This Startup Is Trying To Revolutionize Your Morning Coffee

Judging from the numbers, you probably enjoy your morning cup of coffee as much as I do. Global coffee consumption has doubled over the last 40 years. An estimated 2.25 billion cups of coffee are consumed around the world each day. Americans alone drink about 400 million of those.

And chances are that you, like me, have no idea where that delicious jolt of energy actually came from, how it was produced and how it ended up on your breakfast table.

That's what Vega Coffee , a startup working out of New York and Nicaragua, is trying to change. Vega Coffee's model has been dubbed the "Etsy of coffee " -- beans processed, roasted and packaged by those who grew them, and then delivered to your front door. Along with several other coffee innovators, the company is trying to rethink the way coffee is sold and thereby empower the farmers in the field.

'Such An Obvious Problem'

In 2005, Vega Coffee co-founder Rob Terenzi left for Nicaragua to intern with a small nonprofit, which was working with women's coffee cooperatives.

According to Terenzi, the women were making about 60 to 75 cents a pound on their unroasted coffee beans, which were then being exported to the U.S., where the beans sold for $15 to $20 a pound. Meanwhile, he said, "Nicaragua had just started becoming a tourist mecca, and the hotels and restaurants were still serving terrible instant coffee. Garbage."

So after his internship ended, Terenzi stayed to work with one of those co-ops, for two years. Together, he and the women tried a new approach: roasting and selling the beans themselves to hotels and in neighboring towns. It was, he said, a self-sustaining business model.

Once back in the U.S., Terenzi's now-wife, Noushin Ketabi, and his college friend, Will DeLuca, were equally fascinated by what seemed like both a possible business opportunity and a way to change an unfair production system. 

"We kept thinking about this idea -- farmer-roasted coffee -- because it was such an obvious problem to us," Terenzi said. "If you look at a chart comparing the price that consumers are paying for a cup of coffee over the last five to seven years to how much farmers are earning, they are exactly inverse. Prices are going up and farmers are earning less."

"Where does that money go?" Terenzi wondered. 

It turns out the profit ends up everywhere except with many of the coffee farmers.

The Most Vulnerable Link

Coffee beans are actually the seeds of coffee cherries, the fruits of the coffee plant. The cherries are picked just a few times a year. Farmers either dry the cherries in the sun, often for several weeks, until their moisture level is reduced to 11 percent (called the dry method ) or process them in wet mills that remove the pulp and skin from the bean, after which the beans are fermented, rinsed and dried until the moisture level has reached 11 percent (the wet method ). After drying, beans that have gone through the wet method are hulled and sometimes polished. The beans are then sized and graded based on quality.

In the usual supply chain, most farmers, either individually or through a cooperative, sell the unroasted beans to middlemen. Farmers are paid based on the quantity as well as the type and grade of the bean.

Middlemen, in turn, sell the beans to other companies, eventually leading to a retail outlet or restaurant near you. Along the way, the beans are tested in small samples for quality and taste -- a process known as "cupping" -- and then roasted.

The individual coffee growers are the most vulnerable link in this chain.

Coffee, the world's second most traded commodity after oil, is a source of income for millions of people. In Nicaragua, the Guardian reports , nearly one-third of the working population directly or indirectly depends on coffee for their livelihood.

But while consumers around the world will pay big bucks for a single macchiato, espresso or latte, farmers often see only a tiny fraction of the billions in revenue. The average commodity price of coffee dropped  to 115.03 cents per pound in November, its second-lowest level in two years. 

Commodity prices for coffee are notoriously volatile. When they drop, growers are the first ones to feel the pinch. In October 2001, prices fell to 45 cents per pound , mostly because of overproduction. The "Coffee Crisis" devastated farmers around the world.

Many individual coffee growers live from harvest to harvest and have few safety nets when a coffee harvest disappoints, said Rachel Brooks-Ames , a doctoral candidate at Switzerland's University of St. Gallen who specializes in farmer livelihoods and supply chains. Low revenues, high production costs and a system that typically pays them only a few times a year leave the farmers with little to reinvest in their crops, let alone save for education, medical costs or retirement, she said. When their lands are hit by catastrophic events like landslides, earthquakes or plant-destroying fungus, farmers often lose everything.

"Many farmers do not understand the market well enough or have enough liquid assets to wait out especially bad prices," Brooks-Ames said. "Sometimes they do not have the infrastructure to store their own coffee undamaged until prices improve."

The "middlemen can pay basically whatever they want," she said, in part because most countries don't have laws barring underpayment for the crop. "Farmers show up with their coffee and basically don't have a lot of choices once they arrive." 

Climate change is aggravating many farmers' dicey situation. Rising temperatures have already facilitated the spread of coffee rust , a fungus on the leaves of the coffee bush that kills the plant and has put thousands of laborers across Central America out of work. Oxfam International warned in a 2014 report that climate change has reinforced existing drivers of poverty in Nicaragua, Guatemala and Honduras. "As a result, the period of seasonal hunger when food supplies run low -- the meses flacos, or thin months -- is now extending from four months to as much as nine months," Oxfam wrote.

An Etsy Of Coffee

The hardships facing coffee farmers around the world have been on the agenda of activists for years. The Fair Trade certification model was launched in response to extreme price volatility in the late 1980s. Coffee importers or large food corporations agree to guarantee farmers a base price -- currently $1.40 a pound or 20 cents above the market price, whichever is higher. Growers, in turn, are encouraged to work in cooperatives and adhere to sustainable farming practices.

