Sustainable Harvest - Changing the way coffee business gets done

Whenever you buy something, it is easy to forget that your transaction goes beyond the store where you purchased it. Whether you think about it or not, what you choose to buy affects other peoples’ lives, and these purchase decisions have economic, social and environmental consequences.

The coffee we buy, for example, is at the end of a long and complicated supply chain that begins in some very remote places. There are over 25 million coffee growers in the world, many of whom have very small plots of coffee trees. Trying to make a living off a small coffee farm is very difficult, especially if the companies purchasing the coffee are solely motivated by profits.

To learn more about how the system works, I visited Sustainable Harvest, a green coffee importer based in Portland. Dane Loraas, a Quality Control Manager for the company and Katie Gilmer, a Relationship Coffee Manager, were my hosts when I visited the company at its Pearl District headquarters. They spent an hour with me explaining the company’s business model and answering my questions.

Sustainable Harvest was founded in 1997 by David Griswold with the goal of helping Mexican coffee growers sell their coffee in the US. In addition to its main office in Portland, Sustainable Harvest also has satellite offices in Mexico, Peru and Tanzania. The company works with familiar names such as Green Mountain Coffee, Peet’s, Counter Culture and Batdorf & Bronson, and last year had revenues about $40 million. Sustainable Harvest is not your typical importer though. By implementing a new business model, the company is helping coffee farmers have better lives at the same time that they are making a profit. The company takes a whole new view of what it means to be in business.

Sustainable Harvest is a certified B corporation, which means that in addition to being a for-profit company, it is also working to solve social and environmental problems. The legal structure of B Corporations “expands corporate accountability so they are required to make decisions that are good for society, not just their shareholders” (from the website of B Lab, the non-profit organization that certifies B Corporations).

Sustainable Harvest has multiple programs that make it stand out from other companies. The first is what the company calls Relationship Coffee^SM. The program is based on the 5Ts: Training, Trade Credit, Traceability, Technology and Transparency. Training is teaching the farmers how to produce better coffee; trade credit helps farmers finance each year’s crop; traceability makes sure that that each cooperative’s crop can be distinguished from others’ and tracked from the farm to the roaster; developing technology helps producers manage the supply chain better; and creating transparency between suppliers and roasters helps ensure that transactions are beneficial for all stakeholders.

Sustainable Harvest reinvests around 60% of its operating expenses (over $1 million in 2009, according to B Lab) in the countries where it works. This money directly benefits the farmers, through training them in how to produce higher-quality coffee and through building infrastructure such as water-saving processing equipment.

“We’re trying to get as much good coffee out there as possible,” Gilmer told me.

Another of the company’s programs is called Let’s Talk Coffee®. This is an annual get-together held in a coffee-producing country that brings together current growers, potential growers, roasters, baristas, NGOs and other coffee stakeholders. The conferences are an opportunity for training and networking. The events are very popular, with several hundred people attending each one.

On the technology side, Sustainable Harvest has created the Relationship Information Technology System (RITS) to help manage the coffee supply chain. Developed with Tanzanian producers in mind, RITS allows coffee cooperatives to track the coffee from the field to the roaster. It includes an application for iPhones and iPads that allows producers to record each farmer’s production at origin, including quantities produced and qualitative characteristics of the coffees. The information can either be stored on the phone to be uploaded later or it can be sent immediately from the field. Loraas explained why they designed it this way.

“In Tanzania, it is often hard to find a Wi-Fi signal,” he said, “but oddly enough, the whole country is covered with a 3G signal, so people can use the iPhone to make it work. If for some reason that doesn’t work, they can take the device to the production site, record the data and take it back to the distribution center where internet is available.”

Sustainable Harvest also treats its growers differently when it comes to setting coffee prices.

In most agricultural commodity markets, the producers are price-takers, not price-makers. The number of suppliers is high relative to the number of buyers and the products being sold are nearly the same, so one farmer’s produce is just the same as the next farmer’s. Without any differentiation, a farmer must accept what the market will pay for the product because a buyer can find many others who will supply the same product. This competition generally keeps prices for commodities low, and makes it difficult for small producers to make a profit over time. We have seen the results of this system in US agriculture, as smaller farms have been crowded out by a system that favors quantity over quality.

By using one of the most important characteristics of a B corporation—transparency—Sustainable Harvest is turning this system on its head. In most companies, buyers and sellers try to keep information to themselves. If a supplier were to ask a buyer what its margins were for a certain product, the buyer would probably not reveal that information. In the B Corporation, however, suppliers and purchasers are willing to open up their books so they can see each others’ margins. This is a revolutionary idea, and it requires trust between the growers, importer and roasters.

The trust and transparency leads to a new way of setting coffee prices. Instead of relying solely on the commodity exchanges to set prices, members of the coffee cooperatives get together, look at their production costs, look at the world prices and set what they believe is a fair price. Sustainable Harvest looks at these prices, contacts the roasters and tries to negotiate a final price for everyone. They can do this in part because the high-quality coffee is worth more than other coffee. According to Gilmer, “specialty coffee is not just a commodity. It has value.”

I came away impressed with their business model, as it combines the profit-making drive of capitalism with the idea that the company can improve the lives of people in developing countries. Gilmer summed it up succinctly when she said that Sustainable Harvest is “part development agency, part coffee importer and part IT [information technology] firm.”

Having worked with over 200,000 farmers, Sustainable Harvest has already made a difference in the lives of many people. The company has taken a look at the social, environmental and economic consequences of the coffee industry and tried to make sure that the coffee you drink is both high-quality and ethically-sourced. If more companies did this, you could be confident that the purchases you make every day were having a positive social, environmental and economic impact.

[If you are looking for more information about Sustainable Harvest, you can visit the company’s website. You can also check out this post on Barista Magazine’s blog that came out last Friday. Apparently, sustainability was in the air last week.]

Comments

[Dolores]

After watching "The Social Network" I am very glad to learn about B Corporations that have something besides the bottom line and destroying the competition as goals!