Survey of Coffee Industry

Emphasis on Specialty Markets Known as “Third Wave” and Ethical Consumer Decisions

Ethan Gipp

Outline:

1. Introduction a. Purpose of paper and target reader b. Impacted groups

i. Consumers ii. Cafes and Roasters

iii. Importers and Direct Trade Roasters iv. Farmers and Producers

2. General Overview of Industry a. Brief History of Coffee and its rise in production b. Size of markets and key issues facing the industry today

3. The Consumer a. Who is the consumer? b. Trends and behaviors in consumer markets c. Consumer ethical buying decisions

4. Specialty Coffee and the Third Wave a. What is “The Third Wave” and what defines it? b. Two key issues: creating careers in the industry and educating consumers c. Trends, investment, and growth potential for the industry d. New products from rising companies: cold brew and pre-ground packets e. How Starbucks is reacting to the Third Wave

5. Importers and Direct Trade Roasters a. Direct Trade as Alternative to Commodity Pricing b. Informing the consumers while avoiding the trap of green-washing c. Transparency and Long-Term Relationships as the Keys to Better Practices

6. Farmers and Producers a. Discussion and Research b. Thoughts on Fair Trade c. Brewing Justice d. Perspectives from the Producers

7. Applications and Conclusions

Introduction:

Coffee is one of the world’s most traded commodities. In developing nations, it is the second most exported commodity and it is the most imported food commodity in the United States. The industry is rapidly changing with shifts in farmers’ access to markets and information as well as

consumer-led movements to ensure better ethical buying practices for coffee. The income and livelihood of tens of millions of farmers throughout the world depends on the economics of coffee, and the daily habits and rituals of consumers all around the world are run by their morning cup of coffee. At times, markets have favored convenience and at other times they have favored quality, but now we are entering into a phase where consumers want both. The market is demanding quality and convenience, all while pushing for a more ethical, sustainable, and transparent supply chain.

In this paper, I will walk the reader through the supply chain of coffee and give them an overview of the key issues and trends that are occurring throughout the world. After giving a brief overview of the coffee industry I will divide the paper into four sections: The Consumer, The Third Wave (Roasters, Cafes, etc.), Direct Traders and Importers, and The Farmers and Producers. I will finish with some conclusions as well as condensed observations from the studies in these sections.

In the consumer section, I will begin by walking through some of the values and feeling of the consumers in order to try to understand their perspective. I will then present some market trends to analyze the behaviors of the consumers. Finally, I will discuss ethical consumerism and how these behaviors typically progress as well as how companies should adapt to meeting the needs of the consumer with sustainability and ethical practices. Most of my discussions regarding consumers, cafes, and roasters will revolve around markets in the United States.

In the next section I will cover the growing movement in specialty coffee known as the “Third Wave.” Once a niche market, this movement has expanded tremendously in the past five to ten years with its heavy emphasis on quality, sustainability, and authenticity. The movement takes great strides to contrast itself against the large coffee chains such as Starbucks, and I will briefly discuss at the end of this section how Starbucks is beginning to take notice and react to this movement, slowly blurring the lines between independent coffeehouse culture and corporate coffee progress.

The third section will focus on roasters that practice the poplar buying practice known as “direct trade”, as well as how green coffee importers have shifted and adapted their strategies to meet the growing demand for transparency and ethical buying practices. It will highlight the need for ever-evolving practices based on the unique needs of farmers, as well as how various forces, such as technology have greatly increase the ability of farmers and importers to have traceability and transparency along the supply chain.

Finally, I will discuss the farmers and producers of coffee, analyzing the situation in which they find themselves in the global supply chain, as well as strategies that are being developed in order to help lift them out of poverty. I will discuss actions that many farmers have taken such as abandoning their farms, or adopting a vertical integration strategy in order to help take their financial destiny into their own hands. There will also be a discussion on the downfalls of regulations that are developed away from the people who the regulations were designed to help.

The two recurring themes of this paper are ethical and sustainable buying practices as well as the specialty coffee industry, or third wave movement. By the end of this paper the reader should have a broader understanding of how movement towards quality, consumer demand for transparency, developments along the supply chain, and improvements of technology are all leading to a rapidly changing industry that will ultimately lead to better options for the farmers and higher quality for the consumers.

General Overview of the Industry:

In the introduction the 5th annual Specialty Coffee Association of America Re:Co Symposium, Peter Giuliano spoke about the history of coffee and how it is and is still impacting human society and culture. It has been speculated that the shift away from alcohol and towards coffee in the 1500’s helped spark the enlightenment in Europe and paved the way for the world we live in today. Speaking with a professor of psychology and neuroscience, Peter explained that there is good reason to believe that there are actual chemical properties in coffee that help spark creativity, connectivity, and better social innovation within cultures (14). During the course of my research I have heard it speculated numerous times that it is no coincidence that silicon valley, a leading community in technological innovation, is also one of the key hubs and drivers for the emerging specialty coffee movement.

What we have come to know today as the coffee bean is actually not a bean at all. In fact it is the seed of a cherry-like fruit that grows off of a tree or a shrub (1). There are two main varieties of this plant, Robusta and Arabica, and the latter is what is used in nearly all specialty grade coffee today due to the superior taste and quality (1). The coffee tree originates in Africa with Ethiopia being the home of the Arabica tree (2). The coffee plant spread out from Africa east and west to create a belt around the equator with roughly 30% of production being Robusta varieties and 70% being Arabica (2). The coffee plant is a source of income for about twenty-five million families in the developing world (2). Some key growing regions include Brazil, Columbia, Indonesia, Vietnam, Mexico, and Ethiopia. Brazil produces roughly a third of the world’s coffee and Vietnam’s production has risen dramatically making it one of the world’s top producers (2). Columbia is the only South American country with ports on the Pacific and Atlantic costs, and its coffee production is so vital to its economy that cars crossing the border have been sprayed in the past to prevent any diseases for the coffee plant to be taken into the country (2). Indonesia is one of the world’s top producers of Robusta coffee (2).

Numerous sources, including MIT, Stanford, and the UN Chronicle have all identified coffee as being the second most traded commodity in the world (2)(3)(4)(6). This is an almost universally accepted fact. However, upon further research it is clear that this fact is not as simple and straightforward as people would think. Mark Pendergrast, author of Uncommon Grounds, wrote an article where he discusses this fact. He explains that when he originally wrote the book he had included this fact in the introduction because it seemed universal based on everyone that he interviewed. Upon encountering some economists that expressed concern that the fact didn’t sound right he explored the data a little further. His research led him to understand that where coffee ranks among global commodities is really more of a semantic and categorical issue than one of measurement. It entirely depends on what kind of commodity contracts one is considering as well as whether or not you include the trade of coffee after it has been roasted. If you count the trade of green coffee as an agricultural product and then add in the cost of trading coffee after it has been roasted then it generally comes out as second. However, we would then have to do this with other commodities rather than simply tracking the raw material of steel or wheat, and this would change the picture significantly. Overall, no matter how you calculate it, the actual agricultural product of coffee always comes out as one of the top five or ten commodities, making it one of the most important resources for our global economy. Pendergrast points out the truly important thing to keep in mind when considering this problem is not where coffee ranks among global commodities but where it stands in the economies of developing countries. The primary reason it is important is because of the economic, social, and cultural role that coffee plays for people in developing countries. And when looking at the numbers, coffee as a raw agricultural product is the second most exported commodity for the developing world (4).

In the United States, coffee is the largest food import (6). With over 400 million cups of coffee consumed per day, the United States has also been recognized by some sources as the largest importer of coffee in the world (7). However, similar to the issue of the commodity rankings, this fact depends on how importers are categorized. One source has listed the European Union as the largest importer of coffee by grouping the countries together, making it an importer of about half of the world’s coffee and leaving the United States as second in the global economy for importing coffee (9). Multiple reports from IBISWorld have observed a steady growth in consumption and demand for coffee and predict optimistic figures for growth in the coming years, especially for specialty-grade coffee, espresso-based beverages, and bottled coffee drinks (10)(11). The SCAA (Specialty Coffee Association of America) has estimated there being roughly 10,000 coffee cafes in the United States with 2,500 of them being specialty stores (6). 30% of those are made up of chains and the rest are independently owned (6). Specialty coffee sales have been increasing by about 20% per year and account for about 8% of the eighteen billion dollar U.S. coffee market (7). Over 50% of the U.S. population drinks coffee with an average of 3.1 cups per day and 50% of the population regularly consuming espresso-based beverages (7). Independent coffee shops account for about twelve-billion in annual sales and the number of cafes and coffee shops is expected to triple in the coming years (7).

The price of coffee is generally driven by the commodities market (6). Between 1972 and 2016, the commodities market price for coffee has ranged anywhere between $.42 and $3.40 (5). It would be inaccurate to view this as a price floor because many farmers of small lots do not have access to proper channels of export and often have to sell to middlemen known as “coyotes” for a price that is often half of the commodity price (6). Specialty coffee importers will often pay a higher premium than the commodity price for quality and fair trade certified farmers will receive whatever the set price above commodity price is (6). The only farmers that regularly receive the set commodity price are typically the large plantations such as the high-production farms in Brazil (6). Much of the conventional system based on commodity pricing has locked many farmers into a long cycle of poverty and debt which is nearly impossible to break out of without significant financial investment or an entirely new model of purchasing coffee (6). Brazil is the single largest producer and exporter of coffee. Because of the global supply and demand for coffee as well as the supply from Brazil, the biggest factor impacting the commodity price is the weather in Brazil (6). Many experts believe that Brazil’s focus on quantity has had a negative impact on their quality (2). The 1994 frost of Brazilian coffee crops destroyed a great deal of the crop that year and significantly raised prices of coffee worldwide (2). Much of the cost paid to import coffee in the United States never reaches the farmers as it is spread out between various middlemen and certification systems, which disincentivizes the farmers to improve their methods and processes (6). In this industry, the highest profit margins come from the roasters while the lowest are typically from the producers (6). The global coffee production is split up between a very large number of small families that farm only a few lots and a smaller number of very large plantations that have high production. With this in mind, a large portion of coffee farmers are fair trade farmers while the majority of coffee sold is not fair trade because it is grown by only a few large farms (6). There have been efforts and investments in the past by the United States to push farmers towards higher production methods. However, adopting these higher yield methods often lead to the abandonment of traditional practices and the degradation of the environment and working conditions (6). It seems that the best way to improve living conditions and protect the environment is not to produce more coffee but to pay more for the coffee that is being produced through traditional methods and drink less overall (6).

Before 1990 coffee markets were highly controlled with regulations and quotas (8)(12). Since the end of this highly regulated market the price of coffee has been incredibly volatile and based on the supply and demand of the free market (8)(12). With deregulation came the loss of many structures and

resources that small farmers depended on, making their livelihood highly susceptible to the highs and lows of the commodity market pricing (8). There have been two significant falls in the global price of coffee since deregulation with the most significant crisis occurring between 1999 and 2004 (12). While production has gone up in Brazil, many other producing countries including those in Africa have decreased their production (8)(13). Small farmers need to be provided with better support and access to financial assistance in order to improve the quality and yield of their farms (12). Without adjusting our agricultural infrastructure to meet the rising demand in the coming years we will be heading into a global supply deficit of coffee (8). Beyond the standard issues of raising yields, there are also numerous key problems that farmers need to address such as losing crops due to the plant disease known as coffee leaf rust (12). Financial provisions may need to be made in order to help farmers deal with these threats to their crops (8). In his SCAA Re:Co Symposium talk, Mauricio Galindo discusses the challenges facing the global supply chain of coffee today. He explains that the majority of coffee is being concentrated in a few growing regions, Brazil and Vietnam, while the global demand of coffee is growing steadily all across the world in a much more scattered fashion (13). If this pattern continues then the global supply of coffee will lose its regional diversity and the price will be determined primarily by the yield from two or three growing region (13). In this speech he was addressing individuals in the specialty coffee industry, which means that his audience was more focused on quality over quantity. With this in mind, their perspective is not necessarily one of raising yield across the board as Brazil has done, but it is also important to keep in mind that this issue of rising global demand with diminishing global supply due to a wide variety of factors is an issue that cannot be ignored and must eventually be addressed before either the regional diversity of coffee is eliminated or the global price skyrockets (13).

The Consumer:

In order to have an accurate understanding of the consumer market trends and behaviors, we must first step back to take a close look at who the consumer is and what their values are. Once we do this we will be better equipped to understand their behaviors and buying habits.

A University of Virginia report gives a brief picture of the modern day coffee consumer in America. Today’s consumers have an elevated sense of style and preference for the products that they look for. It is not enough to simply provide a fast-food or general café atmosphere. Older consumers often want a more thoughtful and comfortable atmosphere for cafes while younger coffee consumers look for trendy and stylish environments (15). There is a significant rise in the amount of money that today’s coffee consumers are spending outside of home, and there is a rising interest in being able to purchase breakfast food items that can complement the coffee and be taken on the go (15). Overall, the distinguishing factor is that coffee consumers in America today are looking for whatever is perceived to be the highest quality brands of all coffee-related products and this can vary depending on whatever the consumers’ perceptions of quality is (15).

