Rethinking how the money flows to coffee farmers
When we first spoke to Rani Mayasari about sourcing this year’s coffee from Java Halu, she caught us off guard: Rani asked for payment up front, 10 months before we would see the coffee in the UK.
That’s just not how coffee payments normally work. Yet Rani, a charismatic producer who is helping to put Indonesian coffees on the map, made a compelling argument: She needed the cash to buy coffee cherry from surrounding producers to process through her mill, but she doesn’t get paid for that coffee until months later, when it’s loaded onto a shipping container and purchased by an importer in a country like ours.
That’s pretty normal, but it’s also a lot of risk for a producer to carry — she might not even be able to sell it all — while clearly leaving a big gap in her cash flow. Meanwhile, we at Skylark don’t typically need to pay for coffee until 30 days after it arrives at our roastery in Brighton.
That’s how the cash flows in coffee, and yet maybe it shouldn’t. These insights regularly occur in an industry built on colonial supply chains: The movement of money from buyers to producers fundamentally favours the buy side, and this has fed a new discussion in our roastery about how to better use the cash and timings that we’re privileged to enjoy.
Rani was asking us to ignore precedent and help her increase impact for the local community. We’re glad she did.
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This is our second year buying from Java Halu, which buys, processes, and exports, coffee from 160 smallholders in the surrounding areas of Mount Halu and Mount Tilu. In addition to a small farm of their own, Java Halu also operates two wet mills, a dry mill, and a tree nursery. They offer local growers employment, provide them with training, and give them supplies such as good plant stock from the tree nursery. In the last few years Java Halu has also opened a roastery and a couple of small coffee shops with a view to creating diverse roles for their community — and also to secure a type of income that isn’t just a once-a-year cash bump to producers.
As a UK roastery, we receive money throughout the year, selling about half of our coffee direct to consumers through our website and the other half as ‘wholesale’ coffee to cafes and hospitality businesses. Website customers pay right away, and business customers generally pay invoices seven to 45 days after receiving the coffee. That steady flow of money allows us to pay our team, order coffee, buy snacks, replace equipment, etc., all without bank loans.
For Java Halu, like many coffee producers, this is not the case. By the time their payments come through, the coffee producer will have harvested the fruit, processed the cherries, dry milled the coffee, paid workers, rested the coffee to stabilise and reduce moisture, then waited until it's transported and loaded into a container and purchased by an importer — often 4-6 months of work. As a processor, Java Halu has to buy much of the cherry they process from other growers, and this is always a bet on how much they’ll ultimately be able to sell on. This guessing game is made more difficult by wildly fluctuating coffee prices: The market price might be high when they buy cherry but sink lower by the time the coffee is ready to be sold. So, the operation requires both cash flow and a huge assumption of risk. As you might imagine, producers can often be in the least secure position to carry risk or keep extra cash hanging around.
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This is why Rani asked us to pre-pay for coffee months before the usual invoice. As a team, we talked about it quite a bit. In the end, we agreed to pay the majority up front — but we ended up buying a bit less of Rani’s coffee because we didn’t have the cash flow ourselves to advance any more money. (We’re a non-profit with no investors to create a money pool for us.) We’re not the first to offer this type of pre-harvest financing, and in fact trailblazers like Union have been doing this before us.
For next year, we have started looking at other ways to have more impact. One option could be to connect producers with a pre-harvest finance NGO like Root Capital. Another could be to use the money that we earmark for donation each year as a kind of simple loan first. Then, once we get it back we can donate it permanently to another recipient. Essentially, this would make our £1-per-kilo pledge go twice as far.
We haven’t fully figured this out, but buying from Java Halu has helped us think more about how the money flows — and how finance for coffee producers holds the potential to unlock major change.
Meanwhile, this year’s Java Halu crop is nearly gone already. Get it while it lasts!
Will Davies is relationship manager for Skylark. He also writes for Standart magazine.