help roasters to sell their coffee, that doesn’t devalue the impact they can have on the supply chain. In fact, if done well, they can lead consumers to learn more about the communities producing the coffee they drink – and demand greater transparency and sustainability.

Direct trade coffee from El Roble, Huila, Colombia. Credit: Right Side Coffee

Final Advice for Roasters & Producers

The last thing I wanted to ask my interviewees was if they had any final advice for producers or roasters.

Melanie underscored the importance of research. “It is really important to do research on both sides,” she says.

For producers, she warns them to not accept everything a buyer says. And for roasters? “Don’t give advice [based] on other origins. In the end, they have different conditions and face other situations. Be aware of [the importance of] giving the correct advice.”

As for Jon, he recommends creating definitions when working in the vague world of direct trade. “Define your values, define your way of working,” he says. “Put a transparent term to what you share. It may be harmful not to.”

Coffee from Chiapas. Credit: Ana Valencia

Direct trade: it’s marketing, relationships, traceability, transparency, a tool to improve quality and sustainability, greater risk, more bureaucracy, less bureaucracy… Perhaps the only thing we can say for certain is that no two direct trade relationships are the same.

However, they all come down to one thing – closer relationships between the producer and buyer (and, through them, the consumer).

It’s not a perfect system. Done poorly, it can harm producer and buyer alike. But done well, with collaboration, good communication, and transparency, it can have a positive impact. It’s up to us to make the difference. Ask questions, be mindful, investigate the risks – and be prepared to invest more than just money in this relationship.

Written by Julio Guevara.

Perfect Daily Grind

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