A Supply Chain Overhaul To Boost Coffee Farmers' Income 400%

This is about a social enterprise on a mission to reinvent the coffee supply chain, giving farmers a bigger and more equitable piece of the action.

Aimed at growers producing specialty-grade, premium, Fair Trade certified coffee, Vega hopes to enable farmers to roast and package their beans  and connect to customers directly via an online subscription marketplace.  As a result, they can make a lot more money than they normally do.

The company, which is based in Leon, Nicaragua, is launching a Kickstarter campaign today.

Eighty percent of coffee farmers- -or  20 million people– are trapped in a cycle of subsistence farming, according to co-founder Noushin Ketabi.  Often in remote areas, they have little access to markets and tend to rely on middlemen for exporting.  (The situation is similar to peanut farmers in Haiti. I recently wrote about a supply-chain social enterprise aimed at them).

And we’re not talking about just a few middlemen.  As many as 20 may be involved in the coffee supply chain, according to Vega. In many cases, the farmers grow the beans, then sort, grade and polish them , among other steps. Then they take the  stuff to a cooperative, which sends it to a larger entity that’s an aggregation of cooperatives. It goes next to an exporter, various certification groups, coffee traders, and labelers, among many others. It takes six months to get coffee from the farm to the consumer.

So, even though advocates of Fair Trade and organic coffee are trying their best, because they work within the usual supply chain, small-scale farmers end up with a paltry share of the pie, according to Ketabi. Each small scale farmer produces about 500 pounds of Fair Trade organic coffee  a year and gets around $1.30 a pound, or $700 a year.  The upshot: Farmers of specialty grade coffee beans earn $1 a pound for a product costing U .S. consumers maybe $20.

Vega’s aim is to cut out most of those other players. To that end, it would set up a processing, packaging  and distribution center located 20 to 30 minutes from farmers. There the coffee would be loaded in pallets, shipped overseas via a U.S. carrier, then  broken down and mailed to consumers.  Farmers would be paid when the processing is done, so it’s not contingent on supply and demand fluctuations. The  founders are still working out the details, but, ”We’ll match the Fair Trade price and pay for the value of the processing on top of that,” says Ketabi. The result would allow farmers to earn up to four times what they typically receive.

The plan also is to train the first group of farmers in how to do the roasting  using special equipment designed by Vega and engineers at a local NGO that uses 90% less fuel than the usual  roaster, according to Ketabi.  Then that first wave would train the next group.

The online site will allow consumers to drill down and get all sorts of information about the product, searching, for example, for a region or even specific farmers.  Customers can curate the coffee themselves, receiving two eight-ounce bags a month, or leave that to Vega, since two of its founders also are certified coffee roasters.

How did this all get started?  In 2005, co-founder Rob Terenzi (who is also married to Ketabi) spent two years in Nicaragua working with a women’s coffee cooperative to develop roasting capacity and build a national market for their coffee. Then he came back to the U.S. and studied law and international development at Fordham University.  There he met Ketabi, who was studying the same thing. He also started a group that took trips to Nicaragua to see the coffee world there.  Ketabi got involved  and, in 2011, won a Fulbright scholarship  to work in renewable energy policy  in Nicaragua, focusing on the lack of electricity and potential for solar energy.  After that she came back to the U .S., getting a job with the state of California in energy policy. In the meantime, Terenzi went to work for Wilson, Sonsini, the famed San Francisco law firm to startup tech stars, where he ended up gaining a lot of helpful insights into how to found a company.

All the while, the two pondered how to make an impact on coffee farming in a way that would have a  long-term  effect.  They decided, whatever the answer was, the best, most sustainable route was a for-profit, one that “could serve as a model for the whole coffee industry,” says Ketabi.  Finally, they pinpointed an overhaul of the supply chain as the key and, with their own savings and relying on their many contacts, moved to Nicaragua to start Vega early this year, also enlisting another co-founder, friend Will Deluca, to design and run the web site and technology side of the operation.

The effort is now in what Ketabi calls a “pre-pilot phase”, focused on Nicaragua, where the co-founders have deep ties; the pilot also will be in Nicaragua.  In its current ultra-early phase, the co-founders are working at 20 or so individual farms, where farmers sort the beans, then Vega packages them,  and sends out samples. The hope for the Kickstarter campaign is to raise $20,000 to buy coffee, install roasters, train farmers, and deliver a limited batch to customers—that is, test out the model  to see what works and needs to be improved in preparation for a full-fledged launch.