What does direct trade mean?

So what does direct trade mean?

For some, it may be direct trade coffee, where the roaster buys coffee directly from the producer. For someone else, again, it emphasizes the importance of the relationship, such as creating a direct business relationship between two parties.

It thus forms a relationship between coffee growers and producers. A relationship in which, ideally, issues relating to quality and price are defined and agreed, with a long-term view to mutual benefit.

Sound simple? Actually, it's more complicated than that.

Direct trade importers

There are importers who refer to their sales as direct trade, which they explain as buying directly from farmers. What about a middleman who describes himself as an importer, is that a direct trade? And what if, when this coffee gets to the roaster, should it then be represented as having been purchased directly from the farmer?

If a roaster buys from an exporter or importer, it should not literally be called direct trade.There are large importers and exporters who work with roasters to increase the profits of farmers.

This does not mean that working with an importer is bad: direct trade is not the only way to positively influence the coffee supply chain. In fact, in some cases, working with an importer can be better than direct trade. And sometimes it may even be your only option.

Potential benefits of direct trade

Although direct trade is hard to define, it remains a key part of the third wave coffee industry - and that's because it has many positive aspects. The benefits of direct trade are multifaceted if done correctly.

Here are some of the benefits of direct trade:

When a roaster works with a farmer, it gives the farmer a chance to develop a personal relationship as well as an opportunity to experiment. This allows the roaster to keep an eye on trends happening in the coffee world.

Trusting someone to buy coffee can give farmers the confidence to invest to improve infrastructure and processes - a better understanding of current market trends can identify the most profitable areas to focus on.

There are many benefits to this commercial model, but there are three specific components that are mutually beneficial: transparency, shared value and traceability. Direct negotiation of quality and pricing requirements between producers and roasters allows for a better understanding of the opportunities at both origin and destination so that both parties can set achievable common goals in a timely manner.

A stronger relationship helps buyers and producers communicate better, solve problems, suggest quality improvements, and better understand production and export costs.

The advantage of direct trade is easier logistics. To learn about the processes of trading, it can simplify the supply chain.

Direct trade can allow both parties to invest more in the business. A direct trade model involving compatible trading partners makes more sense for manufacturers. If a producer has a commitment to produce a certain quantity ofcoffee, of a certain quality for a certain roaster in a certain market, there is a strong incentive to do things better to meet their commitment and achieve better rewards. Direct trade also means that the buyer is willing to invest more in the local community than in the coffee itself.

Direct trade enables a cycle of goods in which income can be reinvested, not only to optimise efficient production but also to improve the quality of life for all participants in the supply chain. As both parties are able to invest in the product, they also tend to invest their time, effort and expertise in producing better coffee and better socio-economic conditions.

The culture of third wave coffee is all about understanding the origins of coffee and its impact. Direct trade makes it easier for consumers to hear the words of producers and know about their work. Traceability allows buyers to get exactly what they want from producers, and producers can focus on tailoring products for specific customers because they know what they expect in terms of quality and quantity.

The challenges of direct trade

Does it seem like direct trade is full of advantages? Well, yes, it can be. But in reality, there are also many challenges associated with this business model.

Contract and payment issues

Contracts that fall through, miscommunication, rogue traders, inaccurate information. There are many problems that can occur when two businesses engage in unregulated trade.

It may happen that a roaster orders a large quantity of coffee from a farmer. They agree on a purchase price and the roaster asks the farmer to handpick the batch, which he normally does mechanically. The farmer agrees, but this will increase the price they have agreed. So the farmer has to hire staff to hand-pick the coffee. Once the coffee processing is complete, the roaster does not have to pay for his ordered quantity. The farmer therefore has to find a new buyer for a large quantity of coffee.

Risk of bad coffee

Not only can contracts be forfeited, but the coffee itself may not meet expectations. If there is a problem with the quality of the coffee, for whom is it a bigger problem, the farmer or the roaster? It all depends on what went wrong and what the relationships are in the direct trade. There are no rules or regulations that govern direct trade. It's up to the producer and the buyer to negotiate the terms.

The main problem ofdirect trade with a roaster is that you are at risk if the product you commit to buy doesn't come in the quality you want. If there is a slippage or if the coffee appears in a different quality than you require, you may be exposed to financial risk.

Coffee is an agricultural product. It is risky to work with. In addition to plant diseases and bad weather, it also poses the risk of political instability leading to production problems. Being aware of the risks and ensuring that you can handle them is key to selling or buying direct trade successfully.

Red tape and paperwork

Even though there are fewer partners involved in direct trade , it means that everyone has to do more logistics. This can require a lot of red tape. There are always issues around bureaucracy and paperwork that affect this.

People-oriented relationships

One of the many benefits of direct selling is the strong relationships you build with your partners. However, this can also have its downsides. Most direct business relationships are agreed between two individuals.

The importance of trust

No business model is perfect and direct business can have its dark side. It is up to the people involved in the partnership to ensure the best possible relationship - for everyone. And perhaps most important of all for a strong relationship is trust. If you don't, your partnership will fall apart. With trust, you will have healthier transactions between the producer and the buyer.

A good marketing tool

But direct business is not just about the manufacturer and the buyer. It's also about the consumer. Direct Trade Coffee makes you think about what happens to the coffee beans before they reach you. You would probably pay a higher price if you knew that the surcharge positively affected the direct selling process. Direct sales is a key part of third wave coffee marketing, but is it a good thing?

You could say that direct trade is a marketing tool. The problem is when marketing is vague and non-descriptive. The goal is to educate and provide data, only good marketing will achieve that. You have to define your goals.

If direct trade stories help roasters sell coffee, it won't change the impact they can have on the supply chain. In fact, they may lead consumers to learn more about the communities producing the coffee they drink - and demand greater transparency and sustainability.

It's really important to do research on both sides. Producers should not accept everything that buyers want. Define your values and the way you work.

Direct business: it's marketing, relationships, traceability, transparency, a tool to improve quality and sustainability, more risk, more bureaucracy, less bureaucracy ... The only thing we can say for sure is that no two direct business relationships are the same.

However, they all come to the same thing - a closer relationship between producer and buyer. It's not a perfect system, it can harm both the producer and the buyer. However, through collaboration, good communication and transparency, it can have a positive impact. It is up to us to make a difference. Be alert, be aware of the risks and be prepared to invest more than just money in this relationship.