Tackling the COVID-19 Coffee Crisis: Can Blockchain Strengthen the Link Between Producers and Buyers?
Editor’s note: This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic. For news updates and analysis, virtual events, and links to useful resources related to the COVID-19 crisis, check out our coronavirus resource page.
As we all know, COVID-19 is having a major negative impact on many sectors worldwide, and the coffee industry is no exception. When looking at the industry, the supply chain is being affected throughout. The closing of restaurants and cafes has resulted in a considerable drop in coffee consumption, leading to an economic crisis for many coffee companies. In response, many end-market actors are trying to change their business strategies to successfully weather this unprecedented time. For instance, some importers are looking for new trading opportunities to secure their stock for the future, while a few roasters are moving to e-commerce to sell their coffee directly to end-consumers. Adapting to new business opportunities is an understandable reaction to the current crisis.
However, what about coffee producers? Even before the spread of COVID-19, they were one of the most vulnerable actors in the value chain. They bear the brunt of the effects of climate change, which causes low levels of production and affects quality. But they also have difficulties in accessing the market and financial services, as they’re at the mercy of the constant ups and downs of the international commodity market price. With the pandemic, their struggles will be exacerbated even more – and for them, it might be difficult to adapt their business as quickly as importers, roasters and others have done. For producer organisations, adapting to COVID-19 would require investing in alternative business models or sources of incomes. But with these businesses already struggling to make a living, new investments are almost impossible.
However, options do exist for coffee producers, even in the face of these historic difficulties. Let’s explore the challenges they’re facing, and a tech-driven solution that could help producers survive the pandemic.
A Blockchain-Driven Solution for Coffee Producers
One key challenge is the fact that different governments are introducing lock-down measures, and coffee producers need to adapt to these new, shifting regulations. For instance, applying social distancing strategies on the ground could lead to an increase in costs, especially since the harvest season is starting in some coffee-producing countries. To maintain a healthy physical distance between workers, coffee pickers who dedicate themselves to harvesting the coffee beans might need to work at half capacity, extending the time spent on the field and increasing the cost for the producers who pay their wages. Additionally, transportation and shipping might also be affected due to potential delays and border restrictions imposed in response to the pandemic.
In addressing these challenges, technology can play a fundamental role. At the Progreso Foundation, we developed Beyco (Beyond Coffee), a coffee trading platform based on blockchain technology that’s able to connect coffee sellers and buyers worldwide through one single system. Blockchain is used to safely encrypt and store all the required information of the users. It also gives them the opportunity to sign smart contracts whose conditions are agreed to by all the parties involved. (These are digital contracts that are generated on the blockchain, allowing both sellers and buyers to create a digital track records of their trades.) Our mission is to go beyond traceability, connecting businesses to the market while providing additional trade services – and making sure producer organisations receive a fair price. Using blockchain, Beyco helps producer organisations have access to a trading tool that puts them on equal footing with buyers. When smart contracts are drafted, the producer has the same opportunity as a buyer to add, accept or deny a specific condition. This platform not only provides information about the coffee, it also allows both sellers and buyers to negotiate coffee deals online. Beyco has been active since 2018, and it can provide an easy way for coffee producer organisations to trade their coffee during this difficult time.
Switching to Online Coffee Trading
Coffee producer organisations, traders and roasters can register on Beyco for free, allowing them to conduct their coffee transactions online and access the international market. The system is quite simple. Each value chain actor can sign up through the Beyco website, after which they’re guided through an internal verification process. When access is granted, producer organisations can upload information about the coffees they have available, including details about the product’s quantity and quality, the affiliation of their certification system, and the characteristics of their organisations. They also include the price they would like to receive for each coffee on offer. Buyers, on the other hand, also have their own account. They can access the platform, look for interesting coffee offers, then connect directly with the sellers through an online chat system, asking for samples and negotiating the price.
