Direct trade financial models
How direct trade financial models operate in coffee, their advantages over commodity-based systems, and the challenges of implementation.
- Coffee Basics Nerds
- 2 min read
Article 11 of 12 in Economics & Coffee Markets/
What is Direct Trade?
- A sourcing model where roasters buy directly from producers, bypassing traditional import/export intermediaries.
- Goal: Build long-term, transparent, and mutually beneficial relationships.
Core Financial Features
- Transparent Pricing:
- Negotiated above C-market.
- Based on quality, living income benchmarks, and sustainability practices.
- Reduced Intermediaries:
- Fewer middlemen mean producers capture a larger share of final price.
- Roasters assume some logistical, financing, or risk management roles.
- Premiums for Quality & Consistency:
- Producers receive premiums tied to cupping scores or process innovations.
- Encourages ongoing investment in quality improvements.
- Multi-Year Contracts:
- Provide producers with stability and predictability.
- Allow roasters to secure reliable supply and consistent flavor profiles.
Example Financial Model
- C-market: $1.80/lb.
- Direct trade contract: $3.50/lb FOB (free on board).
- Export/logistics costs: $0.50/lb.
- Roaster’s landed cost: $4.00/lb.
- Wholesale price: $8.00–10.00/lb → sufficient margin while ensuring producer premium.
Benefits
- For Producers: Higher, stable income, greater incentive for quality, closer buyer relationships.
- For Roasters: Unique coffees, brand differentiation, ethical storytelling, stronger QC alignment.
- For Consumers: Traceability, ethical value alignment.
Challenges
- Higher financial risk for roasters (logistics, pre-financing, import responsibilities).
- Not all producers have infrastructure for direct export.
- Scalability challenges—works best with small to medium volumes.
- Requires trust and long-term commitment from both sides.
Hybrid Models
- Many direct trade systems still use importers for logistics, but maintain transparent pricing and direct producer–roaster communication.
Summary
Direct trade financial models emphasize transparent, above-market pricing and long-term partnerships. While they require more financial responsibility from roasters, they create win-win outcomes by supporting producer livelihoods and providing roasters with high-quality, differentiated coffees.