Increasing transparency in the coffee value chain.
High in the mountains of Honduras sits a house in the middle of countless sloping trees. Claudia, her husband Juan, and six other assorted family members live inside, their income depending largely on the coffee that surrounds them. There have been years when yields have been good and years when they have not.
Last year, Claudia and Juan weren’t able to fertilize their fields because their previous coffee harvest income could not cover both their living expenses and farm investments. Every year they worry if they can harvest enough to set themselves up for bigger success next year.
A possible answer to this dilemma has emerged from the most unlikely source: electronic technology. Blockchain, as a method of recording information that combines transparency and immutability, can break down some traditional barriers to trade and promises benefits to farmers. In June 2019, Arrow Electronics and Posner Center awarded iDE and Bext360 the Arrow Innovation in Technology Award for a project entitled “Moving Up the Coffee Value Chain via Blockchain.” The project aimed to answer three questions:
- What are the steps and resources required to implement a blockchain traceability project in the field?
- What value do buyers and customers place on blockchain transparency?
- If there is value in transparency throughout the value chain, how may we best deliver on it and translate that into material benefit for our farmers?
What is blockchain?
Plug “blockchain definition” in to a search engine and you will be given something like, “A blockchain is a decentralized, distributed, and oftentimes public, digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks.”
Many people find this definition difficult to understand. A better way to grasp blockchain may be by comparing it to something more accessible: a movie called The Truman Show.
In the 1998 film, Jim Carrey’s Truman is unknowingly living his life within a TV show. Every move he has made since birth is broadcasted live around the world in real time and recorded for posterity. Because everything is recorded and can therefore be replayed, no element of his life can be forgotten or disputed.
This transparency is similar to how blockchain handles data. From the moment coffee beans are harvested, everything about them is recorded—their weight, moisture content, drying method, who roasted it when, who bought it. Each data point is entered only once, then encoded with other data points into a larger block of data, while ensuring continuity chains with previous data blocks. This data can be seen by all and verified by all. If anyone attempts to present tampered data (e.g. an edited, alternate version of Truman’s life), the shared record would trump and deny the imposter.
Why would a smallholder farmer want to use blockchain?
As any product moves through the value chain, each player it interacts with benefits from their role. Producers take raw material and transform it into something of higher value by adding labor. Aggregators buy small amounts at a low price and when a significant amount has been collected, they resell the larger amount at a higher price point. Transporters earn a cut by moving the product from here to there. Consumers then trade their money for the desired final product. Ideally, with perfect information, each step in this chain would be fair and equitable, meaning the value added at each step could be seen and verified by all.
For smallholder farmers, a blockchain system attaches value and transparency to their coffee after it leaves the farm. Blockchain also establishes trust within the coffee value chain all the way to the consumer, meaning that rural farmers are able to seek the true value of their work. By using this system, coffee roasters know that they will be receiving high quality beans, farmers know they will be given a fair price, and consumers know that the product is authentic.
Other opportunities blockchain can unlock for farmers:
- Certification schemes can be reduced, as farmers are better able to prove their produce is rainforest friendly or organic.
- Higher visibility into the coffee market and increased bargaining power.
- Opens a more consistent chain, reducing the likelihood of distress sales.
- A history of financial transactions and proven stake in harvest can help farmers get access to finance even if they are traditionally unbanked.
Partners, pilots, and practice
iDE and Bext360 chose Honduras for this project as we had extensive experience between our organizations working with the complete coffee value chain. The top priority at the start was to secure producers and buyers who were willing to trade, or else there would be no one interested in the data entered and no transactions to record.
We were fortunate to be introduced to Queen City Collective Coffee, a local roastery founded by the Byington brothers, who spent a decade before opening their business coordinating humanitarian programs, organizing research projects in rural Africa, and discovering the meaning of community from Zimbabwe to Rwanda. Queen City believes that honest relationships, from farmers to consumers, achieve an equitable and sustainable coffee supply chain. In July 2019 they were introduced by an importer to a group in Honduras called Catracha Coffee and were impressed by the coffee samples they received.
Catracha Coffee is a social enterprise dedicated to accessing the specialty coffee market for small coffee farmers in Santa Elena, a small city in La Paz, Honduras. Catracha was founded by Mayra and Lowell Powell. Unlike an agricultural cooperative, they support farmers in their community by paying the farmers in their network twice. The first payment is roughly the same as that found in the local market, while the second payment is in the form of profit sharing when Catracha is able to sell the coffee to speciality roasters such as Queen City.
Catracha is able to do this because they work closely with their farmers to ensure high quality every step of the way from land management to picking, drying, milling and storage. The premium in price allows farmers to invest in organic fertilizer and hire additional labor to care for the farm, improve their wet-mills and drying capacity, enabling a virtuous cycle of sustainable growth. Catracha also promotes art, crop diversification, and entrepreneurship in their community.
While this matchmaking was occurring, Bext360 continued to improve the blockchain system. By early December everyone agreed on the data model, clearly identifying what information would be gathered at each stage of the beans’ journey. Lowell received training remotely to enter data into Bext360’s system using both an Android phone and a laptop in December just in time to record the cherries picked when harvest began in January. The harvest completed in mid-February and all the beans were dried, milled, and entered in Bext360’s system by Catracha, ready to export to the United States for Queen City to roast and package for consumer purchase.
Despite the COVID-19 pandemic taking an increasing toll on the people of Honduras, both in terms of health and economic impact of the lockdown, we are grateful to learn that thus far Lowell, Claudia, Juan and everyone else in the Santa Elena community is united in good health. In response to the pandemic, Catracha trained women participating in handicrafts to make masks to sell in their community.
A bright future for blockchain
The future of how blockchain can be utilized in Agriculture seems promising. While the history of international development reminds us that transplanting technologies is never easy, we hope that our diligence in understanding the full context of the market, customs, and behaviors that drive the coffee trade will enable this pilot project to become a successful new method of ensuring coffee farmers realize more value for their labor through transparency to customers and roasters.