In two separate articles by the Specialty Coffee Chronicle, industry experts give their in-depth understanding as to what the modern-day specialty coffee consumer is looking for. Specialty coffee is specifically targeting millennials ages eighteen to thirty-five, which makes up about twenty-five percent of the population (16). These consumers expect a high level of quality, value, and convenience and have sophisticated palates with a variety of flavor preferences (16).These consumers are highly interested in sustainability and innovation and want to buy local whenever possible (16). They have a desire to learn

and understand the farms where the coffee was grown (16). They are generally willing to experiment and will go to multiple shops to get the best possible product (16). The modern day consumer is becoming increasingly aware of trends in the specialty coffee market. What was once considered to be only for coffee snobs is now being adopted by many people as a preference for micro-lots, complex coffee, and moving away from sugary and flavored drinks (17). These consumers are looking for transparency and sustainability when it comes to social issues, because spending is a concern for them, they are generally will to buy smaller portions of higher quality beverages rather than larger portions of sugary beverages in order to save money and have a more enjoyable experience (17). In the midst of the economic downturn as consumers cut their discretionary spending their willingness to maintain their spending on coffee drinks has remained stable (17). The typical customer can be divided up into two groups,: those who genuinely want to learn about the product and experience new coffees and those who are looking for caffeine in a sugary drink (17). Coffee shops will need to develop strategies to meet the demands of these two groups of consumers.

In three different presentations given by Tracy Ging at the SCAA Re:Co Symposiums, market research was conducted directly with consumers of specialty coffee and interpreted for how owners of cafes can adapt to the needs and desires of their customers. In the first presentation, her group had interviewed two different focus groups in Portland, OR and Los Angeles, CA (18). Consumers of specialty coffee were divided up into two categories: Specialty Adopters and Super-Specialty Drinkers. The specialty adopters are generally interested in independent specialty coffee roasters but they will still move back and forth between different qualities and different brands. They are not quite as interested in exploring new coffees and want to stick to whatever they already like. The Super Specialty Drinkers are extremely interested in learning about and trying as many coffees as possible. They have significant loyalty and preference for very high quality coffee and try to avoid whatever they perceive to be low-quality (18). There was generally a great deal of confusion about what the word “specialty” meant and what companies and products would qualify as “specialty.” They did, however, have an easier time defining what they saw as not specialty coffee (18). Many of these consumers were in lower income brackets, which meant that they were not paying more simply because they had the extra money. This means that there must be something specific about these coffees and these brands that resonated enough with the consumers to make them willing to pay more for the product (18). Many of these consumers struggled to explain specifically what it was that made their particular brand of coffee special to them. It was clear that there was an incredibly meaningful feeling towards their preferred brands of coffee based on factors such as taste, better quality, freshness, daily rituals and experience, and personal feeling of reward (18). The overall café experience, familiarity, and feeling of community had a huge impact on how the consumers felt about their preferred brands (18). One common factor among all of these consumers is that many of them had been all across the spectrum for what quality coffee products were available. The consumers who had been exposed to the widest range of brands and products often had the strongest preference and emotion towards their preferred brand (18). These consumers all strongly felt that they did not want to be lectured or told what coffee they should like. Rather, they felt the most acceptance and resonance in environments where the barista simply helps them explore the different options and discover what they personally like the best (18). When it comes to social issues and techniques to brew the perfect cup of coffee, these consumers are generally interested, but they want to learn about these things in the right time and place, and stopping in at a café to get their morning coffee or socialize with a friend is generally not the right time or place (18). A common feature among these consumers is that there is a significant drop in quality preference when they buy coffee to make at home. This is because many consumers do not feel confident enough that they can make coffee of the same quality that their barista does in a café, and this is a challenge that companies targeting the home market need to be aware of if quality is their focus (18).One thing that

Tracy Ging noticed is that people’s knowledge if specialty coffee does not typically grow by learning about better coffees. Rather, consumers tend to adapt their knowledge of specialty coffee by redefining what “bad” coffee is and adding different drinks and companies to that list. Overall, consumers want a drink that they love and can get excited about. They are interested in learning about coffee, but they don’t want to be lectured by it and want the primary responsibility of understanding it to be that of the barista. Consumers are often looking for inspiration in their coffee and are often given issues and statistics. One consumer in the focus groups put it like this “I don’t want to become the expert, but I love that the person serving me is an expert” (18).

In the second presentation that Tracy Ging gave she interviewed consumers and assigned each of them personal blogs to tell their stories about what they prefer with coffee and how their taste has developed over the years. The focus of this study was trying to understand how consumers of high-quality specialty grade coffee can to drink the coffee that they do. One of the most interesting findings of this research is that with the exception of a few outliers, most of these consumers began drinking sugary drinks from large chains such as Starbucks or Peet’s Coffee (19). She explains how these drinkers typically had a slow progression from these drinks to the higher-end micro-lot coffees served in smaller shops. The most interesting aspect is how these shops like Starbucks seem to be sort of “gateways” to funnel people in to experience the super high end side of specialty coffee (19). It is clear that smaller “third wave” shops have a lot to owe to Starbucks from introducing people to specialty coffee to making consumers comfortable with paying three to five dollars for their morning coffee (19). In many of the cases people who became interested in coffee gained their interest because of friends that they would spend time with at shops (19). Consumers are often confused by the wide variety of terms and new language developed among coffee professionals, and the view seemed to be that there needs to be fewer terms and more effective ways to explain the products (19). Finally, the consumers were asked about their thoughts of why they liked the brands they do and encouraged to give their thoughts on sustainability and ethical practices. In general, the consumers did seem to care about sustainability and ethical practices, but they were not altogether clear on how these things are accomplished. They seemed to believe that the companies that they bought from were promoting ethical practices and that they were doing good by buying from them, but they were not entirely sure how their purchases were having a positive impact in the world (19). This is one core issue that needs to be dealt with when we look at ethical consumerism because many consumers seem to base their decisions on a vague feeling that they are doing something good for the world than an actual deep understanding of the issues and how they can be solved.

Finally, for the third presentation Tracy Ging gave some more general market data and interpretations about millennials with a focus on young millenials in particular. While older consumers drink most of their coffee at home, eighteen to twenty-five year olds are twice as likely to drink coffee away from home (20). This provides them with a wide variety of exposure to different products in the industry, which leads to stronger preferences as to what types of products they are looking for and ultimately leads to a greater increase in the amount of coffee they drink outside of the home (20). While in the past, consumers have typically either consumed brewed coffee or coffee drinks, these new consumers maintain a regular purchase of coffee-based drinks no matter how much their consumption of brewed coffee goes up (20). Their consumption of one category seems to increase their consumption of the other. There is typically no single factor that will attract these consumers. Simply serving a better product is necessary but not enough to differentiate in the consumer’s eyes (20). Friendliness, cleanliness, and speed are factors that nearly all age groups look for in a business, and this younger age group is no exception. There have been instances where young consumers have chosen to go to a shop that is lower quality coffee because they met these foundational needs while the higher-quality shop did

not and assumed that selling a quality product was all they needed to attract consumers (20). There are a wide variety of factors that this group is looking for: creativity, craft, locally produced, sustainably and ethically sourced, and authenticity. A business that wishes to succeed in this market cannot settle to just focus on one of these qualities. Rather, they must cover all of their bases and meet the broad range of needs that these customers have (20). These consumers have made it clear that they do not want to be lectured or educated. They want to be included (20). One final and separate note in this presentation is that the element of sweet and sugary drinks being served is something that needs to be addressed. There has been a sharp divide in the past between the intensely sweet flavored latte and the black coffee with no sugar added. It is clear from research that even the most sophisticated of consumers still wants to consume sweet drinks from time to time, and this is a need that the industry will need to eventually address (20).

Now that we have a basic foundation for understanding the thoughts, feeling, and values of the specialty coffee consumer, we can begin to take a look at some of the larger scale market research for behavior and trends. A Mintel marketing report states that 76% of consumers in the United States had bought some kind of coffee for their household in the past month (21). Production and demand of sustainable coffee is rising with 16% of the global coffee production being certified by some kind of sustainable standard (21). For consumer buying habits and purchasing decisions, fair trade has been the most successful sustainability initiative on the consumer end of the market (21). Older consumers are generally more likely to prefer name brand coffee while younger consumers tend to try many different brands and types of coffee. For the household market, larger households with 5 or more people are more likely to buy whole bean coffee while smaller households with four or less people tend to buy pre-ground and instant coffee (21). The preferred sizes for buying whole bean coffee are 16 ounce, 12 ounce, and 25 ounce respectively (21).

A report on the European consumer coffee market shows many similar trends in the United States markets. There has been a significant rise in concern among consumers for ethical and sustainable issues including how problems such as climate change will impact the lives and income of coffee farmers (23). The Third Wave, a movement in specialty coffee which we will discuss later in this paper, has also grown significantly in European markets. This movement is characterized by presenting coffee as an artisanal product rather than a cheap commodity (23). Consumers in this segment are willing to pay significantly more for their coffee and prefer to try different coffees from small lots known as “micro-lots” (23). Within this segment there has been a rise in the number of small coffee shops and roasters that serve blends and coffees that highlight the farms from which they came. Among the interest in quality is also a significant concern for ethical buying practices with transparency such as the rise in direct trade coffee (23). As specialty third wave markets grow there has also been an increase in small niche markets catering to home roasters of coffee (23).

In a large-scale survey of global preferences for hot drinks, it is clear that there is a rise in consumption of both coffee and tea with tea just slightly ahead as consumers are looking for healthier and tastier alternatives to soft drinks (26). The category of coffee known as “coffee pods” (k-cups) is beginning to mature as the growth has been slowing in the past few years (26). While consumers are very interested in convenience, they are looking to move away from these categories in search of better tasting options, which has opened a greater opportunity for specialty markets (26). This report also observed a global rise in the third wave coffee segment (26).

In Zagat’s 2015 coffee consumer survey, consumers were willing to pay more for their coffee beverages than in past surveys (25). The average price deemed to be too much for a cup of black coffee was $3.67 and the average price deemed to be too much for an espresso beverage prepared by a barista

was $5.07 (25). With only 43% of these coffee drinking consumers reporting that their coffee most often comes from home, the majority of customers seem to be getting their coffee from outside sources such as large chains and independent coffeehouses (25). Finally, when asking about drink preferences the majority of women preferred lattes and the majority of men preferred black coffee (25).

According to a Specialty Coffee Association of America market survey, the United States coffee market is worth about forty-eight billion dollars and specialty coffee takes up about a 55% market share (22). In the latest survey, 31% of consumers eighteen or older drank specialty coffee yesterday, which was slightly down from the last survey but shows a general and consistent trend towards growth in the market (22). In an SCAA Re:Co Symposium presentation, researcher Heather Ward breaks down the numbers and results from these SCAA consumer and market surveys. She explains that there has been steady and consistent growth across all segments of the specialty coffee market (24). There is still a great deal of market information within this industry that needs to be gathered. Her team at the SCAA is currently working on projects to gather information about roaster market share in the United States as well as creating a consumer price index to get a clear picture of consumer buying habits and prices paid for specialty coffee (24). Based on this research and the consistent trend towards growth, there is a major opportunity for gaining market share. Two key strategies that need to be developed in the industry are further expansion of coffeehouses to reach all customer segments and improved marketing of specialty coffee in order to reach further differentiation and sell for higher prices (24).

One of the key elements that we have discussed with trends in specialty coffee is the move towards more ethical and sustainable practices. However, this territory is not quite as clear and easy to navigate as we would generally like. In an article by the Seattle Metropolitan, a general overview of the expectations of consumers for sustainable certifications as well as perspectives from Starbucks representatives on fair trade coffee is given (27). At the time of the article Starbucks was selling fair trade coffee as 3.7% of its supply. Critics responded by stating that this is only a drop in the bucket and it should be at least 5%. There were also complaints about this only being fair trade and not organic or bird friendly. Representatives from Starbucks felt that the expectations of consumers were somewhat ridiculous and wanted to know where it would end. They explained that shifting over to a huge supply of fair trade for a company the size of Starbucks isn’t quite as simple as a local coffeehouse choosing to buy a different coffee from their supplier (27). They also seemed to feel that there was no end to the consumer demands as once they had started serving fair trade consumers were complaining because it wasn’t “triple-certified” (27). It was also pointed out that due to the massive scale of Starbucks the 3.7% had a significantly larger impact than almost any other company in the industry that sells fair trade (27). These are all important factors to consider when criticizing a large company such as Starbucks, although the consumers tended to be very skeptical of these excuses as they should be in many cases since it is the job of ethical consumers to push companies forward to better practices (27). After all, it was because of the pressure from ethical consumers that Starbucks began serving and increasing its supply of fair trade coffee (27).

