Our vision is built on Collaborative Trade which is an evolution of Fair Trade and Direct Trade models and seeks to eliminate the inequities between the growers and buyers by addressing farmer, intermediary, and buyer challenges as an origin-based intermediary with bi-lingual and technology skills. We seek to ethically bring to market a steady supply of high-quality existing and new origin cacao and their by-products. This requires building trusted and transparent trade relationships and commitments from buyers, farmers and other intermediary stakeholders willing to innovate and adapt to serve one and other.
In our mission, we seek to support farmers and associations by bringing equity and visibility to the rural farmers bringing their cacao to the international marketplace where it can compete in the free market. In addition, work with farmers and intermediaries to provide the transparency needed by buyers that include documentation of location, size, capacity, certifications, challenges, visions, fermentation rates, varietal composition, quantities available, harvest dates along with photos of the specific farms or associations.
Specific support to farmers and associations can include:
- Assistance in obtaining organic certification
- Technical advice and support
- Feedback on quality, consumer market preferences, and trends
- Consultations with agricultural engineers & other specialists
- Review and advice on post-harvest practices such as fermentation, drying, storage, and hygiene
- Methods to improve cacao quality
- Improve livelihood
- Improve the economic situation and ensure fair wages
- Improve market access
- Create thriving communities
- Improve access to education and healthcare
- Improve access to services, training, and technology
- Improve food security at origin
- Give impact dividend
- Future goal to assist with pre-harvest financing at origin
We seek to support buyers as an origin contact by delivering the necessary transparency and developing a supply chain delivering a reliable source of high-quality cacao products while building economies of scale that create lower overall costs. Because it’s not always within the time or financial budget for buyers to meet cacao farmers directly, we seek to bring together farmers and buyers both virtually and physically—and whenever possible, we welcome the opportunity to facilitate visits with farmers and buyers here in Ecuador.
What Follows is a History of Our Journey to Collaborative Trade
Fair Trade, Direct Trade or Collaborative Trade—Which is right for us?
When we had the original idea to export fine-flavored cacao to the United States for bean-to-bar and artisanal chocolate producers, it was with the idea that we wanted to do so while enhancing the lives of the cacao farmers. We had an uphill battle as we began to put together the details as to how this would actually be implemented because we were just entering the world of cacao and had to learn a new and complicated business.
While fair trade has done an excellent job of bringing consumer awareness for ethics in the cacao industry, its cost and initial requirements can be a barrier to obtaining this very import symbol—a symbol that grants access to important international markets. And, it has also been mentioned that Fair Trade premiums may not be high enough to produce the expect living standards. (yellowseed handbook, page 68) For us, the cost and initial requirements not only restricted our access but also restricted access to the poor communities we planned to work with. In addition, it is not necessarily the role of Fair Trade to create relationships with farmers, buyers, and other stakeholders, and it does not provide a lot of transparency which was a large part of our original goals. The high cost of Fair Trade certification can be seen in this example. For a small group of under 100 producers or employees, the minimum charge is around €2,200 ($2,900 U.S.) an unattainable amount for a rural farmer. Plus, there are additional administrative and maintenance costs which add additional debt to farmers already struggling with cash flow. This high entry cost creates a power dynamic which puts the poorest producers at a disadvantage as they try to gain access to the Fair Trade label. Source: Legal and Institutional Barriers to Fair Trade, page 12., Fair Trade Price Caculator
Feeling a bit discouraged with our access to Fair Trade, we soon encountered a new term—Direct Trade. We felt the Direct Trade model was more in line with our vision because it focused more on relationships. We wanted to start including the Direct Trade model into our vision & mission but we lacked any type of defined framework.
So, after feeling confident we had found our path with Direct Trade, I had an eye-opening call with, Florence, an amazing cacao hunter from France. After waiting a month for her schedule to open up, we spoke one afternoon on Skype for a little over an hour. The gist of the conversation was that, we were on the right track and that yes, it’s all about the relationship! Florence gave lots of great advice on how a framework could be put together. The next day after our call, I began some more research and found just what I was looking for—I found a resource on Collaborative Trade focusing on cacao along with a framework documented by Yellow Seed®.
Collaborative Trade is an evolution of Fair Trade and Direct Trade and seeks to eliminate the inequities between the growers, intermediaries, and buyers. It unites people on a larger scale to share resources and work together multiplying the positive effects of all of those committed to equitable and sustainable trade. The collaboration processes is a system of exchange that is powered by the community of farmers, intermediaries, and buyers. The system seeks to create equal access to opportunity, fair wages and equity in trade & compensation beyond just the simple finical contribution. It is a dynamic system where needed information, feedback, trust, transparency & equity move among the farmer, intermediaries, and buyers.
Putting Collaborative Trade into Practice
Because collaboration addresses the needs of farmers, intermediaries, and buyers, we need to understand the problems faced by each.
Cacao farmers face major challenges bringing cacao to market—what follows are some of these challenges.
