No 30

Purchase Guarantee, a Global Reference of Transparent Trade

September, 2014

WHAT'S BEHIND

Purchase Guarantee, a Global Reference of Transparent Trade

The purchase guarantee provided by Café de Colombia to farmers is not only the most important public service for Colombian coffee growers, but one of best examples of transparent trade in the world.

Trade has to promote a fair payment to producers in commercialization of their products. Some principles of fair trade are democratic organizations, equality of men and women, recognition of quality and sustainable production, care for environment, avoiding intermediaries that do not add value between producers and consumers, use of transparent and well-known price references and information about the product origin.

In Colombia, more than 560,000 coffee-growing families are unionized in the Colombian Coffee Growers Federation (FNC), the most important guild for the agricultural sector, in which, in a democratic, free and participative way, coffee growers elect their municipal and departmental  representatives every four years.

Thanks to bean quality, support models and efforts to protect reputation of the product, Colombian coffee is considered the best mild washed coffee in the world, for which the international market pays a considerable premium. And additionally, Café de Colombia has effective instruments for ensuring and defending its origin.

Sustainability and care for environment are also two permanent policies of the coffee institutions. And if this would not be enough to underscore the importance that the coffee-growing guild gives to producers and the industry, it is worth highlighting the “purchase guarantee”: the most important public service for Colombian coffee growers; no other coffee farmer in the world has it.

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The purchase guarantee transfers the international price of Colombian bean to the producer and encourages competition in the country’s most remote local markets.

To reinforce competition in local markets, the FNC daily publishes the domestic coffee price, calculated from the price on the New York Stock Exchange (C contract), the quality premium granted to Colombian coffee and the current exchange rate. This price works as a base market price for the benefit of all coffee growers in the country, strengthening the negotiating capacity of producers that sell very small amounts of coffee. This price is accessible on the network of 534 points of purchase (belonging to 34 cooperatives) near their farms, with a cash payment and without incurring higher transport costs. In other words, this system substantially reduces transaction costs for farmers and in turn encourages competition, preventing intermediaries from abusing producers.

Thus, at offering a price, other market players necessarily have to look at the purchase price published by the Federation, which serves as a reference for all producers, regardless of whether they sell their coffee or not to the Federation.

 

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Historical records show that when any cooperative or point of purchase (belonging to the National Coffee Fund) has had to close its doors, the purchase price in the local market may fall between 10% and 30%. “For me it’s a blessing to have the cooperative; the purchase guarantee actually makes sense and is very valuable for us” Dayron Quintero, a producer from Pueblo Rico, Risaralda, recognizes.

The fair model for small producers is a market in which variables of the price are known clearly and in advance, the price is associated with a product quality standard and payment is received in cash near the production place. This model corrects the market failures, ensures transparency and prevents capture of unjustified earnings by intermediaries.

 

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All this highlights the huge value of this Colombian coffee growers’ asset, the Purchase Guarantee, aimed at correcting those market imperfections and reducing transaction costs for coffee producers. For its effectiveness, transparency and stability, many long for this coffee public asset.

 


You are invited to learn more about our coffee family and our products, visiting the BEAN & BEYOND sections on the top of this page.