Getting African coffee producers higher prices through online auctions
One of the most important roles markets play in the economy is to enable price discovery: interactions between buyers and sellers establish the price of a given commodity. But price discovery only works as intended for sellers when they are well informed and can choose from multiple prospective purchasers.
The producers of high-value specialty coffee in developing countries typically do not have direct price discovery opportunities with international importers and roasters.
The traditional trade model, based on relationships, puts sellers – especially MSMEs that lack resources and marketing networks – at a disadvantage in price negotiations, leaving then unable to secure optimal prices for their coffee beans.
The African Fine Coffees Association (AFCA), a non-profit group of stakeholders from across the coffee value chain, works to promote exports from Eastern and Southern Africa of specialty coffee. The group runs the Taste of Harvest competition, a regular tasting event designed to showcase high-quality African coffee with a view towards building ties to international buyers who might otherwise look to more traditional source countries. A key feature of these events is cupping, the term for organized tastings of brewed coffees by certified tasters who determine whether a coffee’s flavour profiles qualify as specialty grade.
ITC has worked with AFCA since 2014 to support better connections between coffee vendors and international buyers. However, while initiatives such as Taste of Harvest successfully raised the profile of the winning producers and enabled international buyers to meet and make direct purchase offers to them, the competition was not a platform that supported competitive bidding for African specialty coffee.
ITC and AFCA developed a partnership with Bean Auction, a London-based specialist provider of online auction services, insurance and logistics for coffee.
As before, AFCA organizes the Taste of Harvest cupping competitions. ITC helped design stricter protocols for the competition – and provided a mobile laboratory – to provide quality assurances to buyers who may not be physically present. The coffees deemed to be specialty grade are then offered for sale through Bean Auction’s online platform. Once a sale is made, Bean Auction facilitates export contracting and logistics.
In 2016 and 2017, pilot competitions and auctions were held in several eastern and southern African countries. Involving 13 active international bidders for lots put up for sale by 18 companies, the auctions led to more approximately $110,000 in sales for 16,200 kilograms of coffee. They served to build awareness among governments, sellers and buyers while allowing the three partners to refine their protocols surrounding the competition and auctions. More importantly, they led to higher prices for producers. The coffees that won an initial competition in the United Republic of Tanzania were sold to buyers in Switzerland and the United Kingdom, fetching prices 58% above market rates, with the top quality lot achieving a price premium of 108%.
Building on the initial pilots, tasting competitions and auctions were held in November 2017 for coffee from Zambia and Malawi, leading to nearly $60,000 in sales – at a 160% premium above normal market rates – to buyers from Chinese Taipei, South Africa and the United Kingdom.
Similar competitions and auctions are planned for the Democratic Republic of the Congo, Kenya and Uganda. Ugandan government authorities view the platform as contributing to their strategy to promote the specialty coffee market segment to international buyers accustomed to thinking of Uganda as a source of mainstream robusta coffee.
Under the SheTrades initiative, ITC is partnering with Bean Auction and the Ethiopian Women in Coffee Association to test whether the platform can help women-owned coffee companies in Ethiopia find new international buyers.
Bean Auction is introducing a new feature that would allow sellers to hold multiple lots of coffee on the site for extended periods of time instead of only during a timed auction. In principle, this should allow more buyers to bid for lots, enhancing the effectiveness of price discovery.