While it is important for consumers to pressure companies like Starbucks to serve more ethically sourced products, it is also important to step back and realize how complex and confusing the world of sustainable marketing and certification can be. In an article interviewing the head of sustainability for the SCAA, consumers are given a brief overview of the different certifications and terms as well as what they mean for the farmers. Many of the terms used by green and sustainable marketers often have no legal meaning, and it is often incorrectly assumed that just because a coffee costs more that the farmer must have been paid more (29). It is reasonable to assume that if a coffee is cheap then the farmer must not have been paid well, but it would not be accurate to assume the opposite if a coffee is expensive. Also, descriptions of companies’ values and how much they care about the farmers are generally nice

things to read but they do not necessarily mean that the company has actually done anything substantial for the farmer (29). Direct trade is also something else that has no official certification, so it can mean whate3ver the roaster wants it to mean (29). The article was quick to explain that these are not necessarily bad things and that many companies who follow these practices are doing good work, but it needs to be understood that these are not part of any official certification or legal system (29). Organic is a term that does actually carry legal weight. Some terms such as “Fair Trade” are a bit more tricky. In the case of fair trade the product needs to have the complete phrase “Fair Trade Certified”, but if it only says “Fair Trade” or “Fair Trade USA” then there is not necessarily any legal bearing on the phrase (29). It is also important for consumers to know that there are different organizations and types of fair trade certifications. Finally, there are a few certifications such as “bird friendly” and “rainforest alliance” that can be confusing to the consumer and don’t do an effective job of communicating what it is that they accomplish (29). Overall, consumers who wish to be ethical in their buying habits have to stay informed and be aware of more than just purchasing the item labeled “ethical.” This complexity and confusion of certification and marketing has led to many frustrated and skeptical consumers.

After looking at the issue of Starbucks and fair trade as well as the complexities of the sustainable and green certification systems, it is clear that having a deep grasp of ethical consumerism goes far beyond just buying products that have a certain label. It also seems that there is a growing frustration among consumers because of this confusion and often there is a divide between the values and the actions of consumers. It is not only the consumers that need to take action for change but also responsible companies that can take the lead in making this change. We cannot simply assume that consumers will always trust companies that claim to be ethical and buy their products. There needs to be a clear analysis of how consumers behave and what causes them to buy ethical products.

In an article from Stanford University, the question of how we can cultivate an ethical consumer is raised. There is a definite hypocrisy between what the majority of consumers say they value when compared to how they actually shop. The majority of consumers say that they care about ethical practices and preventing climate change, but when surveyed about their actual buying practices only about a third practice ethical and sustainable practices (32). Among those who do buy sustainable goods, very few of those goods exist outside of the realm of food and sustainable light bulbs (32). Consumers want companies to take the lead in sustainable practices rather than relying on buying decisions (32). The article outlines a few areas where improvement could help encourage ethical spending. The three biggest factors are that consumers need to be aware of the problem, they need to believe the product is helping, and they need to be willing to spend extra money (32). One of the biggest problems among consumers with ethical spending is that they simply don’t trust the companies that make sustainable and ethical claims. They have generally had so much exposure to green and sustainable marketing that they begin questioning the motives of companies that say they are saving the world (32). With this in mind, it is up to the company selling ethical products to regain the trust of the consumer and give them true and honest reasons as to why their products are helping with sustainability.

A survey of consumers in the United States and the U.K. also support many of these claims. According to the survey, 80% of consumers believe it is important for companies and brands to behave ethically (30). Unfortunately, when evaluated for their most important factors when shopping, price, value, and quality were the key decision factors respectively showing more weight in their decisions than ethical considerations (30). For many of these customers convenience was ranked as more important in their purchases (30). While it is good that they care about ethics, it is important that we study and understand the difference between what consumers say they care about and what they actually purchase (30).

More research on ethical consumerism shows that the consumers who do purchase ethical products generally don’t base their purchasing habits entirely on facts (28). The factor that turns facts and values into action is ultimately how emotionally charged about an issue a consumer is (28). An article in the Journal of Consumer Research lays out three basic narrative factors that influence how a consumer feels about an issue and ultimately how their buying practices will unfold: contempt for villains, concern for victims, and celebration of heroes (28). While this may seem like a pessimistic outlook to those who wish to rely entirely on facts and statistics, it is important to understand how putting ethical values into practice works in the real world. This brings us back to the earlier research about customers in specialty coffee that are looking for inspiration from their baristas rather than facts and figures.

We don’t just need to understand what drives ethical purchases we also need to understand what drives people away from them. In a series of studies at Ohio State University, researchers wanted to understand what drove certain individuals away from purchasing ethical products (31). It seems that consumers who have not bought ethical products and are then exposed to people who have are then less likely to purchase ethical products in the future (31). In the initial studies consumers were only allowed to view a portion of the information available for a pair of jeans that they would purchase. Most consumers chose to be willfully ignorant about the ethics in the production of the jeans (31). After choosing willful ignorance and then being exposed to people who had purchased ethical jeans they then presented certain disdain for the ethical shoppers and were less likely to purchase ethical jeans in the future (31). At first look, it seems that this is just presenting a negative attitude that unethical consumers have towards ethical consumers, however, if participants who had not made any purchase decisions were exposed to ethical consumers they were generally indifferent or neutral towards them and their future decisions were relatively unaffected (31). Furthermore, if consumers who were willfully ignorant in the earlier part of the study were later given a chance to donate money to a cause or make some other positive ethical decision then their attitude towards the ethical consumers was much more positive (31). In other words, a great deal of ethical practices and feeling towards ethical consumers has little to do with how we feel about the actual issues. Instead, there is a sort of comparative effect where most consumers dislike feeling unethical and will paint the ethical consumer or ethical product in a bad light in order to make themselves feel justified about their earlier decisions (31). With this in mind, the strategy to make the unethical consumer ethical is not to make them feel bad or compare them to better shoppers but to move on from the original purchase and give them additional opportunities to begin reinforcing ethical practices (31).

Specialty Coffee and the Third Wave:

A movement has been mentioned a few times in this paper called the “Third Wave.” This is a movement in specialty coffee that is quickly growing in popularity and only occupied a small niche market just over a decade ago. The term was first popularized by Trish Skeie in an article she wrote in the early 2000’s categorizing what she referred to as the three waves of coffee. In this case, the first wave is represented by mass marketers of packaged coffee such as Folgers and Maxwell House. Its chief innovations were bringing coffee up to an industrial scale and packaging it for the home (34). The second wave was an artisan driven movement that began to promote whole bean coffee, differentiate between roasting styles and blends, and introduced an entirely new vocabulary of coffee terms and drinks to the American public such as “espresso” and “latte” (34). Starbucks is listed as an extreme

example of second wave (34). In the brief description of third wave it is described as a reaction towards those who want to automate coffee production and take the craft and skill out of it (34). In this initial article, the move away from automation is the key driver of the third wave, but simply doing a Google search and reading the first five or six articles that come up about third wave coffee will show the reader that this term has taken on a complete life of its own. The culture of third wave coffee has evolved into something entirely different than anything presented by the previous waves. The number of distinguishing facts is continually growing as more articles are written, and what makes studying this movement even more difficult is that every time an accurate and concise definition is made that pinpoints the factors uniting the third wave there is quickly an exception that rises up and shoots down that definition. In some instances a trend in the third wave has been to steer away from flavored beverages, but as we will see later in this paper that is a trend that is coming to an end with rising popularity of signature drinks. I have even found some papers discussing the rise of a fourth wave of coffee which sounds nice but doesn’t seem distinguished enough from definitions of the third wave (38). The only uniting factors that I perceive are a relentless drive towards quality, sustainability, and authenticity. Perhaps the problem is that because this is a dynamic and evolving movement in the present rather than the future it is always changing. We can only categorize the things that are in the past rather than the things in the ever-changing present.

In her book, God in a Cup: The Obsessive Quest for the Perfect Cup of Coffee, author Michaele Weissman takes a deep dive into the world of third wave coffee. She interviews and travels with numerous professionals in the industry ranging from Nick Cho of Murky Coffee in Washington D.C. (now co-owner of Wrecking Ball Coffee in San Francisco), Geoff Watts of Intelligentsia, Duaine Sorensen from Stumptown, and Peter Giuliano of Counter Culture coffee as well as various other representatives from the SCAA and green coffee buyers from companies like Green Mountain Coffee and Peet’s Coffee (33). In her book, she lays out what she interprets as the third wave of coffee and describes the obsessive quest by which these individuals seek the perfect cup of coffee. She talks about George Howell, the industry legend who helped start the Cup of Excellence Program in Central America which helps to reward farmers for growing higher quality coffees. She also gets the perspectives of farmers and how this new movement has impacted them. In many cases, it has changed the way they do business and make money by allowing them to differentiate their coffee. At one point in the book, assuming based on the radical social justice views of the coffee buyer she is speaking with, she asks how she (the coffee buyer) can reconcile her desire for social justice with the fact that she is representing a business. The coffee buyer simply looks annoyed by the question and explains that business is a tool that needs to be properly used to help bring many farms out of quality. In one instance, Peter Giuliano of Counter Culture Coffee tells her about a moment in the mid-2000’s when he and a partner went to a co-op in Guatemala and broke down the pricing system for different qualities of coffee as well as methods for measuring that quality (33). The farmers were nearly in shock as this was the first time anyone had ever been this transparent with them about how much money would be spent and who that money would go to. The group from Counter Culture was not even aware before this point just how in the dark many farmers were about how money is handled along the supply chain, and this new level of transparency rattled the politics within the co-op and completely changed the way they handled their operations (33). Among the benefits of third wave specialty coffee buying Weissman also got to hear some negative parts of the system. The Cup of Excellence has been an excellent program for rewarding coffees and raising quality, but that doesn’t change the fact that coffee is a relatively unpredictable agricultural product which will change from year to year no matter how good the farming practices are. While the program has been rewarding to those producers that won, many farmers feel that winning the Cup of Excellence is like winning the lottery as they don’t have complete control over how their coffees will turn out from year to year. Returning to the emphasis on quality that the third wave has, every once in a while a program like

the Cup of Excellence will radically shift how people come to view what a coffee can be. In fact, this book was inspired by a coffee that won that competition and Panama and the title came from a quote during the tasting of that coffee. In the early 2000’s, there was a unique coffee varietal known as “geisha” that appeared on the cupping table. The coffee’s name was the “Panama Esmeralda Geisha,” and its flavor was so incredible that one judge was overheard saying to another judge that he wasn’t a very religious man, but he thinks he just saw “God in a Cup” (33). Whatever it is that defines the third wave, it is clear from Michaele Weissman’s account of it that passion and obsession are two integral characteristics of the movement.

With its exceedingly high emphasis on quality and paying farmers higher prices for their quality, some have begun to question how sustainable the third wave market is when considering consumer demand. One concern raised is that the limited supply of specialty-grade coffee paired with the higher premiums being paid and the sharply rising demand will lead to a massive rise in price and make specialty coffee as expensive as artisan wine before it can even reach a mainstream audience (37). These claims are based on the idea that third wave coffee is only a fad in its early stages and that the direct trade model of buying coffee by which this movement is based is inadequate to meet the potential demand (37). This makes sense if we assume that the growth and cultivation of coffee works in the same way that wine does, but coffee is an entirely different plant. Whereas wine’s quality is based on the vine and vines are sometimes hundreds of years old, coffee trees must be re-planted every 20 to 25 years (37). Also, the direct trade model referred to earlier is about far more than just cutting out the middlemen. It is also about developing long-term relationships and investing finances in better infrastructure (37). In this case, as demand for high-quality coffee is projected to rise we can already see investments in specialty farms to begin growing better varietals to meet this consumer demand (37). With advances in agronomy and productive farming techniques, we still haven’t seen the kind of quality or supply that specialty coffee producers can bring us (37).

As market demand rises for third wave coffee, there are numerous ways that the market has adapted, through new avenues in the supply chain, companies capitalizing on consumer interest, and even mainstream companies taking interest and developing their own products. Joyride, a company out of New York, has made it their mission to make office coffee amazing (35). They have teamed up what the companies deemed “The Big Four” of the third wave (Intelligentsia, Stumptown, Counter Culture, and Blue Bottle) to fully equip, train, and supply offices to have the best coffee possible (35). They are looking to get rid of k-cups remarking that offices have been purchasing coffee in the same way they restock printer cartridges when coffee should be one of the highlights of a person’s day (35). Joyride even goes beyond coffee brewers and espresso machines and supplies offices with a variety of cold-brew coffees in kegs (35).

In the International Home & Housewares Show 2015 in Chicago, vendors were unveiling new products for the kitchen, including coffee brewers. What was unique about this event was that KitchenAid had unveiled its brand new electric pour-over coffee brewer (39). The pour-over has been a popular coffee brewing method within the third wave, and they have had no shortage of innovative products to brew coffee with, but this was the first time a large, mainstream company like KitchenAid had jumped into this once niche market, showing that third wave preferences are beginning to have an impact in the mainstream market (39).

