Fair and direct coffee

“Don’t exploit people. Just don’t.”

There is a lot to be said about so-called international development cooperation: how it benefits foreign workers with high wages, how handouts of food and clothing etc. can disturb the local economy and lead to “addiction”, how in general it can lead to so-called learned helplessness. On the other hand, it is necessary because “poor countries” are still exploited by “rich countries”.

But how about this new way to do it: rich countries buy from poor countries at decent prices. Pay them a living wage, simply stop to exploit them. Once they realize their work pays off now, they will work and invest more, and the economy will start to do better. So simple and amazing, huh.

Fair and direct coffee from Nepal

We plan to organize our first Fairdirect project with this idea in mind: coffee, grown in Nepal, traded for fair prices and directly to consumers in Europe. (For an introduction to the Nepali coffee scene, see this lovely article. For an overview of the emerging coffee industry in Nepal, see here. While I don’t know much about coffee growing yet, I know quite a bit of Nepal by now.)

Let’s refine our idea a bit and fit it to coffee from Nepal:

  • Know the source. Exploitation in poor countries happens both by foreign and domestic businesspeople. Taking the example of Nepali coffee, Lekali Coffee tells how coffee farmers in Kavrepalanchowk, a district of Nepal, are regularly exploited by Nepali traders from Kathmandu who travel around and buy their coffee at cheap rates, since these farmers do not know what their coffee is worth and how to market it better. To avoid this, we have to know from whom we buy, instead of buying anything just because it’s “from a poor country”. (And the way, all the exploitation means that coffee is only marginally profitable for farmers, and that again is the reason why it has not been taken up much more, beyond the potential.)
  • Direct sales! The longer the value chain, the more rent-seeking and exploitation it includes. We want to go to the other exteme and eliminate the chain altogether, making consumers buy directly from small-scale coffee farmers in Nepal, and pay them directly. Given that all the profits previously made by intermediate merchants now goes to the coffee farmer, there is usually no need for consumers to pay higher prices in order to pay a living wage to the farmers. That is a nice property of the system, since operating at market prices makes it immediately competitive.
  • Valuable knowledge. Coffee farmers in Nepal are mostly left to struggle on their own with coffee processing, pests and diseases, and since they lack the knowledge, they lose large parts of the harvest this way. For example, Nepal currently has a major infestation of the coffee white stem borer [source] destroying up to 60% of the harvest in some areas. (The insect is called “seto gavaro” in Nepal [source] and the disease is reportedly called “satee roga” there.) Sharing knowledge is a good and simple way to help people out of poor economic conditions: knowledge helps and empowers, the opposite of “learned helplessness”.

In total: Consumers in rich countries should buy directly from poor producers in poor countries, paying them decently. They should also help them understand how they can invest their earnings best in order to produce more and better quality, to earn even more.

Bootstrapping this idea

So how can we start and then scale fair and direct trade with Nepali coffee farmers, without a need for any major upfront investment? This is a rough outline of a plan – all feedback and hints are welcome!

