(Bloomberg) — Sustainability-minded millennials increasingly want to know where their cup of Americano or Espresso Macchiato comes from, and some of the world’s top coffee companies are turning to technology for help.
Roasters including J.M. Smucker Co. and Jacob Douwe Egberts are joining a blockchain initiative by Farmer Connect, a startup backed by Swiss coffee trader Sucafina and developed in partnership with International Business Machines Corp. The technology will help firms trace the origin of the beans they buy and sell as well as their pricing along the supply chain.
The digital ledger system, which usually tracks transactions, will also be used to feed customers detailed information about where the coffee was farmed, milled, exported, imported and roasted through a consumer-facing application called Thank My Farmer. Clientele will also be able to directly support sustainability projects, and from next year, make direct payments to farmers.
“Our participation in the Farmer Connect blockchain initiative demonstrates our commitment to providing consumers with the transparency they crave while also creating new ways to support smallholder coffee farmers,” said Joe Stanziano, senior vice president and general manager for Smucker, owner of coffee brands including Folgers, Cafe Bustelo and 1850.
The platform, now available to members, will open up for the rest of the market next year, said Dave Behrends, founder and president of Farmer Connect and a partner at Sucafina. The startup plans to raise as much as $20 million at the end of this year or early 2020, making it an industry-wide initiative, he said.
Farmer Connect doesn’t own the data companies input, so when it comes to price — a sensitive topic for many firms — it will be the users’ decision to give others permission to see the value of their purchases and sales. Behrends expects roughly 90% of the users to disclose where the coffee comes from, but only about 10% to embrace price transparency at the start.
“I would expect that as we evolve as a supply chain and consumers demand more visibility, the pressure will increase for us to be able to prove that we are paying a fair price to farmers,” he said. “That will be something that will become more of the norm.”
Coffee traders have struggled with thin margins and increasingly long payment terms by an ever consolidating roasting industry, meaning some traders may chose not to open up their pricing information. While some roasters require proof traders have paid farmers a fair price, the groups that do so successfully are the ones that allow for margins in the supply chain, Behrends said.
“I think traders are fine sharing data that ensures farmers have been paid a fair price,” he said, adding that some influential roasters could use the data to pressure their margins.
While tapping blockchain will help cut transaction costs, sharing the data with financing banks could also help companies to achieve lower rates, Behrands said. And farmers gain too. Growers will get their own app to receive direct payments, input sales and prices as well as data about themselves. The app, set to be ready in the first quarter next year, will also let farmers verify if the price companies input is correct.
“That’s great for two reasons: now we have verified data of how much is going to farmers, it’s not just a trader claiming that they paid the farmer a fair price,” Behrends said. “And for the farmer confirming that, they are building credit history because they are building a digital track-record of production and income and for a lot of the farmers in Africa, that history makes them bankable and open for micro-credit loans for the first time ever.”
Farmer Connect — also supported by the Colombian Coffee Growers Federation, Japanese trader Itochu Corp., importer RGC Coffee as well as Sucafina and the trader’s private label roaster Beyers Koffie — is open to later expanding to other commodities such as cocoa and tea.
“We believe that Farmer Connect will be the platform of choice for the coffee industry,” said Rajendra Rao, general manager for IBM Food Trust. “We know that both farmers and coffee lovers everywhere will benefit from transparent connectivity.”
(Updates with IBM quote in last paragraph.)
To contact the reporter on this story: Isis Almeida in Chicago at [email protected]
To contact the editors responsible for this story: Tina Davis at [email protected], Pratish Narayanan, Nicholas Larkin
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