Vega Coffee takes it a step further. The company uses fair trade prices as a minimum but additionally gives coffee growers in Nicaragua the opportunity to reap the profits from roasting and packaging.

With DeLuca in New York handling the technical and marketing aspects of the business, Terenzi and Ketabi moved to Nicaragua to open a roasting center near Esteli in January 2014.

Vega buys unroasted, specialty-grade coffee -- beans of the highest quality -- from Nicaraguan coffee farmers or their cooperatives. Then, Vega offers to pay the farmers to roast, grind and package the beans in the roasting center. Consumers place their orders directly with farmers via Vega's website. Days later, the coffee is delivered to their doors.

Vega trains the farmers "on the entire processing chain ... roasting techniques, cupping, grinding techniques, packaging, all kinds of quality control mechanisms," Ketabi said. The first group of farmers trained are now serving as the teachers for the next class.

Vega mostly works with women-owned farms that grow their beans organically and export less than 500 to 1,000 pounds a year. The company buys from about 1,500 farmers and now has 40 to 50 farmer-roasters.

"The fundamental difference is that we moved from a disconnected supply chain, where producers have nothing to do with consumers, and now they're very much connected via our model," Ketabi said. 

For Vega's founders, their business is a logical extension of the direct-trade models that have been so successful in other sectors -- think Etsy for gifts or Warby Parker for glasses.

Most of all, the company wants the coffee growers they work with to understand the true value of their product. "In the old supply chain, farmers often times didn't know how their coffee was being enjoyed by consumers," Ketabi said. "If you don't know how it's being enjoyed, how do you know the value of this incredible thing you're producing?"

According to Vega, its model allows farmers to make up to four times what growers make in a traditional supply chain. Farmers are also paid every other week, instead of just a few times a year, which makes it a lot easier for them to budget.

Terenzi said participating families have used the additional funds for all kinds of investments, from improvements for their farms to tuition for graduate school to construction of additional rooms that can be rented out to tourists. "It's all going right back into the community," he said.

The Challenges Of Direct Trade

Vega Coffee's approach mirrors that of other companies. Stumptown Coffee and Intelligentsia Coffee  roast and sell specialty grade coffee beans directly purchased from farmers in multiple countries. ThriveFarmers roasts beans from Latin American farmers in the U.S., but farmers retain ownership of the beans until they are directly sold by Thrive to consumers. Thrive also pays farmers a fixed percentage of the sales revenue, reducing the influence of volatile commodity prices. Pachamama Coffee Company , comprising five cooperatives in Nicaragua, Peru, Guatemala, Mexico and Ethiopia, represents 142,000 small-scale coffee growers. It roasts in California, but all profits of the sales go back to the cooperatives.

All of these models aim to raise profits for producers by cutting out some of the middlemen. They face similar challenges in expanding beyond their current circles of farmers.

For companies like Vega to be successful, their coffee has to be very high quality, because the direct-sales model relies on consumers willing to pay higher prices. That means the companies can only partner with farmers who grow high-quality crops.  

Nora Burkey, co-founder and executive director of the Chain Collaborative , which works with coffee farmers and nonprofits to improve farmers' lives, pointed out that efforts like Vega don't benefit all types of growers.

Crops of high-quality beans require significant investments that, for some farmers, won't pay off without help from cooperatives or other kinds of aid. "There are a lot of farmers out there that don't have quality coffee because they don't have any support," Burkey said.

"How do you help the rest of the farmers bring their coffee up to that level?" she wondered. "How are you helping those farmers that are years away from obtaining a relationship like that and stand in solidarity with them?"

Burkey pointed out that some farmers rely on middlemen because they will buy the lower-grade coffee or because the farmers live in areas so remote that they can't afford to transport the coffee to buyers. "If producers don't have the income to move their coffee to a collection center on their own, how are they going to get their coffee to a buyer without a middleman?" she asked. 

DeLuca agreed that even with the fair trade price floor, many farmers can't afford to improve their coffee crops. But he said that enabling farmers to do the roasting and related parts of the process allows them to earn significantly more money and makes their investments worthwhile. 

Burkey also noted that raising their income is one but not the only way to boost coffee growers. Large corporations, foreign governments and aid agencies have organized some of the biggest projects helping farmers to deal with climate change, for example.

Hope For The Future

A few months ago, Vega's coffee went on sale in Whole Foods in Manhattan. The company is also pushing coffee subscriptions for businesses -- a better beverage for that 10 a.m. break.

Vega has established a partnership with Global Brigades , an international nonprofit that sends university volunteers to Latin America and Africa to collaborate on infrastructure, medical and other projects. The Vega founders are looking to open a new roasting center in Guatemala or Panama, and they dream of opening roasting centers across the coffee-producing world. 

Though it's still early days, Ketabi said that a changing role for coffee growers is inevitable.

"Rob started working with these communities 10 years ago, and still to this day there's no electricity, there's no running water, and yet they have smartphones, they're on the Internet, they're connected," she said. "In the old days, it was easy to offer someone a very low price for their coffee if they had no way to know about anything that's going on outside that community. But now people are connected, they're understanding, and that's something we want to be a part of -- changing the way business as usual is done."

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