Income diversification is the key to a thriving coffee future. Micro-businesses that utilize existing coffee infrastructures, such as wet and dry processing facilities, can create wealth in rural smallholder communities. Photo credit: 10x Impact Ventures
Perspective by Carli Rosencranz
Have you ever encountered a puzzle that just won’t seem to leave you alone? As a business “generalist” with enough exposure to the coffee industry to be considered an expert by outsiders and an outsider by experts, there’s a puzzle that has nagged me for some time. What would it take to double the income of coffee farmers?
10x Impact Ventures was founded to disrupt the cycle of systemic poverty in rural smallholder communities and create local value for at least a million smallholders.
About 15 years ago, I had the privilege of serving as the hot beverages buyer for a major retailer on a sustainability journey. The coffee category was my focus, so I dug in, met with suppliers, NGOs, and coffee farmers at origin, and learned a lot.
I discovered that the issue of sustainability is incredibly complex. Farmer livelihood is just as crucial as environmental impact when it comes to the sustainability of coffee. Around 80% of coffee is grown by 25 million smallholder farmers worldwide. As many as two-thirds struggle to earn a reliable income from their coffee harvests and face food insecurity during the off-season. Due to a lack of opportunity in rural communities, the next generation is forced to leave their farms and move to urban areas.
These were “dots” I felt the need to connect, creating a puzzle in my mind: What would it take to double the income of just one million of those 25 million farmers? Surely, that must be possible. No matter where my professional journey took me, I couldn’t shake the need to solve this puzzle. So, I continued exploring and researching, took personal trips to coffee villages in East Africa, and began volunteering with organizations that could help me learn more.
Author Carli Rosencranz conducting research on ways to help Rwandan coffee farmers earn additional income. Photo credit: 10x Impact Ventures
While brainstorming with a friend one day, he asked a simple question that suddenly made it clear. “What if you’re thinking too small? What if, instead of doubling the income, we focused on how to 10x the income of these farmers?” Well, this question is actually much simpler to answer.
What would it take to 10x the income for smallholder coffee farmers? Obviously, something other than coffee. These communities would need to have other income sources besides coffee. That requires a solution at scale. How can it be done in a financially sustainable way? That requires points of leverage. Once we knew what we were looking for, we started to find it.
Let’s Talk About Leverage
A logistics infrastructure exists in coffee-growing regions to support the coffee supply chain, moving coffee through various stages of processing and aggregation from the rural coffee communities into the commercial center of that market for export. That infrastructure is largely dormant outside the 3-4 months coffee is actively being harvested and processed.
Coffee washing stations, or wet mills, are often the first point of aggregation where farmers bring their coffee cherries for the first processing stage (de-pulping, washing, and drying) before the coffee is moved to dry mills for further processing and exporting. One wet mill can service hundreds of coffee smallholders, and dozens of wet mills can feed into a single dry mill. These wet mills are often one of the few locations in the area to have reliable water and electricity, indeed, for any industrial scale. Likewise, these are typically shuttered for 8-9 months a year.
So, there is infrastructure to leverage, and there’s plenty of labor outside of the harvest season as well. What about market demand? Many coffee-growing countries are rapidly emerging economies that lack local manufacturing facilities for the essential products required to support growing trade. To fulfill the demands of emerging middle-class consumers, they rely on importing those products at a higher cost, adding to the environmental impact of a longer supply chain.
Micro-manufacturing is one emerging trend driven by hyper-regionalization across the globe. Innovation in this space makes micro-factories economically feasible, and technology makes distributed collaborative manufacturing and demand aggregation frictionless so that these micro-factories operate like individual lines of a larger factory to fulfill local and export demand.
Micro-factories can scale quickly by onboarding new locations through a business-in-a-box or franchise-manufacturing model. They leverage equipment sourcing volume, standardized manufacturing processes, and capital provided through investors and low-cost financing.
And what would these micro-factories produce? Agricultural waste byproducts such as those readily available in coffee-growing areas are the topic of much innovation, especially for use in packaging (paper as well as alternatives to petroleum-based plastics), textiles (for home and apparel), construction materials (plywood and concrete alternatives), furniture and finishings from veneers to high-end laminate countertops and fixtures.
Many of these goods are in high demand in emerging markets and are not slowing down. The coffee cherry itself is currently a waste byproduct that, when properly processed, has commercial value in food, beverage, pharmaceutical, and cosmetic products.
By operationalizing and connecting these micro-factories and tapping into growing demand for the right products, businesses that create local value can disrupt the cycle of systemic poverty in rural smallholder communities.
Income Diversification: The Future of Coffee
Two women from a Rwandan coffee community discuss the possibility of using banana fiber from their own farms to create bags for coffee export. Photo credit: 10x Impact Ventures.
Income diversification is the key to a thriving coffee future, and these businesses can be a solution to create wealth in rural smallholder communities. In East Africa, a Kenyan entrepreneur has established a small but profitable business in banana fiber and is currently exploring how to convert banana fiber into burlap bags for coffee export.
East Africa exports over 12 million bags of coffee annually, and all of those burlap bags are currently imported, so a sizeable local industry could be sustained. This would provide local jobs and enable these markets to produce their bags locally instead of relying on imports.
In Central America, producers in Honduras and Guatemala are further processing high-value fruit concentrates, some of which utilize coffee cherry pulp. This not only adds value but also reduces coffee production’s carbon footprint.
Innovative companies use banana fiber in compostable alternatives to plastic and foam packaging. With slight modifications, this could be implemented in micro-factories. University projects are also converting agricultural byproducts such as spent sugar cane into construction materials.
All of these projects require investment, expertise, and technology to scale. This is the puzzle I’ve been pondering, and it’s coming together with the help of many thought partners, encouragers, and supporters. Ten times the income…one million coffee farmers… saving the future of coffee…seems doable and fun!