Can the Specialty Industry Walk the Talk?

It has been too long since a Mercanta team member joined Christian Schaps in Guatemala. Christian was one of the first people to join the company in the mid-90s, establishing Mercanta’s first and now only Origin office in 1996. The purpose of having boots on the ground in Central America all year round was to primarily foster relationships with producers as they gravitated towards specialty coffee. Building and maintaining relationships with producer partners is vital to the success of a specialty coffee importer, facilitating the reliable supply of unique, high-quality coffees from harvest to harvest. Other roles include understanding costs of production, ensuring a fair premium paid, quality control, domestic logistics, and many … many hours on the road.

Back then Central & Latin America was Mercanta’s focus, Brazil obviously being the lynchpin, but with coffees from Honduras, Nicaragua, Guatemala, El Salvador, and Costa Rica also formulating the foundations of our offering. Spending 10 days on the road in Guatemala and El Salvador visiting some of Mercanta’s longest-standing producer partners was nostalgic in a way, conjured by the storytelling of the producers I visited, hearing about why the production of specialty coffee began, and how Mercanta were one of the first to focus on specialty. Frankly, the last few years of market volatility and never-ending challenges have been wearing. Every actor in the coffee supply chain would most likely agree, but especially specialty importers whose job it is to manage risk, anticipate market movements, and support producers whilst advising and protecting roaster clients from price volatility. Being back on the dusty road and hearing these stories were therefore much needed and went some way to better understanding Mercanta’s role in this new market paradigm we find ourselves in today.

The first notable story was told by Luis ‘Wicho’ Valdes whilst driving to San Cristobal near Coban. I asked how he first met our founder Stephen Hurst, and he began with Mercanta’s involvement in the Cup of Excellence (CoE). Mercanta were one of the first to buy Wicho’s winning lots, and the first to enquire about what else he had for sale. We weren’t just after the best of the best, we wanted to purchase the range, starting with 900 bags of washed coffees right through to the 10-bag single varietal micro lot procured from the tiny plot of land at 1800m that historically may have been lost in a blend. This methodology or approach, fine-tuned over time, is one that we have replicated across the 20-odd Origins that we work with today. Not necessarily leveraging the CoE Auctions as our ‘supply tool’ albeit one that holds great value to this day, but more so establishing a reliable source of quality coffee at volume that is priced to fit within a premium wholesale blend. The landscape has changed since we first started working with Wicho. The specialty industry is flying, but far more demanding. To this day I am in awe of the number of enquiries from London alone, and more so by the coffee specifications requested. One could argue that Mercanta needs to adapt to support innovations and service new demands. I agree that an importer should be supportive if producers are looking to develop their offering, explore flavour, and establish new revenue streams. I am also in agreement that an importer should listen to the customer. But I also think it’s important more so now than ever to not lose sight of the foundations that allowed producers to transition to specialty. In Wicho’s case, it was finding buyers who were willing to pay a good premium for five containers of his 84-point-scoring washed coffee. This is still the case today and shouldn’t be forgotten in the mele of market volatility, experimental processes, and an increasingly competitive marketplace.

The climatic impact on harvests across all Origins, the shortage of labour, supply chain disruptions, and the general rise in costs have dominated conversations with producers in more recent years. However, one revelation that has not featured that came to light whilst travelling through El Salvador was the impact of improved security on the coffee industry. Bukele has locked up over 80,000 gang members in CECOT, Latin America’s largest mega prison, since he came to power. That is a third of the UK’s prison population … there are just over 6 million people in El Salvador. Unsurprisingly this has drastically improved the security of the nation, facilitating increased investment, tourism, and overall national income. However, due to this improved security, the internal migration within El Salvador has increased. Those living in rural areas who were fearful to travel due to gang extortion and kidnapping meant they stayed near the coffee farms and were often in need of work and at hand during the harvest to pick coffee. Now, they are not restricted, and many have left rural areas for the bright lights of San Salvador in quest of a higher paycheck offered by construction firms or other industries (construction being the main alternative due to the increased investment in infrastructure by Bukele and foreign entities). Specialty producers are also struggling to incentivize workers to pick ripe mature coffee cherries for specialty lots due to the attractive offers for commercial coffees. Why waste time hunting for ripe mature cherries when you can get paid the same down the road picking any colour cherry for commercial grades? All these issues are of course very real, but I believe the greatest challenge is quantifying these costs rather than simply listing the range of cost drivers. How can one present the supporting data for an additional $0.50/lbs on top of a record high market to the buyer? It left me questioning if importers could do more in helping the producer analyse and quantify cost-drivers, and more importantly, communicate to the roaster.

Another comment that made me reflect on the role of the specialty importer came from a partner of 25 years, El Borbollon, who stated that “Mercanta have always walked the talk, or at the very least have tried their best to.” For context, we were discussing paying additional specialty premiums during high market levels, and the continuation of the qualities that Mercanta had always purchased. This was particularly interesting to me because the phrase “tried their best to” underscores the need for our model to undergo constant revaluation during challenging market conditions. At this current point in time, with a $4.00/lbs NY C and seemingly every part of the supply chain wilting under cash flow restraints and unpredictable hand-to-mouth demand, we are indeed trying our best to walk the talk. We have long championed paying fair premiums in exchange for high-quality products. Surely now, with a $4.00 market, we should be more than willing to pay up, as should our roaster clients.

I was taken aback by the hypocrisy within the specialty industry following the first bull run in 2021 post-Brazil frost, including my own hypocrisy. Coffee went from being too cheap to being too expensive in the span of a few months, with the dialogue pivoting faster than Pat Mahomes on the snap. This period and transition in dialogue outlined the challenging dual role that a specialty importer plays: supporting producers when the market is in the toilet and farms face ruin whilst protecting roasters during periods of high volatility and financial turmoil. The conversations back in 2021 shifted so quickly because the market reaction was so violent, leaving little time for roasters to adapt. We find ourselves in a similar and far more precarious position with the move from $2.50/lbs to $4.00/lbs in the last few months. The reason for this volatility is a topic for another article, but we are grateful at Mercanta to have a network of relationships that have offered some form of protection due to the longevity of paying premiums. This won’t last forever however, and a new benchmark needs to be established. The questions that will be answered in the coming months is can the industry absorb the price pressure, adjust, reset, and continue to pay historical premiums over the commodity market? Will the industry continue with their usual product ranges, or scrape the barrel for the cheapest ‘minimum accepted specialty quality’ out there? The market lurches of late are forcing the specialty industry to learn to walk the talk once more.