One of my favorite things about writing this blog is that it enables me to have really interesting conversations with really interesting people. Case in point: when I visited Monteverde, I knew that this was where Kenneth Lander, the co-founder of one of the most interesting business models in the coffee world out there, had his farm. A couple of e-mail back and forths and one phone call later, we sat round his kitchen table overlooking the Monteverde cloud forest and talked about the challenges of coffee farming and marketing and the new approach THRIVE is taking. By far one of my favorite afternoons in Costa Rica. You can find a shortened version of this interview over at Food Tank, but this is the unabridged one. Enjoy!
Coffee is the product with the longest fair trade history and the greatest proliferation of sustainability labels. Yet, these efforts have largely failed to lift small-scale producers out of poverty. THRIVE Farmers International has an ambitious goal: to fundamentally revolutionize the mainstream supply chain with its many middlemen and strong reliance on the volatile commodity markets. It supports farmers in maintaining ownership of their harvest until it is sold to the final purchaser. By participating at the end of the chain where their coffee has the highest value, farmers can retain up to 10x more net income than those in conventional markets. We sat down with THRIVE co-founder Kenneth Lander at his coffee farm in Monteverde, Costa Rica, to explore the potential of this innovative business model to shake up the traditional coffee trade.
JG: How do you explain to consumers what differentiates THRIVE from other sustainable schemes such as Fairtrade or Rainforest Alliance?
We have a gift for telling a story; that is what we do best.
KL: In fact, this is one of our greatest challenges because, as Seth Godin just wrote, “putting on a new pair of glasses, seeing the world or hearing the world or understanding the world in a new way is a lot more work than merely cruising through a typical day.” We wholeheartedly support Fairtrade, but we are something different. At the end of the day, we are not about trying to create a floor that prevents a farmer from going upside down on things. We are an economic model, we want the farmer to make a sustainable living, take the next step, and become an entrepreneur. Everything we do is about cultivating quality, from the plant all the way to creating synergies with other ideas and projects.
We are not trade; we are relationship. We are not a commodities market; we are a farmers’ market. A consumer only needs to understand that we work like their local farmers’ market, except that these farmers are an ocean away.
[Chick-Fil-A is the largest customer of THRIVE, and have done a great job at explaining farmer direct supply chains. Check it out before continuing if you are more interested in the model.]
JG: To an outsider, your business model sounds surprisingly straightforward. Why do you think nobody has traded coffee this way before THRIVE did?
KL: The reason that nobody has thought about it before is that the people who have the ability to change the economies of coffee already have their models, their Titanics built, and it is really hard to turn a ship of that size around. Our company was designed from the ground up to think about economic sustainability of farmers first. We don’t do a deal with a customer unless it works for the farmer and provides him with a sustainable livelihood. The idea of sharing revenue, and creating a fixed revenue stream for farmers based on the final product – It’s a completely different way of thinking.
Would you do a business where some years you make no money because your costs of production are too high? Of course not! So why would you expect that of a farmer?
Also, technology has changed things. We couldn’t have done THRIVE 10 years ago. Today, we can track where a coffee is in the value chain. A farmer now can actually see where his coffee is going and how much a cup of it is selling for. One thing that is core to who we are is that we try to harness any opportunity to create channels of communication, including through Skype calls, videos and the like. This is not about pictures of coffee berries on trees and a nice picture of a farmer standing next to his plant. We feel that everyone in the value chain should be invested in the relationship, and we try to create these possibilities for farmers to engage as much as possible.
JG: How have your competitors reacted? Has THRIVE become a big threat in the marketplace?
KL: I don’t think we are there yet, and I hope we won’t see that in the future either. Any coop or micromill will tell you that diversification is important and that you shouldn’t put all your eggs in one basket. THRIVE is just an egg that is a little more golden than the rest. What we would like to see is that more people align with the way we think about things, and hopefully do more. If more people think “maybe THRIVE has a point. Maybe we shouldn’t base our business upon the commodity market, and rather base it on what we can sell it for, and make relationships with farmers and ensure that they have a consistent revenue year by year that they can live by, because that will help sustain our supply chain,” that would be a good thing. The idea is certainly not below the radar now.
JG: A 2013 New York Times piece questioned the scalability of your model due to the long delays in payment of 6-12 months after harvest, arguing that “there’s not the right balance between when the farmer needs the money and when the farmer receives the money”. How do you address this challenge?