In an article by Nick Cho, we are given another way that third wave coffee had changed the industry. With the growing preference for higher quality coffee the home-roaster market has grown tremendously. With this rise in demand suppliers of green coffee to home market’s such as Sweet Maria’s have expanded their business and offerings. Prior to these expanded home roasting selections

companies that wanted to roast coffee had to buy coffee in huge quantities which required a large capital investment, making the barrier of entry high enough to keep hobbyists out of the market (36). With green coffee available in smaller quantities, the barrier to entry has lowered significantly, and anyone with a small roaster can start their own roaster. Eventually, Sweet Maria’s expanded into Coffee Shrub to be a provider for green coffee to those roasters in between large-scale production roaster and home roaster (36). Now the market foundation has been laid where more and more cafes are opting out of buying wholesale and roasting their own instead. A “micro-roaster” is defined as a roaster that produces less than 100,000 pounds per year. With this new trend of people roasting just enough for their cafes we are talking about an entirely separate category which Nick Cho has termed the “nano-roaster” (36).

Andy Brennan, an IBISWorld senior beverage analyst explains that consumers are willing to pay a premium now for a high quality experience (40). Third wave coffee is growing fast and catching the interest of many groups including investment firms that have invested in companies like Blue Bottle, Intelligentsia, and Stumptown. Stumptown is now worth an estimated 52 million dollars (40). James Freeman, owner of Blue Bottle and described by some as the Steve Jobs of coffee, has over 45 million dollars of venture backing (35). There is a U.S. coffee market of over 30 billion dollars, and third wave shops are fighting to see who will get the largest chunk of that market (35). Even Starbucks has acquired a third wave café operating outside of the Starbucks brand to conduct research into third wave markets (35). Although, Stumptown executives say that Starbucks isn’t too worried about third wave shops cutting out its well-established market share (40). The potential expansion and competition of key players in this market is exciting, but before we go further into this topic we need to discuss two key issues in the third wave industry: careers and customer education.

As this is an industry that puts quality and sustainability at the center of its mission, having informed and educated customers is exceedingly important in order to foster loyalty among customers. The problem that often occurs is that in attempting to inform or educate consumers baristas can easily come off as arrogant coffee snobs and turn their customers away from specialty coffee. Various professionals in the industry have spoken and presented alternative models for education the consumer. One professional encourages baristas to read and engage customers at their level. Be able to know when it is that they just want a cup of coffee and no information (41). Baristas shouldn’t be too heavy with the information that they are presenting, and owners of cafes should strongly consider passive engagement instead of active. Passive education is where information is made available to a customer where they can engage with it as they please without baristas pressing them, such as pamphlets or books. One coffee shop had a set of glass jars on a table with coffee beans from different stages of the roasting process to help show consumers about how coffee is made (41). Popular industry blogger and world barista champion, James Hoffman, wrote about how he is generally conflicted as a consumer. One the one hand, he loves learning about new things and getting to experience how they work, but on the other hand, he hates it when he goes somewhere like a restaurant and servers try to talk down to him and give him irrelevant facts about the food he is enjoying (42). At first, he feels like this is contradictory to the goal of the industry, but he explains that baristas should not be forcing education on consumers and that ultimately the goal is to produce loyal customers and not well-informed customers. He admits that he always feels proud whenever a customer of his has finally noticed the factor that makes their cappuccinos better than the competition and a week later the customer returns complaining that they can’t enjoy anyone else’s drinks anymore (42). Finally, for those industry professionals who still can’t pick up on when it is and is not a good time to educate consumers, another industry professional even included the words “coffee education is boring” in the title of his article about marketing specialty coffee (43). After conducting market research in the U.K., this author

found that while customers did retain information from speaking with workers, they were typically not very interested in it. However, if they learned something by reading about it while waiting for their coffee they remembered it and were far more interested in it because they were not forced into learning that information (43).

Another core issue is that of employment in the specialty coffee industry. It doesn’t take a lot of industry research to realize that a large portion of the jobs in the industry are café and barista jobs, and these typically do not pay competitive wages. In his industry talk at the Nordic Barista Cup, industry expert and world barista champion James Hoffman talks about his greatest concern as a business owner for the specialty coffee industry (44). It seems there are a huge number of passionate individuals who love working in coffee but need to eventually leave because their barista job doesn’t pay a reasonable wage (44). Hoffman explains that if we want to retain this passion into longstanding careers, we need to be willing to ask difficult questions about finances and where the value is coming from. First, for all of the passion, enthusiasm, and knowledge that these professionals show we are often placing them in environments where instead of utilizing those qualities they are turned into glorified coffee brewers (4). If we want talented people to stay in the industry, then we need to provide them with jobs that utilize that talent. Another thing that Hoffman asked was whether or not customers care if these workers are retained. His answer was that if they do care then they need to be willing to pay to incentivize long-term employees (44). One of the biggest fears of business owners is that if they raise their prices then customers will leave, but in this case the waters need to be tested if the baristas are to have a chance at a livable wage (43).

It is still unclear whether or not barista should be a long-term profession. It seems clear that this job will never be financially lucrative, but the real issue is whether or not it can be held long-term by those who are genuinely passionate. America’s barista’s have an average salary of about 22 thousand dollars, which is 28 thousand below the U.S. median income (45). When looking at the numbers, many cafes have a difficult time as it is paying what they do. The average café has to make 1 million dollars in revenue to even begin paying reasonable wages, and some larger cafes in big cities set their revenue goals at 1 million just to break even (45). One café in New York, Everyman Espresso, was able to solve this problem by raising the prices of their drinks, but it is hard to tell how well this strategy would work for other shops (45). For those seeking a career in the industry, some of the best advice written by an industry professionals was that people looking to work in coffee should know exactly what it is that they want from the industry and what it is that they want to give, and they shouldn’t join the industry until they can answer that question (47).

As mentioned earlier, there has been tremendous growth in the third wave markets and certain industry players have had significant backing from venture capital. One such roaster is Blue Bottle Coffee, which has more than 45 million dollars invested in it from a wide variety of firms and investors in Silicon Valley (50). Many investors believe that Blue Bottle is the best bet in the third wave due to the authenticity and attitude promoted by the founder, James Freeman. There is an incredible attention to detail and control over the customer experience that he exhibits. Blue Bottle differs from its key competitors, Intelligentsia and Stumptown, in that it has a minimal wholesale program so it can maintain its complete control in its cafes. Shortly after receiving venture funding, Freeman invested it by acquiring two companies: Handsome Coffee Roasters in L.A. and a coffee subscription service called Tonx (50). One investor persuaded his firm to invest in Blue Bottle because he believes that third wave coffee is the most lucrative sector of the artisanal food movement (50).

While Blue Bottle seems to have won the hearts of Silicon Valley investment groups, Intelligentsia and Stumptown are in a fairly unique situation. Both of these companies had the majority

bought out by several large investment firms, and just after Stumptown was acquired by Peet’s Coffee and Tea, it was announced that Intelligentsia would also be acquired by Peet’s (51). Peet’s has announced that both of these brands will still be allowed to run independently and the key role of Peet’s will be to facilitate financial backing as these brands expand (51). Consumer perception of these acquisitions and investments has been mixed. Many consumers view these as signs that the brands are losing their authenticity and third wave is going mainstream. Other people are wondering if maybe America is moving past the Starbucks phase of coffee. One writer posed the question like this: “If Starbucks is the Microsoft of coffee, is Blue Bottle the Apple of coffee?” (51).

It seems that the space to compete to lead the third wave is getting tighter and tighter. While Stumptown, Intelligentsia, and Blue Bottle are leading the way in expansion, they are not the only companies fighting for a share of the market. There are a handful of other roasters that have had significant investment over the last five years (55). As we will discuss in a later section, even Starbucks has taken notice in this market and wants to get involved. It seems the only prominent roaster in this industry that doesn’t seem to care about market share is Counter Culture Coffee based in North Carolina (55). On observing this high-end market trend, IBISWorld states that more and more Americans are viewing coffee as an experience rather than a utilitarian pick-me-up. The key question is whether or not markets outside of the wealthy urban environments will be receptive (53).

One of the most interesting questions when observing this expansion is trying to figure out which direction this industry will go. Various experts have speculated on this problem, and in an article asking this very question, industry professionals are asked to give their thoughts. A representative from Stumptown believes that we are in the beginning of innovation with cold coffee. We finally have ways to optimally brew cold coffee and bottle it and now we can experiment with different ingredients and recipes. Any flavor that goes well with coffee, whether chocolate, milk, fruit, or even one shop’s recipe with hops can be used. Cold coffee has even been stored in kegs normally used for beer. Years ago bars would only have three or four kegs on tap, but now they have 20, 30, or even more. It may be this way with cold coffee at cafes (54). Signature drinks may play a role in the future. Initially, the third wave was against flavored lattes, but now they have their own variation. The issue wasn’t necessarily the flavors. The issue was the mass produced syrups, and these new signature drinks are the equivalent of high-end cocktails with their fresh herbs and ingredients (54). There are numerous other predictions about the industry made by professionals, some of which sound reasonable and others sound insane. One industry professional explained his thoughts by explaining that if the last forty years in coffee were about tradition then the next era of coffee is going to be about innovation and breaking all of the rules (52).

There are two products in particular that I want to highlight for how the third wave is likely to progress in the coming years: bottled cold brew coffee and pre-ground coffee packets.

First, anyone paying attention to the third wave in recent years has likely noticed an explosion in cold brew coffee offered by Stumptown Coffee and Blue Bottle. Even if someone is not paying attention to coffee, if they live in a large city or shop at whole foods they have likely noticed bottles of these drinks. There has been significant expansion of these products since investment began in these roasters. A Mintel report shows that there was a 115% growth in the cold brew beverage market from 2014 to 2015 (59). After Stumptown began selling its cold brew, Blue Bottle began selling its own New Orleans Iced Coffee in Whole Foods (56). Other companies like Black Medicine and Project Juice have also begun entering the cold brew coffee market (56). This bottled beverage market is one area where these ventures could pose a threat to some of Starbucks market share (56). One concern posed by some people with Stumptown and Blue Bottle is that this seems more like they are trying to become another Starbucks. The writer of one article asked this question: “Can James Freeman turn Blue Bottle into

Starbucks without turning it into Starbucks? (56)” With market concerns still in mind, although the Mintel report did report significant growth within the last year, it also noted that much of the market for these cold brew beverages is made up of millenials whose motivation to buy these drinks is trying and experiencing new things, so it is likely that if a new product was to emerge then customer attention would be drawn away from cold brew (59).

The second product, pre-ground coffee packets, is a lesser known product to watch in this industry. An article in the coffee news website Sprudge covers a new San Francisco startup called Perfect Coffee. The founder of Perfect Coffee became extremely interested in third wave coffee and realized that the problem of brewing the perfect cup of coffee was simply just a chemical engineering problem (57). All of the variables in coffee brewing were perfectly set except for grinding. Grinding is the only variable that can’t easily be measured and standardized (57). He realized that he had two problems to solve: 1. Figure out how to easily measure and replicate whatever grind size a company uses for their coffee, and 2. Find a way to make pre-ground coffee shelf stable (57). As one could imagine, the first problem seemed a lot more interesting to professionals in the industry. Eventually both goals were met. The goal of pre-grinding coffee was met through a variety of techniques, but the key factor that made the difference was that they packaged the coffee in individual brewing packets rather than one large container where most of the coffee would go bad after it has been opened (57). The testing for this product was done with Blue Bottle and Chromatic coffee (57). In 2015, Blue Bottle acquired Perfect Coffee. This process was a unique and humbling experience for the founder of Blue Bottle. While being interviewed about the acquisition, James Freeman explained that when he first found out that his coffee was being used to test pre-ground coffee he was furious, then after calming down he decided to try it (58). He was blown away by how the packets were nearly as good as the fresh ground coffee. In taste test after taste test his team could never consistently pick out which coffee was which (58). Shortly after deciding to make the acquisition, Freeman had a moment where he realized just how great this new product would be. His family was driving up to their cabin outside of San Francisco and he realized that he forgot to bring his coffee. He then realized they had a few packets of Perfect Coffee. He brewed a few cups and his enjoyment of this coffee helped him realize that the quality of this product matched with its convenience is a significant step in competing and offering alternatives to instant coffee and k-cups (58). After all, the market of consumers seeking convenience is the key market that the third wave has yet to truly reach.

I mentioned earlier in this paper that Starbucks was beginning to take interest in the markets created by the third wave. In late 2014 and early 2015, Starbucks began selling online subscriptions of their “Starbucks Reserve” coffees, which are designed to compete with third wave roasters through higher quality coffees (62). It seemed based on the type of strategy Starbucks was pursuing that they were gathering significant inspiration from Blue Bottle (62). As they progressed they announced that they would be opening a roaster and tasting room specifically to highlight these Reserve coffees. Starbucks officials insisted that this move was not third wave. They used terms like “super-premium,” “reserve,” and “small-lot,” but the elephant in the room was still third wave coffee (61). Upon the opening of the Starbucks Reserve Roastery and Tasting Room, a writer on staff for Sprudge Coffee News, which typically focuses on third wave coffee news, wrote a full article about the location (60). The writer described it as an increasingly blurry line between independent coffee culture and corporate coffee progress. The shop is 15,600 square feet and built to LEED (Leadership in Energy and Environmental Design) specifications. There are two levels with an espresso and brewed coffee “megabar” on the second floor as well as another full espresso bar with manual coffee brewing stations on the first floor. There is a gift shop with ceramics and pottery from some of Seattle’s finest artisans, an ice cream shop, baked goods and salads made fresh, and a pizza restaurant from Seattle celebrity chef, Tom Douglass.