This online connection opportunity facilitates the building of new relationships among coffee buyers and sellers, whose credibility has been thoroughly assessed. Progreso conducts an internal due diligence process that ensures the legitimacy of both sellers and buyers before granting them access on Beyco. In the coffee industry the majority of coffee trades have always happened between parties who are already familiar with each other, and have been working together for many years. However, due to the current crisis, some buyers could have difficulties in purchasing the same quantity of coffee from their favored providers – and sellers might also need to look for other trustworthy buyers interested in their products.
That’s where Beyco comes in. The platform verifies registered users, so parties which haven’t previously worked together can find each other and collaborate. For sellers, this is an opportunity to access a bigger number of buyers and work with new partners. For buyers, Beyco provides a greater network of trustworthy sellers, and the opportunity to offer more varieties of coffee to their clients. Additionally, since the platform gives both sellers and buyers the opportunity to sign smart contracts online, it provides an alternative to the usual practice of negotiating the price of the coffee over the phone or with multiple email exchanges. In that way, Beyco offers an efficient way to seal new coffee deals, while most coffee value chain actors worldwide remain homebound.
Addressing Additional Obstacles Facing Coffee Producers
COVID-19 is an additional bottleneck for financial services as well. With social lenders’ offices closed, applying for and receiving credit will become even more challenging for producer organisations. Now more than ever, they will have difficulties in accessing loans to pre-finance their contracts. This practice, which is quite common in the industry, helps secure future supplies of the coffee being sold, making sure farmers and producer organisations can access the cash flow they need to guarantee productivity and quality and deliver their coffee on time. Through our experience working closely with many producer organisations, we learned that market access is not the only factor behind these entrepreneurs’ success. Access to finance plays an equally important role.
For this reason, producer organisations can send a loan request through Beyco to the Progreso Foundation. The foundation has been active for the past 20 years, reaching more than 100 producer organisations and 300,000 farmers worldwide, and working to ensure their access to the international market and to financial services. Through its network, it either supports these organisations in making contact with an external social lender, or pre-finances them directly with smaller loans. Often, small producer organisations have difficulty accessing finance from social lenders. Therefore, through Beyco, the Progreso Foundation might decide to facilitate first credit lines, as an initial step to providing the producer organisation with greater creditworthiness.
The COVID-19 pandemic can also complicate coffee producers’ logistics services. Even though it is not fully clear what will happen with future restrictions on ports access or shipments, Beyco works to predict potential hiccups for international import-export. By maintaining close contact with producer organisations in Africa, Latin America and Asia, we are trying to offer solutions that help streamline these services as much as possible. For instance, if a producer organisation is contacted by a small roaster that’s interested in buying their coffee, but that’s not familiar with an importer able to ship the bags, we can provide assistance to make this happen. It is extremely important for us to provide comprehensive support to both coffee producers and buyers worldwide. We believe we can do this more effectively by providing a digital track record of all the activities happening between sellers and buyers – instead of using a more traditional paper-based approach.
Bringing Coffee Buyers on Board
As with any supply-demand model, coffee trading needs a seller and a buyer: Whether it happens online or in-person, producer organisations need to be supported by buyers to make deals possible. That’s why Beyco is always looking for more end-market actors to register. With more importers and roasters connected, we can work together as an industry to make sure that producer organisations can sell their coffee at a fair price to the right business partners. This will not only allow producers to secure their sales, but also to build their digital identity, establishing their reputation and allowing for a more sustainable future in the long term.
Of course, it is still uncertain how the current scenario will change the coffee industry in the coming months. But this is the perfect moment for technology to disrupt the way coffee trading has been done for the past decades. Through technology, both sellers and buyers can create new relationships or optimize existing ones, build their confidence in the credibility of their business partners, and leverage fully-traceable connections. Looking forward, those companies that successfully incorporate new technologies into their operations are likely to become the leaders of the new coffee trading systems of the future.
Photo courtesy of Isabel van Bemmelen.