A Prosperous Income for Coffee Farmers

An estimated 12.5 million coffee farms worldwide are struggling to sell their crops for a price that allows them to sustain their farms and generate an income for their families, relieving them from poverty.

Using data science and a friendly User Interface tailored to farmers, “A Sustainable Coffee Buyer’s Guide” will morph into a digital browser-based tool and the “Farm Calculator”, which collects cost of production data, earnings, and yields informing coffee buyers about the price required for farmers to achieve an “A Prosperous Income”. 

Farmers will see an increased income, allowing their families to be resilient against economic and environmental shocks while giving more assurance to their business. This will motivate a newer generation of coffee farmers to continue farming. With a current proof-of-concept deployment in Colombia, impacting more than 2000 farmers, we have a validated approach that can impact the lives of hundreds of thousands if scaled up.

Value in the coffee chain is unequally distributed. It is estimated that the average green coffee export value received by producing countries accounts for less than 10% of the $200 to $250 billion in revenue generated by the coffee retail market in importing countries, even lower for producers. With almost 1 million coffee families in Colombia and Mexico, unstable and decreasing coffee prices (combined with volatile exchange rates) create an indirect and vicious cycle of inequality for producers and their families. This is primarily caused by information asymmetry between buyers and sellers over what the true value of coffee is. The majority of the prices are indexed against the futures market, which is often the only guidepost available to producers. This is an inadequate price reference as it does not take into account the relative quality of a farmer’s offering. Also, it is quoted in unfamiliar units, US cents per pound of green unroasted coffee, which is challenging to convert given volatile exchange rates and the fact that producers usually sell their coffee in a partially processed form. There is an urgent need for a price discovery tool accessible and friendly to producers, giving them better negotiating power.

Azahar Coffee Company developed “A Sustainable Coffee Buyer’s Guide”. This physical guide uses manually collected data to track earnings and costs of production to inform coffee buyers about the price point required for Colombian farmers to achieve different levels of income. These include:(1) income equivalent to Colombian’s rural poverty line; (2) income in line with a Colombian national minimum wage, including an allowance for health care and pension costs; and (3) “A Prosperous Income”, which multiplies the second income goal by the average number of adults dependent on the income from of a single farm.

To build the "Farm Calculator" and the digital platform, Azahar has partnered with Cropster, a software developer focused on creating digital solutions for the coffee industry.

For buyers and consumers, the income references will be made available through a digital interface illustrating the impact of different prices on farmers’ economic well-being. Our assertion is that by seeing the actual pricing that is needed for farmers to receive “A Prosperous income”, and knowing that it’s based on statistically significant, real-time data about yields and cost of production, buyers will be more inclined to pay higher prices conforming to this income. 

The lack of transparent, sustainable pricing affects all coffee producers, who harvest from 12.5 million farms, and poverty prevails in most countries. 

In Colombia, there are approximately 545,000 farmers located in 22 states and 602 regions. Meanwhile, Mexico currently has about 550,000 producers located in 15 producing estates. The most productive coffee growing areas are in Chiapas, Veracruz, and Oaxaca, which, at the same time, have the highest poverty rates in Mexico. Together, these states are home to 7 out of 10 producers, and 4 out of 10 are women. In Colombian coffee communities, poverty is pervasive in 47.5% of all rural areas and 57.8% in dispersed rural areas. Studies also show that Colombians have only 4.6 years of education on average in these communities, which is even low for rural areas. 

Azahar originated “A Sustainable Buyer’s Guide” in Colombia, and we will begin the digital transformation with the producers there, followed by Mexico in its second year. We plan to collaborate with 300 producers in Colombia in the regions of Nariño, Huila, Tolima, and Quindio. These first three are in the top five of the largest producing estates, with around 185,000 producers, which will give us the space to expand with the “Farm Calculator”. 

Chiapas and Oaxaca are home to an estimated 200,000 and 110,000 producers, respectively, where we will work with existing producer organizations to pilot the “Farm Calculator''. 