The building has two different coffee roasters, four different espressos available and six different coffees to be manually brewed (60). The list goes on for awhile, and the writer even mentions in the article that he has gone over his word limit, but the key point to take away is that Starbucks has been watching the third wave closely and has spared no expense in equipment, architecture, technique, and practice, to mimic the best of the best in the industry (60). Starbucks would not comment on how much was spent on the location, but after doing a quick estimate of the equipment in the building, the writer estimated that the equipment alone cost over a million dollars (60).

Importers and Direct Trade Roasters:

With a basic understanding of the consumer as well as the third wave coffee industry, there is one more link in the supply chain to examine before viewing the farmer perspective: green importers and direct trade roasters.

In order to properly understand the discussion around these key players, there needs to be an adequate understanding around the terms “fair trade” and “direct trade.” Fair Trade is an official certification system promoted by Fair Trade U.S.A. and other organizations while “Direct Trade” is a term with a definition that varies depending on the roaster that is using it. There is no certification for direct trade (64). ). It seems like due to the standardized nature of fair trade that most people will either be on one side or another, but when it comes to direct trade there are a wide variety of opinions. In an article interviewing various green coffee buyers and professionals about direct trade, Geoff Watts of Intelligentsia and a handful of other professionals give their thoughts on direct trade ((63). The foundations for Intelligentsia’s direct trade program were laid in 2001 when they began making trips to Guatemala and Mexico (63). By 2008, Intelligentsia had developed a network of over thirty different farms in eighteen different countries (63). The initial motivation for this direct trade was a frustration at not being able to get the type of coffees or transparency in the supply chain that they wanted from their importers (63). When asked to define direct trade, Watts gave an incredibly long and complex definition. At the core of Watts idea of direct trade is that it is more of a philosophy of buying rather than a program or practice (63). Direct trade is the concept of building a relationship with farmers that lasts for more than just one harvest. This relationship will help provide financial investment that improve the quality over the years and is beneficial for all parties involved (63). Watts was asked about direct trade as an altruistic venture. He does not believe that companies should engage in altruistic ventures. Instead, he believes that they should engage in ventures that are mutually beneficial to the farmer and the roaster (63). This idea is core to his beliefs because it is what makes this program economically sustainable. If it is altruistic then it would just be another charity and its benefits would only last as long as people are willing to give with nothing in return. Upon being asked about the fact that direct trade isn’t an official certification and can be taken advantage of by unscrupulous companies, Watts responded that he thinks there will always be companies that try and take advantage of industry terms to seem more ethical than they really are, and there really isn’t a lot that we can do about that. The best that a company can hope to do is to be as up front and honest with the consumers as possible and hope that they will be discerning when it comes to ethical practices (36). He went on to explain that in the early days of Intelligentsia buying direct trade he would post lengthy papers on the website explaining in-depth detail of the companies buying practices along the supply chain. The problem was that almost no one ever read these documents, and whenever he would point people to them they would ask if he had a shorter way to explain it (36). Eventually Intelligentsia began using the term direct trade to encapsulate the overall philosophy and buying practices of the company. Watts feels that it would be bad to create an official direct trade certification for the industry because each roaster and producer has their own set of needs that can’t always be met with an overarching set of rules. To create rules for direct trade would be to make it static and destroy its ability to evolve over time and meet the needs of farmers on the supply chain (36). It seems sad at times that customers want proof that a company is doing social good, but when they ask about a problem they only want short and simple answers. Unfortunately, this is a reality that ethical business owners will need to face as the back and forth between ethical companies and those that only market ethics will be with us for far longer than we would like.

This discussion about marketing and ethical practices leads us into the dangerous realm of green-washing, where companies mislead consumers to believe their products are ethical or environmentally friendly. Green marketing makes up a significant portion of the nearly 150 billion dollar U.S. advertising and marketing industry (67). There is often a consumer backlash when they begin to suspect a company of green-washing (67) In general, it is important to follow the money that a company receives to find out where their real motivations lie. In some cases companies have marketed sustainable products when all they were really doing was following laws and regulations that were already in place (67). Properly informing consumers about your ethical practices without being accused of green-washing has in some instances been compared to walking a tightrope. A key way to avoid consumer backlash is to remain humble about product claims. Companies that market their products as being the most important thing for saving the world are opening themselves up for attacks from the public, while companies that simply state the facts and nothing more about their product will win loyal consumer bases (65). There are also organizations such as NSF International that offer guidelines and tips for better and more accurate communication about sustainability between companies and consumers (66). The key thing for companies to understand is that sustainability is not the core reason they sell their product. Their product is sold because of its value proposition, and any features that make it ethical or sustainable should be the standard and not the key feature. A great example is with consumers and electric cars. Consumers do not buy electric cars to save the world; they buy electric cars to move from place to place, and they purchase the electric option because it coincides with their values and standards. With this in mind, companies that make ethical practices the core of what they do will eventually fail because they have forgotten their value to the customer, but companies that make ethical practices the standard or prerequisite with whatever they do will succeed because they realize that sustainability is not the product, it is a part of the product.

In this paper we have described a wide variety of issues and claims about what the best methods are for supporting producers. For both direct and fair trade models, I have found articles supporting and criticizing them. I have presented benefits of paying premiums for quality, but, as we have already seen in some instances and will cover further when we discuss the farmers, the model of paying premiums for quality is also not always a perfect model. In reading about a wide variety of strategies from importers and direct trade roasters I have concluded that while certifications, quality premiums in purchasing, cutting out the middlemen, and various other popular strategies are certainly moving the industry in a positive direction, there are two underlying factors that I believe will lead and make the difference between those who say they are ethical and sustainable, and those who are actually leading the way in better practices: greater transparency and long-term relationships with suppliers.

It can be easy at times to simply assume that cutting out middlemen or raising quality to differentiate farmers’ coffees will fix all of the problems. It can also be easy to assume that all middlemen along the supply chain are willingly making decisions to keep farmers in poverty. The “coyote,” which is a common term for middlemen that pay far below market value for coffees is often portrayed as a villain that wishes to keep the farmer in poverty and prevent any information from being passed along (68). However, in some cases these coyotes are equally as ignorant about the market price as the farmers are. In one case in particular, a coyote middleman was simply another smallholder farmer that would transport all of his neighbors’ coffees to the mill where they would be bought and processed. In this case, he was only slightly less ignorant of market prices than his neighbors and his neighbors considered him to be doing a vital service (68). At times, it is tempting to view a system as being run by a group of inherently good heroes and inherently bad villains, but perhaps the reality along the supply chain is a long chain of uninformed individuals who are only given just enough information to

accomplish their specialized task. In this case, when we speak about cutting out the middleman, while this is a great idea for improving the payment to farmers, we also need to ask ourselves what the role of that middleman was and how we are keeping that service in tact while paying better wages to the farmers (68). Another key factor to keep in mind is that simply cutting out the middlemen to establish a direct channel does not always meet the goals it sets out to. Many large multi-national corporations have already found ways to cut out parts of the supply chain and go directly to the farmer, but it doesn’t necessarily follow that this will mean higher wages for the farmers. Often times this just helps the company lower their costs (68). This goes back to our earlier example of cheap coffee versus expensive coffee. You can generally be certain that if a bag of coffee is sold for a cheap price that the farmer was likely not paid a very high wage, but this does not mean that an expensive coffee always equals higher wages for the farmer. The key, in this instance is not just shorter supply chains but transparent supply chains. When companies and organizations make claims about the ethics or sustainability of their products, we will never know for sure until we can actually see the tangible and reliable data along the supply chain. Transparency for all parties involved from the consumer to the farmer is the only way that we can begin to make real progress for a better and more equitable supply chain.

Two companies that I would like to highlight for their efforts in leading the industry with transparency and long-term relationships are Counter Culture Coffee and Bird Rock Coffee Roasters. Many companies will provide pictures and stories about the farmers that grew their coffee on their websites, but they will oftentimes not be very forthcoming with the quantitative data such as exactly how much the farmers are being paid. Counter Culture was a leader in the industry by beginning to publish a yearly transparency report giving the numbers of how much different farms were paid from year to year as well as other data such as the quality or cupping score that the coffee received, and Bird Rock was among some of the first roasters to follow the transparency report model set by Counter Culture (69)(70). With each new year of purchasing coffee, Counter Culture has been able to go even more in-depth with the data in their transparency reports (69). In the 2014 transparency report, the average price paid for coffee was $3.37 compared with the $2.03 average commodity market. These prices listed are the FOB (free on board) prices, which is the amount paid for the coffee at the time of export (69). The Counter Culture website goes on to explain to consumers how to interpret this price. It is generally below the final price paid by the roaster or importer and it is generally above the price paid to the farmers (69). As this is the most commonly used number to discuss green coffee prices, it is an ideal starting point for roasters and importers wishing to begin the process of transparency. The FOB price is an example of how Counter Culture wishes to improve the detail and depth of their data with each new year of the transparency reports (69). Within these reports Counter Culture also includes the number of years that they have partnered with specific farms. In this case, their longest partnership has been twelve years (69). I have covered earlier that there is no specific direct trade certification. Counter Culture has a somewhat unique way of solving this problem. They have established their own clearly defined rules for what they will and will not consider direct trade certified and have even gone so far as to hire third-party auditing firms to check and back their claims up (69)(70). In an earlier section, we covered how Geoff Watts was unsuccessful with publishing large reports because consumers were not interested in reading long reports on ethical buying practices. They wanted simple and easy marketing. Counter Culture is no exception in this case. They fully acknowledge that gaining the full attention of their readers is a challenge and that the key readers of the transparency reports are generally farmers and other groups along the supply chain. However, Counter Culture believes that it is not only the job of a company to meet the demand of consumers but also to help shape the demand of the consumers. In this case, they are finding ways to bring these reports to the full attention of consumers that visit their website rather than shuffling them to the back of a group of articles (69). This may not receive the immediate attention that industry professionals would hope, but it does begin the process of getting the

consumer’s attention on a deeper level. While representatives from Counter Culture recognize that consumers may not yet be fully equipped to make meaning out of the numbers and information they post, they believe that bringing this information into the light is essential to begin a dialogue among all parties involved (69).

Another roaster that has stepped forward with transparency reports in their direct trade program is Bird Rock Coffee Roasters. They cite and refer to Counter Culture as a heavy influence and leader when it comes to how they handle their transparency and ethical buying decisions (70). As this is a company that has not yet achieved the scale of Counter Culture or the experience in international trade, they have yet to obtain their entire selection of coffees from direct trade (70). Because of this, it is primarily their Central and South American Coffees that are presented in their transparency reports (70). They hope to expand their buying practices over the years and produce these reports on all of the coffee they sell (70). They also include breakdowns of certain portions of price to show where money is going. In this instance, one coffee that they purchased alongside other direct trade roasters had an additional five cents added per pound in order to go to a clean water project in the area (70). They also discuss a longstanding five year relationship with a farm in El Salvador that began when they purchased certain experimental lots for above market value (70). Finally, their summary of the transparency report provides some brief observations that while for a number of years the price of specialty coffee has been based in comparison with the commodity market price, it is finally starting to move into a category of its own that is not dependant on global coffee prices. As this trend continues it will likely lead to more stable prices paid to farmers of specialty farmers rather than the wild fluctuations that the commodity market is prone to (70).

It has become increasingly popular over the years for consumers of specialty coffee to seek out roasters that market their brand as direct trade. This has been a positive trend for all parties involved, but it is also important not to get caught up in the marketing as this trend continues to develop. In this case, the rise of direct trade coffee has led to somewhat of a demonization of importers because of the lack of transparency in the past. However, it is vital that we realize that there were specific reasons why the importers in the past were doing a poor job, and many of those reasons are not inherently connected or limited to green importers. Even direct trade roasters can fall prey to many of the harmful practices from importers in the past if they do not maintain their transparency. As for the issue of cutting out the middlemen, many direct trade roasters still need to work with third-party firms in order to import their coffee. Even Bird Rock Coffee Roasters and Counter Culture Coffee, some of the leaders in transparency, listing their prices as FOB prices acknowledged that this is a price between what the roaster pays and what the farmer is paid. The difference between these prices has to go somewhere and that is the supply chain. The question is not whether or not money is paid along the supply chain but whether or not it is spent in an equitable and transparent manner, and green importers, if they adhere to these principles of equitable payment and transparency in practices may serve a vital function and value in the industry.

