There are several transactions involved behind your cup of delicious coffee. The roaster needs to build relations and negotiate with a lot of suppliers and importers before finally settling on one. This article focuses on the total process of buying and selling green coffee beans. If you are among the curious ones, this article might be of some delight.
The importer/exporter model
Individual producers, cooperative farms, and third-party exporters are among the exporters of coffee. They can either trade directly with roasters or transact through importers. As most importers are already in the business for years, they are ready with useful contacts and financial capital to buy green coffee beans in lots. So, importers are a viable option for the roasters to secure quality coffee from all over the world.
Importers buy coffee beans in bulk and store them in warehouses. The importer keeps a directory that contains information regarding all the producers it has done business with. This includes timelines of the harvest season, varieties of coffee grown, and coffee beans availability. Thus providing traceability which helps the roasters to make informed choices.
As dedicated large-scale businesses, importers have the resources and expertise to handle bulk logistics and international duties. An importer usually consists of a longer supply chain with profits divided among them all. A longer supply chain having several parties involved in different stages makes the logistics run smoothly. Some coffee importers may also introduce roasters to the producers to promote transparency.
When coffee producers sell green coffee beans directly to the roaster without the help of third-party importers, it is known as direct trade. The direct trade option allows more transparency and builds a strong roaster-producer relationship. Roasters inclined towards transparency and traceability choose direct trading. The absence of all the intermediaries makes direct trading an economical option in the coffee business.
Among all the advantages, direct trading comes with some risks too. With agencies uninvolved in any kind of regulation, all the total transactional responsibilities depend on the buyer solely. Both the buyer and the seller need to know about the business procedures and international importing procedures. The buyer also has to instill confidence in the producer to be labeled as a loyal party.
Whether through direct trade or with the help of importers, there are two modes of subscription that can be used to buy green coffee beans. They are spot buying and forward contracts.
Spot buying is simple and doesn’t involve any future commitments. Roasters or importers buy the coffee on the spot. This is an expensive choice as the importer has taken the full financial responsibility to buy and store the beans.
In forward contracts, roasters subscribe to the producers for a certain period in advance. In some cases, importers may be involved, otherwise, roasters may directly deal with the producers. A forward contract provides more security to the farmers as they now have an assured buyer. A list of assured buyers means that the producers can plan the size of infrastructure and invest in the latest equipment to raise the quality of their coffee in the long term. So, forward contracts benefit either party because the producers know how much income they are expecting and the buyer knows the exact amount of money to spend.
Also known as middlemen or coyotes, in-country buyers are an alliance between the buyer and the producer. The coffee an in-country buyer sells has a greater chance of being of low quality. These middlemen have a reputation as profit-seekers. Although they are useful to the producers lacking necessary connections, legal knowledge, and logistical intelligence.
So what is the best way to buy and sell green coffee beans?
As mentioned in the article, every method has its pros and cons. Depending on your resources, location, and international importing rules, one method may work well while others may not. So before selecting a method to buy green coffee beans, learn about the legal side, policies of logistics, and any other necessary governmental policies.