No 4

Supply Chain, Designed to Favor the Producer´s Income

March, 2012

Editorial

Supply Chain, Designed to Favor the Producer´s Income

The supply chain in Colombia stands out for its 547 points of purchase distributed throughout the different coffee regions, established to guarantee to the producer that his harvest will be bought at a fair price.


We cannot forget that, from the perspective of a producing country like Colombia, our fundamental objective is to maximize the wellbeing of the coffee farmers. In the end, the fact that the world can enjoy a fresh cup of coffee every day, depends on them,  and it is the mandate of the Colombian Coffee Growers Federation to constantly work in order to guarantee them a better quality of life. An important aspect to reach this objective is to balance the nature of the commercial relations at the interior of each country, in order to strengthen the individual negotiation capacity of the producers.

We must start from the base that the coffee trade in most producing countries clearly belongs to smallholders. These particular characteristics make of the supply chain an angular piece that articulates the different actors, especially, in the context of a market economy. The efficiency of the local markets, where the producers live close to their farms and the reduction of costs of transaction maximizes the price paid to the producer, become fundamental variables to keep local buyers from abusing their negotiation power over the smallholder producers.

For more than eight decades, Colombian coffee producers – with the help of the Federation – have been working to ensure a local price that reflects the price variables observed in the local market. Today, the solidity and efficiency of the Colombian coffee institutions allow the more than 560.000 families that depend on coffee, to enjoy an efficient commercialization plan that ensures a transparent price, which is fundamental for the development and sustainability of coffee growing Colombia.

These characteristics call for the reflection on the economical and social importance and transcendence of the coffee trade commercialization system in Colombia. The capacity to maintain a continuous and legitimate institutional presence depends on this, which will allow the small producers (which constitute the majority of the coffee producers in Colombia) to have access to fair exchange markets or scenarios that will eliminate the imbalance that may alter or reduce the final income for their coffee. 

It is important to remember that most coffee producers in Colombia sell their coffee in dry parchment state and not as cherry. Once the process to turn it into parchment is finalized, the producer has access to an internal commercialization model through two channels: institutional and/or private. 

image

The Federation´s channel, through the Purchase Warranty, is obligated to buy the coffee producer his/her coffee at the best possible price, in the closest possible place from his/her farm, and in cash.  This service, recognized as one of the main services that the coffee industry offers the Colombian coffee producer, is leveraged in a structure formed by 34 Cooperatives and 547 points of purchase on a national level that immediately give them an entrance door to the international market.

Network of Coffee Producer Cooperatives of Colombia image

The coffee producers have the option of selling their coffee through other channels that are supported in a commercialization and exportation structure, present in the national coffee zone. This way, the producer operates in a competitive scenario, allowing him/her to obtain a fair and efficient remuneration for his/her product.

In 2011, the Coffee Cooperatives bought the equivalent to 33% of the production of the year while others channels bought the remaining 67%. This is how commercial relations in the coffee industry of Colombia are based on a principle of opportunity, transparency and fair trade. The presence of the Federation, leveraged in the purchase warranty, is permanent and is always within the reach of the coffee producer. This implies that all the coffee that is commercialized through other channels, must compete with the Federation and offer the producer a price above the one offered by the Federation. This way, the design and philosophy that frame the supply chain in Colombia, allowed the producer to receive transfers from the international price to domestic price on an average of 95% in 2011. 

image

Maintaining an institutional presence throughout coffee producing Colombia is in consequence the key to guarantee the producer income sustainability. The Federation becomes the bridge of transfer from international to local prices. In order to carry out this task in an effective way, its commercial structure must be innovative, accessing higher value and positioning scenarios and, therefore, maximizing the income, creating a virtuous circle of higher selling price and better domestic prices. This is why Colombian coffee producers are the only ones in the world who have a purchase warranty on their harvest, at a transparent price and resulting from a fair trade process, designed to maximize their income and sustainability.

A cordial greeting,

Andrés Valencia
Commercial Manager

Colombian Coffee Growers Federation

You are invited to learn more about our coffee family and our products, visiting the COLOMBIAN COFFEE INSIGHTS sections on the top of this page.