Could a new pricing model finally end poverty in coffee & ensure beans are truly ethically sourced?

According to sustainable coffee roaster Bellwether​, “decades of various interventions and initiatives” designed to uplift farmers have fallen woefully short with the nominal price of coffee remaining close to that of 40 years ago – representing a decline in real terms of almost 67%​ and resulting in 80% of the world’s coffee producers living below the poverty line.

Frustrated that the existing pricing standards for coffee don’t work for farmers, and that marketing claims around sustainability and fair pricing mislead consumers, Bellwether teamed with stakeholders across the supply chain, including Heifer International and Sustainable Harvest to create the Verified Living Income​ – a first-of-its-kind green coffee pricing model designed to meet farmers’ needs without placing a significant additional burdens on other players in the supply chain.

“Verified Living Income really flips the coffee industry’s pricing model on its head and it sets minimum green [coffee bean] prices based on farmers’ livelihood needs, instead of the commodities market,”​ Grayson Caldwell, the senior sustainability manager at Bellweather explains in this episode of Investing in the Future of Food​.

She notes that the model takes into account the unique factors each farmer or co-op faces to identify how much it costs them to produce a pound of coffee, including their average yields and productivity, land size and inputs and “overlays a living income benchmark to not just determine the cost that buyer should be paying for coffee to cover the cost of product, but really what price needs to be paid to bring coffee producers up to be able to live a dignified life and earning a living income.”​

Monica Terveer, director of sales at Sustainable Harvest, added the Verified Living Income model is a tool for coffee producers that allows each member of the supply chain to own their responsibility, share information and take action in accordance with their values.

Ensuring the coffee supply for the future​

Creating and adopting the Verified Living Income model benefits more than the farmer – it also ensures the longevity of the entire coffee supply chain.

Caldwell explains that most end consumers assume that if they pay $16-$20 for a bag of coffee that the money is equally distributed across the value chain and more will end up in the pockets of farmers – but that isn’t true.

“There’s such an unequal value distribution and farmers’ realities are that for years they have been paid less than what it costs to produce coffee,”​ which when combined with climate change threats to their land is pushing many farmers to leave the industry, she said.

“So really … the Verified Living Income initiative is not just an act of benevolence, but it’s really key … to the stability of the coffee industry as a whole,”​ because if the farmers quit and there is no coffee to sell “we are all out of jobs,”​ she said.

Meeting consumer demand for equity​

Noting a recent survey by the National Coffee Association that found consumers primarily select coffee based first the roast level and second on whether the brand supports fair farmer wages, Caldwell adds that the new model also helps brands authentically and transparently meet modern consumer demands.

“The reason that this was necessary is because even though there are a lot of sustainability claims out there on all kinds of food products, but we know in particular it’s almost harder to find a bag of coffee without some kind of claim attached to it now than to not have it. But those claims do not mean that farmers are being paid fairly and more specifically does not at all mean that they are being paid enough to earn a living income,”​ said Cory Gilman, strategic initiatives manager: coffee & commodities at Heifer International.

“So,”​ she added, “words like sustainably sourced, fairly priced – they’re pretty arbitrary and they don’t have a hard number attached to it”​ to back-up marketing claims.

Given the broader discussion in America currently about equity and living wages, Gilman said the team knew that now was the time to act and introduce this new pricing model.

What is a fair price?​

Based on a pilot study to test the Verified Living Income model with a coffee cooperative in Colombia, Bellwether found that its own “gut level” assumptions about what constitutes a fair price fell far below reality.

“We though we were paying fair prices and we did this [pilot because] we were just wanting to find the data to back up how we’re purchasing coffee. And we found that we were actually paying 20% lower than the living income base price,”​ Caldwell acknowledged. “So, when we sighed the 2021 contracts … we raised our contract prices by 20% to meet the verified living income price. And for us, as a company, that is who we are”​ and the values we live.

While 20% is a significant increase for farmers, Caldwell notes it an “insignificant amount” for Bellwether, nor would it be for other coffee roasters and brands that want to adopt this model.

“There’s so many other ways that we can streamline our supply chain where we can cut back on packaging or transportation or other things to recoup the 30 cents or 20% for contracts,”​ she explained.

Even if brands already work with farmers to improve their livelihoods through community development efforts, Gilman encourages them to consider adding the Verified Living Income model to their business management toolbox because fair pricing through procurement is more empowering for communities.

Caldwell, Gillman and Terveer encourage coffee industry stakeholders to learn more and join the conversation by reading their white paper​ on the model and connecting with them.