The current proof-of-concept of “A Sustainable Coffee Buyers Guide” has drawn the attention of approximately 40 roasters and green coffee buyers that work with Azahar including Blue Bottle Coffee, Stumptown Roasters, and Intelligentsia. The digital interface will expand to serve all interested roasters and green coffee buyers in the United States and Europe.

Azahar and Cropster will continue to work closely with roasters and buyers to ensure that the prices associated with each income goal are updated and available in real-time and in advance of each purchasing season. In addition, both will seek to increase the guide’s adoption by roasters while collaborating to create consumer-facing strategies that generate more demand for coffees purchased with farmers’ well-being and economic realities in mind (as opposed to more nebulous price standards, such as those based on certifications). 

Coffee producers have not been sufficiently included in the global digital transformation. Communities continue to face disadvantages in access to digital education and a solution to the current information asymmetry of buying and selling coffee is lacking. The “Farm Calculator” will provide producers access to their own data on the cost of production, earnings, and yields so they can make decisions based on this.

Additionally, the digital platform will inform buyers about the price required for farmers to achieve “A Prosperous Income” and farmers will have an understanding of the effect on their income.

The current proof-of-concept of “A Sustainable Coffee Buyers Guide” has led to success in its current physical form and impacted the income of an estimated 2,000 farmers. 

A prototype needs to be built to allow for more real-time analysis and quicker turn-around between data collection, analysis, and results, ensuring producers worldwide are engaged and benefiting from the data. Also, to reach more exporters, importers, roasters, retailers, and consumers, the income references will be made available through a digital interface illustrating the impact of different coffee prices on farmers’ economic well-being.

Numerous efforts to guarantee better prices for farmers have been made through innovations such as Fair Trade certification, differential pricing schemes with a built-in premium, and more recently blockchain applications that offer a supplementary means to ‘tip the farmer’. But all of these efforts focus solely on price and do not attempt to target the actual results for a farmer, namely their income.

That’s what makes “A Sustainable Coffee Buyer’s Guide” unique: it focuses on appropriate outcomes for farmers relative to their local context. 

The system that compiles these metrics, the “Farm Calculator”, is a superior method of assembling the needed data than the current version of the guide. It is able to reach a larger number of farmers, and fill in any gaps/eliminate outliers through modern data science techniques. This allows for scalable data collection with a quicker turnaround time at a fraction of the cost compared to manual surveying.

Because the calculator makes farmers central to data collection, they are empowered to directly influence and gain insight into the guide’s findings. It’s designed in such a way to serve as a tool first and foremost, with informing the guide as a secondary purpose. 

The actual pricing for "A Prosperous Income" will be reflected in the newly developed platform. As this is based on statistically significant, real-time data about yields and cost of production, coffee buyers will be more inclined to pay higher prices. Knowing that the information is publicly available and increasingly visible should also help encourage adoption.

Thus far, “A Sustainable Coffee Buyer's Guide'' has positively impacted an estimated 2,000 smallholder coffee farmers across Huila, Nariño, Tolima, and Quindio in Colombia as buyers have used the tool to guide their purchases. 

As part of our scaling plan with this prototype, we plan to collaborate with 300 additional producers in Colombia in the regions of Nariño, Huila, Tolima, and Quindio and 200 producers in Chiapas and Oaxaca in Mexico within the first year.

By year five we aim to have reached 10,000 producers in Colombia and 10,000 in Mexico.

Progress will be measured two-fold: (1) via the “Farm Calculator” itself and (2) through surveys. First, the launch of the “Farm Calculator'' will use already completed data for baselines and the intention is that future data will be captured by the Farm Calculator itself. The success of this project depends on the adoption of the calculator by farmers. To ensure that farmers are adopting the calculator and using it on a day-to-day basis, Azahar and Cropster will work closely with them during the development and testing of the tool, so it meets their expectations. Both Azahar and Cropster will continuously monitor the calculator’s usage by farmers and evaluate pain points and other areas for improvement. There will also be an in-built mechanism for farmers to provide qualitative feedback (surveys) to further inform the delivery of the service.  This will be done through additional household interviews and of course using the “Farm Calculator” itself. Second, Azahar will continue to work with 60 decibels, a social enterprise spin-off of Acumen, who with their Lean Data approach for impact measurement will provide insight into the impact of the proposed innovation. 

