Juan’s World: Risky Business

Depulper...depulping.
Depulper…depulping.
Pulp...pupled.
Pulp…pupled.

Juan’s World: A 5 Part Mini Series on the Inner Workings of Colombian Coffee

Part 3: Risky Business

Having a small family coffee farm and selling the coffee that’s the product of working with the earth and reaping its bounty seems like it might be romantic, until you realize it’s a business. Coffee business is a lot of things, and romantic isn’t one of them.

Coffee growers are growing coffee not because it will feed their families and not because it’s fun; coffee growers, even the ones that truly love agriculture and wouldn’t be caught dead working in a warehouse or an office, are growing coffee to sell. Coffee farming is not subsistence farming and it’s not a hobby. Because it’s grown to be sold; it’s a business. But the people in the business rarely think of it that way.

Traditionally caficultores have thought of it as, “a few hectares of cafetales, the house, the beneficio, that lot of corn and yucca, and the trees by the stream.” But what they really have are a few hectares of commercial real estate, two substantial physical assets, an investment in diversification, and a water source that offsets the cost of paying for public utilities.

Juan Valdez forgot to mention that he’s a small business owner.

And he also forgot to tell his constituents that they are too. Until now. One of the recurring themes of educational outreach done by coffee coops and the FNC through its partnership with SENA is shifting attitudes (and then practices) towards running the coffee farm like a business. There are trainings dedicated to planning the timelines of plantings, fertilizations, fumigations, and harvesting, the way a business would plan inventory and remodeling. There are workshops devoted to analyzing finances and calculating costs per tree against output per plant over time.

Because coffee growers sell their coffee at prices dictated by the New York futures market, they are exposed to the same risks of market fluctuations as futures and physicals traders. But while trading houses have teams of (more than) full time employees with masters degrees assessing risk and making plans and suggestions based on these informed calculations, most heads of coffee growing families barely have a calculator and high school diploma between them.

The money that coffee growers make from selling coffee not only has to sustain the business, and invest in maintaining those hectares of productive commercial real estate and upkeeping that industrial physical asset of the beneficio, it has to buy food for the family (even the elementary school aged kids who don’t to any work for the business), and it has to buy gas for the moto (that also does no work for the business), and buy the TV and the refrigerator that do even less to make the coffee grow. Business funds and family funds are folded up in that same wad of cash after whoever sells the coffee walks out of the Coop’s or the middleman’s warehouse.

And to pay for fertilizer and new shoes and groceries and parts for the chainsaw without going bust, you need to plan. Well. In detail. And follow it. And to do that you need to know something about balancing a budget, prioritizing purchases, and allocating funds. To know those things you really need someone to teach you. Common sense and even a little bit of foresight will tell you that when the price is low and you’re having a hard time paying for the fungicide to spray for even the first application of roya control, it’s not the time to spring for a new cell phone.

But enumerating all the costs of inputs per plant (considering agrochemicals, labor, and transport) and comparing that against the revenue per plant (considering weight of fruit harvested converted to weight of beans sold, an accounting for the different prices at which batches were sold over the year) is not the kind of thing it will just occur to you to do at the corner of you kitchen table under the single bare light bulb after you come in from a full day of work. It really takes an instructor and a classroom, which is what the coops and the FNC/SENA are working to provide.

Running a small business is not easy, which is why most North Americans and Europeans opt to be employees; it’s easy to budget for that new cell phone when you know what you’re making each month. It’s much easier to buy groceries when you don’t have to consider that the money you’re spending on meat and milk is cutting into the money you could be spending on repairs to the depulper. It’s easier when the money for investments in the operation of your business (like another employee to make sure fertilizer gets applied during the rainy month so it doesn’t evaporate and go to waste) doesn’t come from the same wad of cash as money for a new coat.

Managing the finances of any small business is a challenge because the risk is assumed and felt by all members of the family, but managing a small coffee farm is made next to impossible by the fact that growers really have no idea how much they will make. The market does what it wants, and a grower has no idea what his coffee is worth until he rolls down the mountain and into town and looks at the sign board posted out in front of the Coop or the middleman’s.

Because coffee in Colombia is sold in dried parchment versus in fruit, growers at least have the option to sit on their coffee and try to wait for a better price. But that’s where the game starts, and to be good at that part of the coffee game, you could also really use some training and explanation.

There are some initiatives for giving growers trainings paired with technology tools (think cell phones and tablets with wifi) to help them access market information and make informed decisions about the sale of their coffee. Coop employees told me that they do have growers who watch the price and come in when it’s high; and they certainly do have more people coming in to sell coffee on days when the price is better (the grapevine will always do its part). But the price can jump and drop within the same day, and for farmers working on their own farms, there may only be one day a week that it’s feasible to make the trek, literally, down the mountain and into town, and when they get there, whatever the price is the income they have to work with.

Which is why the Colombian government often subsidizes coffee. (The FNC doesn’t subsidize; it distributes government subsidies and uses other government funds to buy green coffee exclusively from Coops, ensuring that every single coop will always be able to buy 100% of the coffee any member ever walks in with. This guarantee of sale is big deal compared with other agricultural enterprises).

Because the price is so haywire, the government works to fill in some of the gaps. Right now, for every 125kg of coffee sold, growers can get up to 145,000 additional pesos over the market price (adjusted for the specific quality of coffee they sell, see next post), up to a ceiling of 700,000 pesos. That’s roughly an extra $70 per 125kg, for a max of $350. Because the subsidies help round out the unknown, growers can attempt to draft accurate budgets and plans. Because the price is so volatile, planning- and perhaps even more crucially, accurate record keeping to have useful data with which to plan- becomes even more important. But organizing written records is another skill that’s acquired through continuing education, not from long days spent spraying pesticides and carefully selecting the strongest seedlings to translate from the nursery to the mountain.

To be a profitable coffee grower you need to be a good farmer and an even better accountant and administrator. Which is hard.

But hundreds of thousands of people rise to the challenge, and the ones who recognize coffee growing as a business and understand the risks and the pricing mechanisms are often the ones who opt for direct trade and operate outside the commodity market.

Others opt to certify through programs like Rainforest, UTZ, and Fairtrade to earn premiums (which they only receive if they sell to coops, who also pay members’ certification fees). But premiums vary and usually hover in the minimal range.

Which leaves coffee growers to constantly weigh financial questions like, sneakers or coffee dryer? Fridge or soil analysis? Running an inherently risky business as the sole source of family income is no small feat. But recognizing it as complex entrepreneurial endeavor is the first step to paying off those debts to the coop and staying in the black long enough to take your kids to the city to see their cousins for a weekend. Which more and more Colombian coffee farmers are starting to do. In Juan’s world it’s not business as usual; it’s finally business as business.

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2 Comments

  1. Once again Rachel, you hit the mark! The costs of coffee production, sans processing, is difficult to make profitable. The recent roya “outbreak” presents the perfect example. If farmers did not hve the resources to prepare, they were likely to suffer terribly from the rust. Once establsihed, the roya is difficult to eliminate and at east one season will be lost. In the Potenciana, we scraped together the money necessary to apply the proper, sustainable products for the soil and the trees. We took advantage of the Soil Engineers to develop a custom blend soil amendments. Pay a dollar today or a humdred tomorrow!

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