The Knife’s Edge – Beginning of the Supply Chain
You know how the sharp edge of a knife blade is really thin? That’s what profit margins are like at the production end of the industry. In fact, sometimes the margins are so sharp, you can’t even see them. The production end is the very beginning of the supply chain where pickers are paid by the kilo for harvesting ripe coffee cherries. In some producing regions where they use mechanical harvesting, the starting point is where the farmer sells cherries to a middle-man.
Hey, let’s do some mathematics together.
Value Chain Mathematics
In 2018, a Yunnan coffee picker earned $0.40 per kilogram. A cup of coffee from your local cafe uses 20 grams of coffee and costs $3.50 per cup. So, at a per kilo rate, the cafe is receiving $175.00 per kilogram. Now before we freak out about the disparity between $0.40 and $175.00, we must remember that at the production side one kilo of coffee cherry becomes less than 500 grams of roasted coffee due to moisture loss and production waste. Also, at the cafe side, we should also factor in costs such as milk and takeaway cups. While the gap is not as big as it first seems, nevertheless, there is still a significant disparity between available profit margins at the “sharp end” and the other end of the coffee industry.
Between the coffee picker and the coffee drinker, there are a lot of ‘middlemen.’ Here is a list of entities that each consume profit margin as the bean journeys from farm to cup. Picker > Farmer > Dry Mill > Exporter > Importer > Roaster > Retailer. Yunnan Coffee Traders resides smack bang in the middle of the supply chain. This gives us a great opportunity to understand and influence what is happening on both sides. We take this opportunity pretty seriously. Naturally, we want to flourish in our own business, but not at the detriment of others in our industry.
Creating a fair spread of value across the supply chain is possible to the degree that the different links in the chain (ie the participants) are willing to be transparent. In the specialty coffee industry, traceability is already a big thing, so, going one step further to transparency is not an unrealistic expectation. Australian industry leaders such as Pablo & Rustys Coffee Roasters have already been operating like this in the Yunnan market for many years now – and as a result, experiencing great success!
For us, mandates are simple tag-lines that promote integrity, accountability and responsibility as we strive to succeed in our business by creating and sustaining value across the supply chain. If you’re interested in learning more about our mandates, click here.