60 Decibels will utilize in-person and over-the-phone interviews to measure among others the following:

• Returns

  • Household income

  • Livelihood revenue and productivity

• Resilience

  • Response to shocks

  • Savings buffer

• Food security

  • Food sufficiency

• Stress and well being 

  • Stress levels

  • Wellbeing

• Trading relationships

  • Price Transparency

  • Longevity of relationship

• Farming and family 

  • % Price sufficient to cover coffee production costs
  • % Price sufficient to cover household expenses

On behalf of Azahar, Vera Espíndola Rafael will be leading this initiative, and Dominik Mucklow on behalf of Cropster. 

Full time: 2 team members 

Part-time: 6 team members

Azahar has built strong relationships with nearly 3,000 producers and multiple cooperatives across Colombia over the last 10 years. By paying premiums above the commodity price and intentionally buying from producers we have had the pleasure of sourcing from before, Azahar has worked towards sustaining a more equitable, and renewable way of pricing, purchasing, and selling coffee; a system divorced from the commodity model. Azahar has attracted the industry’s leading specialty roasters as well as buyers, with an average price that was approximately three times higher than the average international commodity price. 

Cropster is a software developer that specializes in applications for the coffee industry, including at the farm and processing level, it is a pro-profit but has a social vision. Its mission is to make key business information easy to collect, access, and analyze so that everyone wins. Our expertise covers product design, data science, and database engineering. We also have experience in selling software-as-a-service, ensuring that the solutions remain financially sustainable over time. We accomplish this through passive data collection using sensors integrated into tools used at farms, warehouses, roasteries, and cafes. 

We believe that everyone in the supply chain can use affordable technology in real-time to increase fairness for all players in the market. 

In the last decade, both teams have learned from working with producers and their hardships trying to live off the current income. We are convinced that digitalization needs to happen for them and make information symmetric for all. 

Azahar and Cropster will seek to employ local talent in each coffee-producing region where it seeks to roll out “A Sustainable Coffee Buyer’s Guide”, emphasizing gender and racial equity. The effort is being led by Vera Espíndola, Azahar’s Director of Strategic Initiatives, a development economist specialized in the coffee sector.

In many ways, this application reflects blind spots on the part of Azahar and Cropster, both of whom exist in the bubble of the coffee industry. Becoming part of the Solver community brings the promise of getting an outsider to scrutinize our concepts and bring ideas that originate from different sectors. The problem of farmer incomes has long bedeviled coffee, but fresh eyes on the issue might help us see another possibility which we had not yet considered.

For example, we are very attuned to the difficulties of solving the ‘last-mile problem’, that is, actually getting farmers to use the solutions we develop. While our experience in design and distribution has aided us in overcoming this in the past, there is still room for improvement. Perhaps other members of the Solver community have utilized a different approach that better incentivize adoption? We would be keen to find out.

Our intention is to make a solution that not only resolves the issue in our supply chains. We want this solution to transcend and go global. For this to happen we would love to learn about different business models that have been able to fit a wide sector. 

This in part contains work in branding and strategizing as where our experience lies only in our current network and supply chains. We will need to think differently and operate and service differently. 

The experience of TruTrade seems very applicable to what we are attempting to accomplish with “As Sustainable Coffee Buyer’s Guide”. They are also trying to tackle income challenges for farmers, and are approaching it from a for-profit perspective, even charging farmers for their services. It would be helpful to have the TruTrade team audit our solution and especially the business model to see where our weak points may be before we begin scaling.

https://solve-mit-edu.ezproxyberklee.flo.org/challenges/women-and-technology/solutions/2015