KL: That was Carlos Vargas from Coopetarrazu, yet last year Coopetarrazu was one of our biggest providers. Of course it works. It did scale. We are in over 1,800 locations in the United States. We have providers in country of Central America right now except for Mexico, and we are also in Burundi and hope to be in East Africa this year. And there were 2 reasons it scaled: one, we tapped into bigger organizations like Coopetarrazu that already had the financing for the farmers in place, and two, we redefined our system to a revenue-sharing model so that now we are able to tap into financing that allows the farmer to get a large part of the revenue share at the time the coffee is exported, which matches what the normal market does. The real power of the model will be that over time, as we expand our small farmer base, we will tap into partnerships that can bring financing back to the fruit level, but we are not there yet. We will get there.
JG: THRIVE focuses on the high-quality specialty coffee market where consumers readily pay high price premiums for outstanding products. Yet, only 10 – 15% of world coffee production can compete in the specialty market. Do you see potential for scalability beyond the specialty coffee niche?
KL: Sure, it just depends on how you want to scale it. We are not talking about monoculture robusta farming in Brazil or Vietnam at a massive scale. But I would argue that on the higher end of commercial coffee – the pretty good Arabicas – the impact of the model could be even higher, because you are creating a full-crop solution. The real power of our model is the fact that the higher you go up in score, specialty coffee creates its own marketplace and the movement of the commodity market tends to be minimized. When you start sliding down the range, even high-end commercial coffee prices will follow commodity price movements. A farmer might have a small lot of high-grade specialty coffee, but the rest of his farm is producing coffee at the high end of commercial quality. I know a lot of people that drink that coffee every day and those companies are paying a substantial amount for that coffee. Yet, the farmer’s price is still highly manipulated by price fluctuations.
What if you had a way to have a coffee that everybody drinks and enjoys and pays a good price for and put it in a system that links farmer revenues to consumer prices? There is still huge potential there, and there are a lot of farmers, big and small, that fit into this model.
JG: Beyond ensuring economic stability, how do you incorporate the other two pillars of sustainability, namely environmental and social aspects?
KL: If I were to stand up at any conference, and have my say, I would stress that it is really fun to talk about the environmental piece, and the social piece, but a farmer won’t care about these things until he can feed his family. Period. If we don’t deal with that issue head-on, we’ll never get the traction we need on the other two. We see examples of micromills that have tunneled through the value chain, connected with a boutique roaster and achieved a stable price that now see the value in composting and taking care of the people that work for them because now they want to reinvest in their company. Now it is a viable business. Our point of entry will always be from the economic side, and then it gets powerful, because farmers do want to take care of their watershed and ecosystems, they just sometimes don’t have the resources to look into the future because they are under so much short-term economic stress. We would however love to partner up with environmental projects and offer a solid marketing base.
JG: Do you observe that your customers are willing to pay for environmental attributes of their coffee, or is quality their main priority?
KL: If the quality is not there, it doesn’t matter. But there is no reason why you shouldn’t do both. In fact, good agricultural practices create better tissue in the plant, which creates better cherries. But will people pay for it? I think people are willing to do so if it also helps them meet an agenda. If you have a multinational company that is looking for a good quality product that is verifiable, truly impactful on the three aspects of sustainability and that complies with your stated values, I think they are willing to pay more, because they are willing to allocate resources to drink a coffee that is truly sustaining farmers and their communities for the long term.
JG: Where do you see the world of specialty coffee, and THRIVE’s position in it, in 10 years?
KL: As you go into this industry, it’s very small with a lot of money, and there is a lot of talk about direct relationships, decoupling from the commodity market, lots of talk about the ‘thin months’ and sustainable livelihoods, lots of talk about the fact that if we don’t do something, there won’t be any specialty coffee in the coming years. At some point, the balances will tip and people will have to realize that they have to rethink how they engage with farmers in order to ensure that they actually have a large enough supply base. I think THRIVE will be seen in the future as one of those companies that was one of the first to act at scale. We hope to continue to be a thought leader in that area. If we have learned one thing, it is that we need to be collaborative and invite other people and be open to these kinds of conversations.
Fascinating, no? What else would you like to know from THRIVE? Maybe you can find it on their website or the Coffee With a Story site. There, you can even learn more about and connect with some of the participating farmers!