Two companies that exemplify these values in the industry are Café Imports and Sustainable Harvest. Café Imports has been importing coffee into the United States since 1993, and among their driving principles are maintaining long-term relationships that are beneficial for all parties along the supply chain (72). They regularly engage in educational initiatives, quality incentive programs, and financial and health projects in the communities where their coffee is grown (72). As they are primarily geared towards specialty markets, they have an incredibly highly developed sensory analysis teams that continually cups coffees for quality in order to be the bridge between quality growers and quality roasters (72). Their staff is also highly involved in various industry trade organizations and participates in bringing their knowledge and experience to the next generation of coffee professionals (72). Sustainable

Harvest started about fifteen years ago in the early 2000’s (73). They were a pioneer in the relationship coffee model and collaborate closely with all members along their supply chain to benefit all parties (73). They are also among the companies that are leading the way in transparency and traceability (73). One key concern and area of involvement for Sustainable Harvest is that as climate change continues to affect our planet the global supply of coffee will be significantly impacted. They are working closely with farmers throughout the world in order to help prepare and mitigate the potential damage caused by this threat (73).

In an article titled “The Direct Selectors,” Noah Namowicz from Café Imports describes the problems that can occur if consumers blindly follow direct trade marketing and forget the vital function that importers play in the market. He explains that for a long time in the industry, coffee importers were often viewed as “the man” (71). He talks about old commercials for diamonds that he used to see where they would sell diamonds for incredibly low prices by cutting out the middleman. This seemed like an easy sell, and when it came time for him to purchase diamonds he didn’t really need to think too much about where the low price really came from (71). In the article, Namowicz makes it clear that he is not attacking all direct trade roasters and certainly is not attacking coffee professionals going to the source and meeting the farmers. He believes that having communication between roasters and farmers is one of the most important things that our industry needs for better practices along the supply chain (71). The problem that he has really comes when lots of small roasters who want the best of the best coffee year after year will go to origin and “cherry-pick” the coffees they want with no guarantee that a relationship will be established (71). This practice carries all of the benefit for the roaster with little benefit for the farmer. The roaster is able to put the direct trade stamp on their coffees while serving the best possible micro-lots without any further commitment of purchases in the years to come (71). Furthermore, as this farmer will only be selling one or two lots to this roaster they still need to figure out what to do with the rest of their crop, which will typically be sold on the commodity market (71). Oftentimes what the farmers want and need goes far beyond receiving extra payment for one or two lots for one or two growing seasons. They are looking for stability. These farmers need to be able to have access to financing and investment that will help them reach that same level of quality year after year. They need reliable partners that will continue to buy their coffee even when the new crop doesn’t quite live up to the standards of the last crop (71). Simply paying more for one year of good coffee is nice, but collaborating and investing to consistently produce better crops year after year is a significantly better proposition. Noah Nomwicz makes the argument in his article that because of the size and scope of Café Imports and because it is independently owned it is able to meet these needs. Café Imports has the financial and logistical resources that many small roasters simply do not. They are able to partner with and pre-finance certain lots and crops of coffee. They can commit to purchasing coffee even when it doesn’t meet their initial expectation because they know this is about long-term relationships rather than one good crop. Also, because they sell to a wide variety of roasters they are able to find buyers even for the coffees that did not come out as high-end excellent micro-lots. There is a whole range of quality in-between commodity quality and micro-lot quality, and this is the range that is often overlooked by small direct trade roasters (71). Café Imports also invests in providing sample roasters for farmers and teaching them how to roast and cup coffees so that they are aware of how farming methods impact taste (71). Oftentimes if a micro-lot comes in to the warehouse with a cupping score of less than 85 Café Imports will lose money on that lot, and that is a financial hit that they are able to take and many small roasters cannot (71). Overall, just as there is a new generation of coffee roasters sourcing coffee there is also a new generation of importers partnering with quality farms. Rather than grouping different categories of the market into “good” or “bad” and simplifying issues we need to remember that all players have a key function and specialized value in the supply chain. We ultimately

want to move toward a supply chain where each member is holding the other members in check rather than simply taking over each others’ functions.

In this case, moving beyond transparency and making that a prerequisite for all buyers of coffee, we need to evaluate the direct trade buying programs of roasters based on whether or not they are maintaining these long-term relationships with producers and reinvesting in the farms to produce better infrastructure. Larger and more established roasters such as Intelligentsia, Stumptown, Counter Culture, and Blue Bottle may be able to maintain and support these relationships while smaller roasters that focus on micro-lots and extremely high-end coffee may need to partner with an importer. If a smaller roaster wants to be able to effectively impact farmers on the supply chain with direct trade then they need to be willing to invest in long-term relationships with the farmers. One great example of this is Zion Coffee in Peoria, Illinois. When I met with one of the owners, Mike Hatfield, we discussed numerous aspects of their business as well as how they planned to move forward with direct trade. He made it clear that they want to be about both quality and developing relationships with producers. However, in our discussions he also stressed the belief and need for them to maintain these relationships rather than going from farm to farm. If a small roaster wishes to engage in direct trade, then this long-term relationship is the type of model that needs to be embraced, but if they are going to lean more towards jumping back and forth between micro-lots from year to year, then it seems like the best solution for all parties involved would be to seek out a quality importer that upholds these standards of transparency and long-term relationships.

It seems increasingly clear when observing the industry that these trends of transparency and building relationships will only increase as the market progresses. To finish off this section I want to briefly bring up two factors that I believe have greatly influenced the rise in these better practices in coffee buying.

The first factor may seem like an odd cause for better buying. In the past roasters were extremely limited in the options they could receive from their importers (76). Importers were not willing to send samples of coffee to the roaster before purchase and the information given was minimal at best. If a roaster purchased a bag of coffee that did not meet their quality standards then they would generally have to consider that a loss (76). Today, roasters have significantly more buying power and information when speaking with their green coffee importers. If an importer is unwilling to provide samples before purchase or refund for coffees that did not meet expectations then the roaster is free to choose among numerous other coffee importers to purchase from (76). Today’s small coffee roaster has significantly higher standards from their importers from the quality of the coffee to the information they receive about the farms. This new movement in transparency and quality has raised the bar for all green coffee importers and forced them to rethink how they approach the market as a whole (76). I believe that this dramatic increase for transparency and communication between the roasters and the coffee importers has fed back into the relationships between the importers and the farmers. The importers cannot communicate effectively to the roasters if they have not gathered accurate information about the farmers, and they cannot gather that information without going and speaking directly with the producers. It seems in this case that even demanding a little bit of transparency on one end of the supply chain can ultimately contribute towards better transparency across the whole supply chain.

The second factor that I believe has aided tremendously to the rise in transparency and better buying practices is the rise of technology and the internet. In an interview with a coffee buyer that had been in the industry for over thirty years, technology was listed as the single greatest factor to change how coffee farmers managed their business (75). With access to the internet farmers finally were able to get information about markets and supply chains that had been hidden from them for years (75). Better

transportation has also allowed for better supply chains to open up (75). With the rise of the internet, new mobile applications for tracking information, and various other technologies, farmers and producers finally have access to information about supply chains, market forces, farming practices, and even the current market price for coffee (74). Earlier I mentioned how many farmers and even coyotes were ignorant of the current market price and did not have access to the information. With the rapidly changing landscape of information being provided by technology, these realities that existed within the last five years are quickly becoming irrelevant, completely changing the layout of how we study and understand market forces. Through this rise in technology, farmers will no longer be cut off from supply chains and they will never again need to be left out of vital information about market prices that they should be receiving for their crops. It is exciting to see how many of the issues being addressed in this paper are already in the midst of a revolution through the advancement of communication and technologies.

Farmers and Producers:

The coffee farmer is likely the most difficult and complex to get a full and accurate understanding of. To make the problem even harder, it has become increasingly difficult to tell the story of the coffee farmer without condensing it down into a very simple and generic image of impoverished people in the developing world. No doubt, it would be more than accurate to describe the typical farmer as being with little to no financial means at hand, but this standardized imagery leads to two problems. First, it prevents the average person from seeing the complex nature of the global economy and political landscape which makes the most creative solution available to be simply “just give more money,” and second, this simplified imagery turns coffee farmers into individuals with no control or power over their direction in life and puts one-hundred percent of the responsibility for solving these problems in the hands of the developed world. Unfortunately, some who read that latter statement may interpret it as meaning that we should leave the solutions to the problem entirely in the hands of farmers with no responsibility from the consuming end of the supply chain, or it may be interpreted that we should simply just let the market work itself out and everything will be fine for all parties involved. These are both false conclusions and as we will see from a presentation by Ric Rhinehart, the former Executive Director of the SCAA, if we don’t start coming up with some very creative solutions soon then the balance of supply and demand for coffee worldwide will lead to unbelievable skyrocketing prices. What we do need is collaboration between all parties involved in the supply chain. From the consumer all the way to the farmer, collaboration, understanding, and development of creative solutions are how we will tackle the problems that are faced in the global supply chain. And right now, one of the most important things that we can do from the consuming end of the supply chain is to step back and try to truly understand the situation and needs of the farmers and producers of coffee. This is certainly the most complex of the various elements of study in the paper, and I will barely begin to address the numerous issues and solutions proposed in this area. My overall goal, as with much of the rest of this paper, is to briefly introduce the reader to a handful of the core issues in discussion today as well as clear up some common misunderstandings or false ideas that some on the consuming end of the supply chain may have about coffee farmers and producers.

In his SCAA Re;Co Symposium talk, Ric Rhinehart, former Executive Director of the SCAA, gave a brief overview of some of the issues that face the global coffee market in the coming years. He spoke about climate change, volatile market prices, and leaf rust, a disease attacking many farmers’ crops in Central and South America (83). The core of his presentation focused on the value of coffee and where the money is distributed in the global supply chain. Rather than presenting charts and data to his

audience, he walked his listeners through some basic math with the rough estimates of the total supply of coffee in the world with the number of producers and the amount of money spent. Once again, he was primarily using rough estimates with lots of round numbers and mental math. With about 13 billion pounds of green coffee produced in the past year, an average commodity price of $1.50 per pound, with about 20 million families producing coffee, roughly 100 million producers, and assuming that the money paid for that coffee is spread out evenly among the producers, we can count on the average coffee producer making just over 50 cents per day, leaving them below the world poverty level (83). We know that as the markets in these countries continue to develop more and more farmers are leaving coffee production to move to cities and get better paying jobs (83). Simply by looking at the math, and realizing that the global demand for coffee is rising while more and more farmers are leaving the business, it is inconceivable to think that prices will remain this low for any significant period of time. It is also inconceivable to think that any farmers will want to stay in the market if they stay anywhere near these levels. Even the extra dollar or two provided by programs like fair trade or quality incentives by specialty buyers seem miniscule when it come to the amount that prices would need to increase in order to bring these farmers out of poverty. As Ric Rhinehart points out in his presentation, however, it seems unlikely that the global market will be able to support a price of $15 or more for green coffee (83). This was a very open ended presentation with no clear solution in sight. It was merely trying to paint a picture for the audience of the elephant in the room that is global poverty among coffee farmers. Ultimately, we need to learn how to make this a more equitable industry for the producers if you want them to stay. Rhonehart focused much of his presentation of figuring out how we can increase the value of the coffee experience for customers in order for them to be willing to pay more for their coffee (83). I believe that this is a valid avenue. However, my key takeaway from this problem is that we will need some significant entrepreneurial thinking and innovative solutions from all avenues including economic and agronomic ways to combat this problem. It is likely that the future of coffee production will look radically different in ten to twenty years than it has in the past hundred years, and we need to begin planning for this change.

While we wait and develop solutions for the eventual shift of global supply and demand for coffee, many researchers, as well as the SCAA are trying to find ways to help reduce rates of poverty and hunger for coffee farmers right now. In a report from the SCAA Sustainability Council, an overview is given for the typical coffee farmer with poverty and hunger. In general, these farmers only receive one key payment for their coffee per year, and making this last throughout the entire year is impossible for most farmers (80). Many of these farmers are forced with having to decide between feeding their families, maintaining a shelter for living, and investing in equipment and supplies for future crops (80). Oftentimes it is the need for food that goes unmet. It is not uncommon to see malnourished farmers and pickers working on the farms (80). Multiple Non-Governmental Organizations have gotten involved and have provided channels in which businesses can help address the problems (80). The green coffee importer Sustainable Harvest, has also created numerous educational platforms to help educate industry professionals as well as getting them involved in solutions (80). One of the key methods for helping these farmers avoid this poverty, especially the seasonal poverty associated with one payment per year has been to aid the farmers in diversifying what crops they grow. One successful strategy has been for farmers to keep bees in order to make honey. This creates a symbiotic relationship as the bees thrive off the flowers from the coffee tree. Also, the global price of honey is far more stable than the global price of coffee so the farmers have a reliable source of income during years when coffee prices are low (80).

