How Should We Measure Transparency?

Why is it to so hard to measure sustainability?

Cory Bush: When we to get the heart of the issue, the coffee industry is hungering for a measure of sustainability that verifies whether farmers are receiving a fair and liveable price for their hard work producing the coffees we know and love.

But like most things worth knowing, there’s no easy shorthand for determining whether farmers are receiving fair and liveable compensation, no matter how short the supply chain, and the data we have currently doesn’t line up to the difference we want to make.  Of late, I fear we’re getting mired in discussions about the best measurement tool to track fair pricing and, in the process, are losing sight of the bigger picture. Measuring fair and liveable income is no easy task. In order to set effective baselines, we need to understand the context in which the coffee was produced. What are the costs of production? What are the costs of living? What are the long-term goals that any particular person in any particular situation might have? There are a lot of assumptions but very little hard data.

What are we measuring?

CB: ‘Context’ is in large part why calculating farmgate price is so diabolically tricky: when we’re comparing farmgate prices, we’re comparing apples to oranges because the context of each origin – and even each individual farm – can vary drastically. To add another layer of complication, some farmers sell their harvest as cherry while others sell as parchment or, in some cases, wet parchment, so when we look at prices, we’re looking at different weights and production losses. On top of all that, many farmers are also subsistence farmers who grow food crops for their families, so it can be difficult to measure their annual income when they use more informal economies.

Another bone I’ve got to pick is with using “breakeven” as a starting point for calculating sustainable sale prices. Measuring sustainability by whether the sale price hits a farmer’s “breakeven” each year is not conducive to the farmer’s success in the long term. Yes, they’re not going to always turn a huge profit, but just making sure farmers hit “breakeven” is not a sustainable way to purchase coffee. If you’re living at “breakeven” you’re living on the cusp of disaster, any unexpected bills can throw you into poverty, causing the loss of land and so much more. If we’re trying to build a sustainable future, we want to ensure that we’re calculating profits in a way that makes it sustainable to be a producer. 

How do the existing measurements work?

CB: Percent above refers to the percent above the commodities (or “C”) market price. Because the “C” market price is inherently volatile, percent above is based on a moving and sometimes misleading reference point. The way this fluctuates is visible when you look at two examples. If the NY C price is 100 cents and the differential 25 cents, the percent above is 25%. But, if the C price is 200 cents and the differential 20 cents, even though the farmer may be getting a larger price, percent above is only 10%. Additionally, percent above doesn’t actually tell you what the farmer is getting.

FOB price (Free on Board) refers to the cost the importer pays to purchase the coffee to get it out of the country of origin. It’s often the most commonly shared number, especially because it is easy to understand and verify by those in the industry—simply look at the sales contract. However, it tells us very little. It cannot tell us how much of that FOB price farmers are getting. Even if the price is relatively high, farmers could be getting a very small amount of it while others take the largest chunk. All FOB can really tell us is if farmers are definitely not getting enough money. That is, if the FOB price is very low, we know for sure that farmers are not making enough to have a sustainable income.

RTO (Return to Origin) is usually a percentage showing how much of the final price of the coffee (sold to consumers by cup or pound) is given to origin. This is a valuable way to look at pricing as it can demonstrate how equitably profits are shared between producing and consuming countries. However, context in RTO is key and often lacking, as a small percentage of a more expensive coffee could mean more money going back to origin and to producers, compared to the payment a producer receives from a larger percentage of a cheaper coffee. At the same time, RTO runs into the same problem at FOB, where we do not know exactly how much of that bulk amount is making it to farmers versus to other actors or washing stations.

Farmgate prices most accurately depict the amount a farmer receives when they sell their coffee; however, they still carry their own issues. Because farmers usually sell cherry or beans in parchment, the price per kilogram is different from the price per kilogram of green coffee. Converting from cherry or parchment to green beans is difficult, if not impossible, because conversions must take into account the loss of pulp and parchment and amounts can vary from washing station to washing station and even from lot to lot. Farmgate price is also the hardest price metric to get because coffee can often travel through a series of actors before they reach exporters. As a result of these steps between the farmer and the buyer, it’s often a challenge to get this information. This is why we strive to build the most direct link with farmers as we can.

So what does this all mean for farmers?

CB: We can see that the existing measurements (FOB, Farmgate etc) fall short of the ideal. To make a real difference, I believe that we need to accept a new paradigm where we acknowledge that the measurements we’re using don’t inherently give the full context that is required to build a more sustainable supply chain.  We need to invite the uncertainty that comes with accepting that there’s no easy solution.

We need to focus on something bigger than a single price – it’s just not that easy – and work together to find a better way to measure fair and liveable prices.

We need to being willing to accept that we’re going to uncover harder questions before we find real answers. At the moment there aren’t easy answers. It’s an exciting period – that people are asking more of these questions – but we need to recognize that, in the lifecycle of transparency development, we need to be able to accept that our questions now are probably only going to lead to deeper questions.

In practice, this will mean gravitating away from the idea that a single number can tell us whether a coffee is sustainable and ethical. It will mean having difficult conversations and being able to say “we don’t know.” But, if we can do this, I believe that we will create a much stronger, healthier and more ethical supply chain that will outlast us all.