- Lack of visibility in the marketplace, lack of negotiation power, and a below-market gate price For the most part, small-scale farmers are invisible to the local and international cacao markets. These farmers lack financial resources, are decentralized, remote and do not have a coordinated distribution system. As a consequence, there is a de facto price control by the traditional middle-men keeping gate prices far below fair market price. As a result, the cacao farmers end up selling their crops at under-valued prices. In addition, this invisibility leaves the farmers' voice out of the conversation. Source: Yellow Seed Handbook (PDF)
- Production, labor, and post-harvest costs are paid long before the sale of the cacao resulting in stressful cash flow issues Farmers and community processing centers are challenged to receive fair prices and timely payments for their cacao and services. In some arrangements, payments may be delayed several months after the beans are shipped or after an order is fulfilled. In these cases, fulfilling an order requires significant capital and is not an arrangement that can be made with small producers. Processors and small-scale farmers are challenged by high costs of infrastructure, certification, and production overhead requiring them to bear the majority of the upfront financial risk.
- Language & technology barriers prevent access to competitive markets While there are many online resources available for producers to market their goods, small, rural cacao producers cannot access this venus due to language and technology barriers—some farms can be over a day away from any type of technology services.
- Lack of certifications & lack of information about buyers’ needs prevents growers from responding to market trends Without access to feedback from cacao buyers, growers don’t receive critical information about changing buyers' needs and market trends. A grower may not know there is a movement for quality over quantity thus preventing them from accessing a new niche market. Without valuable feedback, a grower may not understand the value of obtaining organic certification or how some simple changes in their agricultural practices could increase their income. When farmers have information about buyers' preferences and trends, they can respond to consumer needs ensuring a steady supply of great products.
- No access to loans, cash flow problems, missed opportunities & inability to modernize Without access to even small or micro-loans, cacao producers may not be able to pay basic salaries for production and post-harvest processes. Even a small micro-loan for pruning equipment can increase the size of harvest. Whether a need for a simple set of tools, or some updated equipment, cash flow issues are a major problem facing many cacao farmers. Perhaps one of the most pressing needs is pre-harvest financing at origin.
- Cost effective shipping options & entry into the market Bringing cacao to market involves risk—especially when bringing a new origin to market. Shipping and bringing cacao to the market at a viable price requires economies of scale. The intermediary needs to aggregate multiple origins for shipment by the most economical means as possible—by container ship. Introducing a new origin takes time and is generally introduced at a lower price until that origin becomes recognized and can demand a higher price.
- Being & staying competitive The modern trade system relies on high volume and low margins to meet efficiencies of scale because high-quality cacao is still coupled with commodity cacao prices. Managing supply, demand and logistics requires time, technology, and multi-lingual communications.
- Responding to information demands as more buyers enter the market As more artisanal and information-seeking buyers enter the market, there is an ever-increasing need for easy-to-access information about the origin. Lack of detailed product and critical business information can be a barrier to new buyers entering the market.
- Responding to farmers' needs for information Servicing and continually bringing new origins to market means there are more and more farms that need feedback from buyers. The Sourcing Manager needs to coordinate on the ground and give feedback about product quality and buyer preferences in order to respond to trends and ensure a continued supply of great cacao. By responding to buyer feedback early, the farmer can more successfully participate in the high-end global market.
- Financial risk for logistics & product quality The exporter provides a valuable service to the buyer as they put the product within their reach. The exporter generally ship pallets of cacao products to a warehouse where it can be easily shipped to its final destination. The exporter removes the risk of buyers from having to buy large lots of cacao in advance of harvest, with the hopes of a quality harvest. An exporter in the origin country has the ability to verify quality before assuming the risk of exporting.
- Bringing a new origin to market has risks Seeks to find new origins and connect that new origin to a new or possibly an undefined market. Needs to introduce a new origin carefully and obtain feedback on quality & flavor early in the process. Need to develop detailed farmer stories at origin which takes time.
- Product price Setting the product price is a challenge for the exporter. The price needs to cover costs of initial purchase from the farmer, quality assessment, local manufacturing, local storage, packaging, local & international transport, warehousing & distribution, packing, customer support, farmer & buyer relationships, and general operations, while at the same time being competitive. If the selling price is too high, the product will sit in the warehouse; if the price is too low there may not be enough cash flow to support a thriving business which supports the needs of farmers and buyers. If the price is just right, the product will sell and generate the necessary cash flow—but does that price support the real value of the product?
Buyers are faced with many challenges including the general distance from origin and language barriers, in many cases. Distance and language issues affect logistics, communications, access to trusted sources, and reliable & transparent information.
Logistics, efficiencies of scale & purchasing power
- Buyers seeking high-quality cacao for small-batch production are challenged by scale and capacity to purchase. Efficiencies of scale generally require 6-20 MT to financially make sense.
- Ordering in advance or coordinating exports carries with it a very high risk.
- Lack of access to information around pricing, timing, harvest & shipping dates, order quantity, and availability in order to make purchasing decisions.
- Low volume orders of 1-2 MT are shipped via airfreight which ads about $1 per pound to the final cost.
- Artisanal and smaller buyers are also constrained by cash flow issues, making the risk of purchase, or receiving a bad shipment of beans, catastrophic.
Information & Relationships
- High-end buyers and consumers are increasingly seeking ethically and sustainably produced products which meet their preferences and high standards but are challenged with lack of transparency, information, authentic & verifiable sources.
- Poor communication and language differences challenge trading relationships.
- Transparency concerns over assurance that payments are going directly to farmers.
- Buyers struggle to discover new origins.
Sources: Contact Yellow Seed for the Yellow Seed Handbook (PDF) Contact Yellow Seed for the Yellow Seed Handbook (HTML) Yellow Seed Blog Legal and Institutional Barriers to Fair Trade Taza Transparency Report Taza Commitments August 2015 (PDF)