In another Re;Co Symposium talk, researcher Pierre Ferrari discussed this problem of poverty among farmers as well as the partial solution of diversification of crops. He explained that the world’s

coffee farmers are not waiting around for the rest of the world to help them out of this poverty. Instead, many of them are leaving the coffee trade and moving into cities in search of better work (79). In agreement with the report written by the SCAA he proposes diversification of crops ranging from fish, beans, and also the earlier proposed strategy of keeping bees to make honey (79). He encouraged all direct traders and importers of green coffee to work closely with these farmers in diversifying their crops otherwise they will leave the industry entirely (79). As with many of the presentations and papers on this issue of poverty among farmers and the global supply chain of coffee, we are only in the beginning stages of understanding the problems ahead of us and knowing how to solve them. As with the presentation by Rich Rhinehart, this presentation also ended with the question of how we are going to solve these global issues and encouraged those listening to seek out truly beneficial and innovative solutions to these problems.

In an interview about the economics of coffee supply chains in Indonesia, Jeff Nielson, global poverty and coffee researcher, explained some of the findings of his research during his time in Indonesia. First, he spoke about large multi-national corporations purchasing coffee from these farmers as well as ethical guidelines and certifications that must be met. While we often think of these ethical guidelines as beneficial primarily to farmers, in this case they would often hurt the farmers. Some of the guidelines were difficult for small family farms to maintain, and keeping track of them with records would take extra work for the farmers (77). In general, following, maintaining, and keeping track of guidelines has a cost, and that cost is often passed along to the farmers (77). In many cases the farms that have the easiest time maintaining and keeping track of these guidelines are the farms that are entirely run by the multi-national corporations. We often forget that the guidelines and regulations to help farmers in foreign countries were almost never written by the farmers themselves. Instead, they were written by people in consumer countries who already felt they had a solid grasp on the issues and the solutions. Unfortunately, we can see by the discussion and research today that there is still a great deal of research to be done before we have a clear idea as to how we can solve these problems, and the first step is likely to get feedback and input from the farmers themselves (77). So far as Jeff Nielson’s studies have seen, the largest benefit of these ethical regulations is the marketing and branding advantage that it gives them when they sell their coffee in consuming countries (77). Nielson also talks about how consumer demand for sustainably grown coffee gives a market advantage to the large companies that have a better understanding of marketing sustainability (77). This isn’t to say that sustainability isn’t good, but it does mean that we need to be aware of what the real-world impacts of our consumer market demands are. Finally, Nielson is particularly interested in more direct channels created by specialty coffee markets and allowing for differentiation between farmers (77). This will be a large portion of his study between 2014 and 2018 as he attempts to research the perceived benefits of specialty coffee markets to the producers. Once again, as with other speakers and researchers on the subject, Nielson echoes the findings that many coffee producers do not consider this a financially viable lifestyle and have plans to eventually leave their farms behind in search of better jobs in cities, raising the question of where the global supply chain will be based in the next twenty years (77).

With specialty markets creating a new range of options for farmers as they decide how they grow their coffee and who to sell it to, we need to understand their perspective as they receive feedback from growers. Michael Sheridan, In his SCAA Re;Co Symposium talk, asks the question of whether farmers should be planting Castillo or caturra varieties of coffee plants. He began by telling stories of how members of drug cartels would force Columbian farmers to plant coca plants around their crops while the government would then burn down the crops because of the coca plants. These farmers had little control over their crops and had multiple forces around them telling them what they should do with their land (81). While reassuring his audience that the issues are not quite as serious as drug cartels

forcing the farmers to grow narcotics, he does show how the industry is presenting conflicting and uncertain messages for the farmers. From one side, farmers are receiving the message to plant Castillo because it is resistant to coffee leaf rust and will give them a better yield for future crops, and on the other side, specialty producers are telling them that if they plant caturra varieties then their coffee might be better and they might receive a premium for it (81). From the farmer’s perspective, that is a lot of maybes on the specialty end with a high risk of having a low yielding crop. It is easy from the specialty coffee perspective to simply think that the only thing that matters is growing the best tasting coffee possible, but the farmer’s perspective is that they just want some certainty that they will be paid well during the next harvest and for years after that, and the specialty buyers are giving no such guarantee (81). Many farmers ended up going with Castillo anyway because the Columbian government made it easy to financially to invest in this disease-resistant crop (81). The question that kept bugging Michael Sheridan, however, was whether or not caturra actually did taste better than Castillo when grown and process in the same conditions. He conducted a small-scale study where around twenty different farms grew lots of Castillo and caturra side by side and separated them upon processing. He then brought in a small group of expert tasters from the industry and had them do blind tastings of all of the different coffees (81). The end result was that while the coffees did have different flavor profiles the preference for each of them was not statistically significant. Sheridan was quick to point out the small-scale of this study and how we can’t really make any definitive statements of those two varieties based on this study alone. Although, many roasters did express relief at this initial finding because they knew they would have to buy Castillo anyway, so at least it still tastes really good (81). A year later Michael Sheridan gave another talk where he analyzed the response to his initial talk. Overall, he was severely misinterpreted. Many people reported him as saying that the two varieties tasted the same. They did not taste the same, but the preference for them was about the same (82). He also reiterated the statistical insignificance of the study because of how small it was (82). Overall, the key point of the study was not about the differences between Castillo and caturra, rather, the key point of the study was that as an industry we need to be careful when we make assumptions about what farmers should or should not grow because while we base our opinions on barely researched subjective taste these farmers depend on these crops as their livelihood. Also, there was no indictment of those roasters that insist on having 100% caturra lots. Instead, he merely pointed out that if you want what you perceive to be higher quality then you need to be willing to invest in the farmers and pay a risk premium as well as a quality premium when they plant the crop that you want. If we want this to be a differentiated product then we need to be willing to pay differentiated price scales.

We have covered a lot about direct trade and briefly touched on the subject of fair trade coffee in this paper. While I do not want to make this paper about fair trade versus direct trade, nor do I believe that this is an either/or issue, I do want to briefly make the reader aware of some of the key issues and complaints that have arisen around fair trade over the years.

First, there is a general misconception around consumers that when a roaster charges $12 for a bag of coffee while the global coffee price is $1.50 that the roaster just made $10.50 in profit. Roasters generally take on all costs after the import of the coffee. This includes fixed costs like overhead as well as maintenance, storage, and paying workers such as roasters and baristas (84). Upon roasting, about 18% of the coffee weight is lost, which detracts significantly from the amount that they would receive in sales per pound (84). Certain excessive estimates for the amount that cafes make for brewed coffee are above $150 per pound, however, when looking at the standard café setup with the average prices for brewed coffee and the typical amount of coffee used to fill an airpot, the typical profit for a pound of coffee in a café ends up being around $30 (84). These numbers are just rough estimates based on the average café in the United States, and it would be worthwhile to conduct a large-scale study of cafes

throughout the entire country in order to get an index of the profit ranges that cafes make per pound of coffee they use. However, the key lesson here is that while roasters do earn a higher profit margin than the farmers, after including the cost of operations for each business it is not as simple as a group of roasters hoarding all of the money in a supply chain. Their cost of operations are incredibly high compared to the producers. It should be made clear that this does not justify the lack of equity between partners in the supply chain, but it does show that the problem is not one of a handful of roasters or importers that are hoarding the supply of cash. Rather, this is a complex problem of large economies and vast economic systems that needs to be addressed with broad and innovative solutions before market forces begin to take over and cause problems for these businesses.

In an article from Stanford University, “The Problem with Fair Trade,” an overview is made of the fair trade system, its history, and certain complaints that have arisen from former advocates of the system. The article begins by talking about Peter Giuliano from Counter Culture Coffee. When he first began with Counter Culture they were fully supportive of the fair trade movement. However, over the years they began to realize that there were flaws and holes in the system. While fair trade seems to work in theory, it does not account for the complexities of the real-world economy nor does it consider the variable needs of different farmers from different countries (86). There is a growing group of roasters that agrees with this point of view and feels that the model is technologically outdated and that the premiums are not being directed towards the farmers that need them (86). The general belief is that fair trade has shifted from a social justice movement to a corporate model for ethical consumerism (86). There is also a problem with who can be certified. Oftentimes larger company and multi-national corporation owned farms are too large to fit into certification standards, so even if they wanted to receive the certification by paying their workers better they could not (86). Also, this system does not account very well for the poorest of the coffee farmers, the workers on farms that do not own land. The most common fair trade farmers are the smallholder landowners, and if these are the only people being certified fair trade the poorest workers on large farms are not receiving any benefits (86). Another key problem with fair trade is that it does not account for coffee quality. Many farmers will sell their lowest quality coffee on the fair trade market and save their higher quality coffees for specialty buyers (86). Many coffee buyers believe that fair trade has turned into more of a marketing organization that a program to lift farmers out of poverty. The buyer for Peet’s coffee explained that while she agrees with everything that fair trade says on paper it typically does not work out as well as planned when enacted in the real world (86). While interviewing the president of Allegro Coffee he explained that they generally don’t buy fair trade because it is usually very low quality coffee, but they do generally pay at or above the fair trade prices. He made the claim that Allegro was practicing many of these standards long before fair trade was popularized and that he feels that the main change since fair trade began was that it produced a very loud and vocal minority that will sharply criticize and shout down any company that is not fair trade certified (86).

Amidst all of this criticism of fair trade, there was one key benefit that many of these professionals agreed with about fair trade, and that benefit was that the fair trade movement as it progressed was one of the most effective ways to raise consumer awareness about economic issues in coffee-producing countries (86). It seems from all of the criticisms that the fair trade movement needs to carefully consider how it moves forward in the coming years and adapts to the ever-changing and complex global economy with the increasing demand for specialty grade coffee at the front of its considerations.

In his book, Brewing Justice: Fair Trade Coffee, Sustainability, and Survival, author Daniel Jaffee provides a broad overview of the fair trade movement throughout the world and observes case studies of farmers in Mexico and the daily living situations that they have with their farms. It is an in-depth look

into the many layers of the movement as well as debates and challenges that the movement is facing today. Many of the issues with fair trade that I have presented in this paper are addressed in the book, and while it is common to find direct trade advocates and fair trade advocates arguing about many of those issues when arguing against each other, it is also interesting to note from the book that most of these issues presented by direct trade advocates or anti-fair trade people are often prominent points of discussion within the fair trade movement. It seems almost ironic that while some within direct trade speak about the possibility of have a direct trade certification there are also those in the fair trade movement that speak about addressing quality, moving away from heavy emphasis on marketing, and ensuring that money actually goes to farmers rather than certification schemes (87). Perhaps both movements are adapting towards a similar goal and they are just starting from different viewpoints.

Jaffee begins his book by giving an overview of the history of fair trade. The movement began in the 70’s in Europe and the Unites States (87). It was heavily driven by church groups and received the name fair trade when it began to buy goods in large quantities from farmers in order to promote better buying practices (87). The movement in the United States eventually developed into Transfair U.S.A., which is the primary certification organization in the United States today for fair trade (87). The beginning of Starbucks offering fair trade coffee was a huge step for the movement as it significantly raised awareness in the public’s eye. However, as the amount that Starbucks sold was minimal compared to their total output this sparked controversy within the fair trade movement and was taken as a sign that fair trade was beginning to be taken over by corporate marketing (87). This is made apparent as many people today associate Starbucks with fair trade even though fair trade is still only a small portion of the coffee they sell (87). More companies have begun to market fair trade coffees such as Folgers with its Millstone brand (87). Many supporters of fair trade are split into two groups, the radical and the moderate. Radical supporters of fair trade believe that this corporate involvement is destroying the mission of the movement while moderate supporters believe it can be a good thing. Jaffee refers to this involvement with corporate influence as “dancing with the devil” in his book (87).

A large portion of the book discusses economic and political theories within fair trade as well as ways to define its methods. It asks the question of whether fair trade is a tool within existing markets or if it is attempting to redefine the markets. Another question is whether we are trying to change rules or trying to change economic models. There is also a great deal of discussion about whether fair trade should be non-confrontational or whether it should be heavily focused on boycotts and rallies (87). The nature and scope of fair trade is often debated within circles, and the difference between a large corporation like Starbucks buying fair trade versus a small church group is radically different (87). In my reading I have come to the conclusion that while it is important to discuss these issues, individuals and companies who wish to have a positive impact in the world would do well to adopt an attitude where they differentiate between highly theoretical and semantic arguments about a global movement and individual actions that have true and real impact in farmers lives. The theoretical is important for delving into an issue and planning for long-term strategies, but for the average consumer that wants to help struggling farmers or the roaster that wants to source coffee ethically, the ability to make a difference is by meeting the individual needs of the farmers rather than engaging in drawn out discussions for decades while the rest of the market continues to make its transactions.