  1. Research and document the conditions in trade of Nepali coffee. We need to know more precisely if and how farmers are exploited, and where this mostly happens. Also, if the minimum prices for coffee set by the Nepali government are respected in practice, or not. We also need to know details of coffee import regulations for all other European country, we have them only for Germany so far (see below).
  2. Select a focus area. Since travelling in Nepal’s rugged terrain takes much time, this project should start in a compact area, for example one district. It makes promoting this new sales option and collecting and transporting the coffee much simpler.
  3. Set up trade infrastructure in the focus area. All that is needed in the bootstrapping phase is a way to send the dried, green coffee beans to Kathmandu, and to receive the payment after they are sold. Since green beans are well storable, it is enough to have one to four collection points in a district, for example trustable small shops. They would collect collect the beans from multiple farmers and drop them in Kathmandu when they go there by bus anyway. In return, they would get a service fee that can at least cover their bus tickets. It will be below 60 NPR/kg (0.56 EUR/kg) though, as for that price one could also send a parcel with Nepal post (and for coffee that is still economical!).
  4. Sign up the farmers on the direct sales platform. Of course, the coffee farmers would be informed about this, and if they have, they can provide texts and photos directly online (improbable so far) or to the person when delivering their coffee packages. As a result, these farmers invite consumers to visit and inspect their farming and processing (that’s our P2P food monitoring scheme) and they have to do the packaging on their own. Plastic bags with 1 kg grean beans each and a bit of heated rice as drying agent will do.
  5. Sell to foreigners on their way home in Kathmandu. The simplest way to start is to sell the coffee to tourists and other foreigners to “top up” to their airline’s baggage allowance when returning home. One online shopping platform (we propose ) for all the different coffee offers plus one person or shop to store and ideally deliver the orders in Kathmandu will do. The person or shop will get a fee for this service, but it will not be nearly as much as when buying and selling for maximum profit. This can still be profitable, since since sales are done online so one does not need to rent shop space, instead operating the “distribution logistic” out of ones home. The coffee would have to sell at close to end consumer prices in Nepal (ca. 1320 NPR/kg, 11.14 EUR/kg for basic Nepali coffee, more for specialities) since otherwise the tourists could just buy the same elsewhere. There would be mostly the green beans on sale for that price though, with explanations how to roast them at home. Designing the sales scheme this way has multiple advantages for starting:
    • No export licence needed: According to the FAQ of the Customs Department of Nepal’s government: “How much value of goods, available in Nepalese market, can the foreign passenger take or send in foreign country without license? The goods covered by official proof of foreign currency exchange can be sent or taken without license excluding prohibited items.”
    • No coffee tax and import VAT to be paid in Germany: Bringing in roasted coffee, means some formalities with the German customs office, but when bringing it in personal baggage when returning from a non-EU country by plane, no coffee tax (2.19 EUR/kg) and no import VAT (7% on coffee) and no duty (if there were any, it is 0% from Nepal) is levied up to a 430 EUR value threshold. In the case of coffee tax, bringing in more than 10 kg without coffee tax is possible only when one can prove it is “for personal consumption”, which is otherwise simply assumed. [source] Obviously, another way to work around the coffee tax is to bring in only 10 kg roasted coffee and then green coffee beans up to the 430 EUR threshold, or simply only green beans.
  6. Provide knowledge to current and prospective farmers. This is the second major part of the project: collecting coffee farming expertise from experienced coffee farmers in Nepal and from literature, and creating an accessible, audio based course from it that farmers can listen to on their phones, even while working in the fields. For details, see our “Pocket University” concept document.

Impact

Obviously I need to do a detailed impact calculation for this plan. All I know so far is that farmers would be paid about twice as much for their coffee as now if the government’s minimum prices are respected, and more if not.

(Calculations: Minimum price is 400 NPR/kg for dry parchment grade A [source] . This means 500 NPR/kg (4.17 EUR/kg) for (dry) green beans, using the usual conversion factor of 0.8. These beans would be sold at the usual local 1320 NPR/kg (11.14 EUR/kg) prices in Kathmandu, of which perhaps 320 NPR/kg are used for transportation and sales services and some processing. This leaves 1000 NPR/kg for the farmers, twice what they get now. They will however have to do the shelling of the parchment coffee by themselves from then on, but that only needs a simple, manually operated machine.)

Also note how 4.17 EUR/kg of green beans (the Nepali government minimum price) is generous, compared to the 0.98 EUR/kg that harvest workers in Kenya were supposed to get, or the 0.124 EUR/kg they got in practice. That was this story, just that I did the calculations for green beans this time. So … I would not be surprised if Nepali farmers in practice currently get way less than the government intends them to get. In both cases, what the farmers can get with fair and direct coffee trade is astonishing compared to what they get right now.

Future plans: fair and direct e-commerce from Nepal to Europe

In the future, the system drafted above should be extended to be “real” exporting, albeit on a small scale, but keeping the direct sales property. Nepali Himalayan Highland coffee is regarded as a specialty coffee, selling right now online for 27.80 EUR/kg, 45 EUR/kg and even 75 EUR/kg. Assuming a “still reasonable” sales price of 22 EUR/kg for green beans and 7% German VAT, one could even pay 4 EUR/kg for air transport and it would still yield more profit for the farmers than when selling in Kathmandu. (Note that  there is no duty on coffee imports from Nepal, and no German coffee tax due to importing green beans.)

Which means that an airfreight parcel rate of 4 EUR/kg (for a minium of say, 8 kg parcels) from Kathmandu to a door address in Germany would be what we need for this stage.

However, this can only be an intermediate solution. Because long-distance air freight is not environmentally sustainable: such a shipment from Nepal to Germany consumes about 2.4 l kerosene per kilogram of coffee (assuming an average fleet consumption of 3 l per person per 100 km). So our ideal case would be a LCL shipment (“less-than-container-load”) from Kathmandu, via Kolkata by ship to a German port, that then somehow magically disintegrates into a bunch of parcels, already with paid postage and labels, which are then delivered to German addresses. That’s a case for finding a reliable logistics partner, who would also be tasked with customs handling (in effect, paying the 7% import VAT).

Could be a difficult search! Any proposals? 😉

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