The final part of Jaffee’s book that I am going to discuss is some of his observations and conclusions on the farmers in Mexico. Overall, Jaffee concluded that there were clear benefits to farmers that were part of the fair trade program, but those benefits were incomplete and only a piece of what need to be done for these communities (87). He believed that there were still plenty of issues that need to be resolved within the movement, but as it stands now it is certainly better than the conventional market (87). He believed that there were certainly some potential benefits to allowing

corporate partners to get involved with fair trade, but he was also deeply suspicious of these influences (87). While observing and studying the practices of the farmers in Mexico, he noticed that the rates at which the farmers participated in fair trade often depended on the commodity market price of coffee (87). While fair trade farmers would make more money from the sales of their coffee, they would also have to pay more in fees to maintain their membership. It was likely due to these fees and regulations that whenever the commodity prices were high the membership rates among farmers for fair trade dropped but when commodity prices sank to their lowest point during the coffee crisis in the early 2000’s at around $.49 farmers membership was significantly higher, and it was specifically during this drop in the commodity pricing when membership with fair trade had the greatest benefits (87). When looking at the data for malnutrition rates in these rural coffee farming communities, there is a direct correlation between the drop in coffee prices and the malnutrition in the communities (87). Many of the farmers who did not have access to coffee markets would sell their coffee to coyotes or middlemen for below market value. Oftentimes if a farmer had a late harvest and missed the traders that came to town to buy coffee then they would have to sell their coffee to these coyotes for a significantly lower price than the market price (87). A useful alternative to the coyotes for many of the farmers is to join a producer organization. However, many farmers do not join these organizations because they involve committing to a much higher production of coffee and taking the focus away from other crops (87). While studying these farming communities he also took data on migration and found that rates of migration were high in both fair trade and conventional markets (87). Even with the bonus offered by fair trade, it is not enough to lift farmers out of poverty and does not seem to deter people from leaving for better sources of income (87). Jaffee also wrote significantly about the cultural weight that coffee had in these communities. For many of these farmers, they did not see growing coffee as a strictly business decision. Coffee, much like corn was a cultural tradition that they wished to keep (87). The maintenance of the trees was also a significant concern locking many farmers into their lifestyle. If a farmer left his community looking for better work and returned a few years later, it would be a number of years before he could harvest a crop from the coffee trees because they had not been maintained over the years (87). It is important to understand in many of these issues that many farmers’ decisions for how they manage their land and whether or not they migrate is not always entirely financial. Rather, it is based on a wide variety of factors such as cultural, traditions, and community, and financial is just one of those factors (87).

Overall, Brewing Justice gives an incredibly in-depth portrait of the situation that rural coffee farmers in Mexico find themselves. Jaffee presents well-rounded views on the fair trade movement as well as an overview of the key debates within it. My conclusion after reading the book is that simply asking whether fair trade is good or bad is a question that oversimplifies the issues that farmers face. Many things that seem like all farmers should participate in, such as joining a producer organization, often have downsides that we in consuming countries don’t immediately realize. There is also a great deal of progress that needs to be made with the development of supply chains. What we need going forward to help farmers is not one grand solution to solve all of their problems. Instead, we need individualized solutions that are each catered to the individual’s needs and preferences of the farmers and communities that grow the coffee.

To conclude this section studying the farmers and producers along the supply chain of coffee, I would like to present some key perspectives, attitudes, and actions taken by farmers as they try to adapt to the changing market and differentiate their products.

In her SCAA Re;Co Symposium talk, Kim Elena, green coffee buyer for Counter Culture Coffee, posed the question of how much quality incentives actually do help farmers and what the general attitude towards these incentives is. In order to conduct her research, she teamed up with a recent

graduate of the UNC Masters’ program studying social work (88). In this project they created surveys and interviewed farmers in various cooperatives to understand their perspectives on micro-lots and quality incentives for better coffee. They began with certain farmer cooperatives that Counter Culture had been working with in Peru. The first concern that they wanted to address was whether or not farmers felt the quality incentives were unfair when their neighbors received them. Overall, the farmers had a positive attitude about the quality incentives, even including the farmers that had never received any additional rewards for quality (88). The farmers all believed that this was a good way to reward farmers for their hard work. The key issue that farmers had was that they wished that the steps to achieve these quality rewards were more clearly laid out and had definitive steps to achieve them. The farmers felt that meeting the quality expectations was somewhat unpredictable and many of the farmers that had received these rewards had only received them once in the past six years (88). For the second phase of the study Counter Culture teamed up with a green coffee importer to interview and survey a large number of farmers in Columbia. In this region the specialty markets had been prevalent for a number of years and had been able to develop into a more consistent and established system. These farmers were generally proud to be growing quality coffee. While they also were not consistently reaching the same level of quality year after year, they believed that the true value of the quality incentives was not just in the extra money, but in the additional value to their brand image as their coffees would become well known in larger markets (88). While to the grower of individual lots the increase in quality may seem somewhat random, by looking at a larger picture of these cooperatives as a whole it is clear that as farming practices have improved and better infrastructure has been built the rates of higher quality lots have improved over time (88). One key issue that is a concern of many of these farmers and is generally not thought about by those in the specialty markets is volume of production. While these farmers do highly value quality in their coffee, they are also constantly looking for ways to increase the volume of their production (88).

Finally, there are multiple examples of where coffee farmers have begun moving towards the consumer end of the supply chain to have better control over their finances and management of their brands. The Pachamama Cooperative, started by Thaleon Tremain, Is a cooperative of farmers throughout the world whose mission it is to have complete control of their products from the farm to the final cup of brewed coffee (89). This cooperative is a project of vertical integration where farmers collectively own the brand of their coffee and thus control the price (89). This cooperative has recently opened a café in California and sells its own roasted coffee throughout the region (89). Farmers in this cooperative come from Peru, Nicaragua, Mexico, and Ethiopia, and a core belief of this organization is that if you claim to represent the farmers of coffee then you should have farmers in your board room (89). For years farmers of coffee have carried the most risk with the least profit margin, and this cooperative is starting to change that (89). Another example of farmers taking control of the markets to improve their control is Mayra Orellana. In her SCAA Re;Co Symposium talk, Mayra Orellana talks about her experiences growing up on a farm in Honduras. Years after moving to the United States she decided to start an importing company to help bring her community in Honduras better access to markets in the United States (90). She hosted a trip where certain roasters of the coffee in her community would travel to Honduras and bring the coffee roasted by their companies. This was the first time any of these farmers got to taste their coffee as an exported product (90). Her company has been able to improve the finances and business of the farmers by engaging in profit sharing where they pass back a large portion of the profits to the farmers. Her company has also engaged in financing various experimental lots with the groups of farmers in Honduras (90). She encouraged her audience to continue to support an environment of collaboration and solidarity with producers of coffee. If buyers continue to support farmers and pay well then the farmers will continue to serve them amazing coffee, but if the buyers do not create a supportive environment the farmers will choose to leave for better opportunities (90).

Applications and Conclusions:

This paper has covered a broad range in the coffee industry. From the consumer all the way to the farmer this is an industry that is changing rapidly. A key concern from all angles of this movement is a drive towards more ethical and sustainable practices. There are numerous ways from all ends of the supply chain in which these practices have improved, but there are also significant problems that need to be addressed before this industry can be moved forward. It is likely that as the industry changes in the coming years much of the information in this paper will be rendered obsolete. Even in the course of my own study I found that sources written five or ten years ago had already become irrelevant. As I mentioned earlier when speaking about factors that have radically changed the supply chain, technology has introduced a new level of traceability and transparency in the lives of the farmers and producers. We will soon be in a world where no farmer will be without access to the going market rate. We will also soon be in a world where farmers have the options available to them to differentiate their product through quality, follow advances in production to reach higher levels of quantity, or adopt an approach that meets in the middle. We have been sitting in a market for a number of years where little research is done and countless claims are made, but a new phase has begun where organizations and individuals are finally conducting the research necessary to know for sure what strategies actually work in combating poverty and hunger and what strategies are simply just hype. Ultimately, from the farmers end of the supply chain the biggest advance is that they will finally have the control that they need to take charge of their own destiny rather than relying on regulations and programs designed by countries on the consuming end of the supply chain.

For direct trade roasters and importers, we have had a market for far too long where transparent information was virtually nonexistent. Pressure has finally been applied and the market has demanded traceability and transparency. While roasters have successfully taken away the reigns from certain irresponsible importers, there is a shift beginning where a new breed of importer has entered the market. Ultimately, the ethics of a business is not dependant on whether it is a roaster or an importer, rather, it is dependent on whether or not that player in the market is transparent about their practices and engages in models that are beneficial to all parties involved. Ultimately, the question for all importers and direct traders is not what type of company they are or what certifications they have. Instead, the question they need to ask is whether or not they are meeting the unique needs of the individual suppliers as well as customers they are working with.

In specialty coffee, the rise of the third wave from being a niche market to becoming a major force in the overall coffee market is an exciting trend that needs to be followed closely by all professionals in the industry. The drive and need for quality and information about the farms has lead to a new level of accountability with direct traders and importers that did not exist before this revolution. It has also lead to a new avenue by which farmers can differentiate their products. As the past wave of coffee has been about returning to traditions, this next wave will be all about breaking the rules and questioning all of our previously held assumptions. We will have new coffees to try, new ways to brew those coffees, and entirely new drinks to create with that coffee. With the industrialization of food settling out and the artisan food movement on the rise, the third wave of coffee is primed to be a key mover in this market. With new products like cold brew and perfect coffee packets, even the notion of quality being sacrificed through convenience is beginning to be questioned. While a seven or eight dollar cup of coffee may not be for everyone, it does seem as though the rise of third wave coffee will greatly improve quality and taste for all segments of the consumer markets.

Finally, for the consumers, this segment is what makes this entire industry possible. If there is no one that wants to buy a product, then all efforts along the supply chain have been in vain. It is clear from market research that although coffee is not a necessity, it is still a core product that consumers choose to buy on a daily basis. Consumers often have a difficult time putting into words why it is that they buy the brand of coffee that they do, but it is clear from speaking with them that these brands mean a great deal to them. When expenses are cut out of the budget coffee is often one of the last things to go. To the consumer, coffee is a ritual that they take part in everyday, and taking a step to improve this product is taking a step to improve the daily habits, rituals, and experience of the customer. These customers do tend to care about the economics, ethics, and even the science of coffee, but oftentimes that caring doesn’t mean they want to hear about it at seven in the morning or in the middle of the afternoon when meeting with a friend. Consumers want to know that they are doing the right thing with their purchases, but what matters to them more than knowing about the issues is knowing that their baristas and roasters know. It is the responsibility of cafes and roasters to foster trust between themselves and the consumers that the coffee they buy will be quality as well as ethically sourced. This is their daily ritual, and it is the job of the café to help them enjoy it.

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71. Noah Namowicz, The Direct Selectors, http://catandcloud.com/blogs/cat-cloud-blog/36609729-the-direct-selectors-by-noah-namowicz

72. Cafe Imports, Our Driing Principles, http://www.cafeimports.com/driving_principles.php 73. About Sustainable Harvest, http://www.sustainableharvest.com/about/ 74. Roast Magazine, The Long Pipe, Transparency,

http://www.roastmagazine.com/resources/Articles/Roast_JanFeb13_TheLongPipe.pdf 75. Andi Trindle, Mersch, The Green Trade, http://www.scaa.org/chronicle/2013/10/04/the-green-

trade/ 76. Valerian Hrala, 4 Ways to Choose Green Coffee, https://bootcampcoffee.com/4-ways-to-

choose-green-coffee-your-customers-will-rave-about/ 77. Lucy Goodchild, ‘Sustainable Coffee’, What does it mean for local supply chains in Indonesia?

https://www.elsevier.com/atlas/story/people/sustainable-coffee-could-be-fuelling-poverty-among-farmers

78. Sarah Stuteville, Ensuring the Global Coffee Boom Gives Farmers a Fair Shot, http://www.seattleglobalist.com/2015/04/10/coffee-farmers-fair-shot-scaa-conference/35689

79. Pierre Ferrari, A Wicked Problem, Understanding Complexity, https://www.youtube.com/watch?v=l4ccyTX7qLs

80. Scaa, A Blueprint to end Hunger in the Coffeelands, http://scaa.org/PDF/SCAA-whitepaper-blueprint-end-hunger-coffeelands.pdf

81. Michael Sheridan, A Simple Question: Caturra or Castillo, https://www.youtube.com/watch?v=ibnTZD2Zqss

82. Michael Sheridan, Castillo and Caturra, https://www.youtube.com/watch?v=6TSBuPHfzWc 83. Ric Rhinehart, From Selling Better Coffee to Selling Coffee Better,

https://www.youtube.com/watch?v=RZrMxEztSrI 84. Maria Hill, The Cost of a Cup of Coffee, http://www.scaa.org/chronicle/2014/09/15/the-cost-of-

a-cup-of-coffee-where-does-the-money-go-2/ 85. Global Exchange, Fair Trade Coffee Cooperatives,

http://www.globalexchange.org/fairtrade/coffee/cooperatives 86. Collen Haignt, The Problem with Fair Trade Coffee,

http://ssir.org/articles/entry/the_problem_with_fair_trade_coffee 87. Jaffee, Daniel, Brewing Justice:Fair Trade Coffee, Sustainability, and Survival, 88. Kim Elena, Mo’ Money, Mo’ Quality, and other Myths about Microlots,

https://www.youtube.com/watch?v=lXA1E4IWzUo 89. Maria Hill, Vertical Integration in the Coffee Supply Chain,

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90. Mayra Orellana-Powell, Voices from Origin: A Producer-Driven Approach, https://www.youtube.com/watch?v=O9alAQBTMLw