From South to North: Farmer-Owned Coffee Companies Are Challenging the Industry's Power Structures

Coffee is a hugely valuable industry, and growing every year, but the farmers on whom the entire sector depends still keep only a meagre slice of that value.

Instead, most of the industry’s profit is earned on the consuming end of the supply chain. The  farmer gets paid the lowest price the market can bear, and then value is added all along the chain: Exporters, importers, and coffee roasters all add their margin on top, until the final product gets to the end consumer, who then often complains about the price.

This discrepancy has historical foundations: coffee was originally a colonial enterprise of wealth extraction built on slavery, and while the industry has evolved, echoes of that earlier time remain. For example: coffee roasting companies buying farms, usually with the stated goals of streamlining operations or increasing oversight of the farming process.

But, these companies say, the benefits of vertical integration aren’t just for the buyer. By purchasing farms, they can improve the lives of people at origin through higher wages and investment, and by funding best practices and sustainable technologies. For the farmers who sell their land, and perhaps those workers earning higher wages from the new owners, this trend can be beneficial. But the result is yet more profit and power kept in consuming countries.

What if we flipped that neocolonial script? What if, instead of wealthy individuals from the Global North buying up land from which to extract value, coffee farmers grouped together and started their own roasting companies? Doing so would streamline their operations and give them oversight of the roasting process, and still improve their lives by returning more of the profit from that final product back to where it all started.

This is already happening, albeit on a small scale. There are plenty of examples of individual farmers roasting their coffee before exporting it or selling to their local market. But more recently, a few groups of coffee producers have come together to pool resources and expertise, and take their coffee directly to the consumer. As we collectively strive to create a more equitable coffee industry, these farmer-owned coffee companies offer a sign of real hope.

Power Imbalances

While news outlets love to report on how increasing coffee prices will impact consumers, the reality is that it’s the people at the other end of the supply chain who are struggling most. Generally speaking, only a tiny fraction of any given latte goes back to the farmer—as little as one penny per cup. According to the 2020 Coffee Barometer, “it is estimated that currently the average green coffee export value accounts for less than 10% of the US$200 to US$250 billion of revenues generated in the coffee retail market”.

Unlike many multinationals, specialty coffee companies typically pride themselves on paying more for higher-quality coffee. Many have embraced models like Fair Trade and Direct Trade, which can help farmers increase their earnings. However, both approaches also come with their own issues: The Fair Trade debate is so protracted it has its own Wikipedia page, while the lack of clarity around what exactly constitutes Direct Trade leaves it open to exploitation by unscrupulous companies.

But, as Michael Sheridan, at the time Intelligentsia Coffee’s director of sourcing and sustainability, told Michaele Weismann in Sprudge: “Direct Trade is the worst system for buying green coffee we have, except for all the others. Yes, there are problems, especially problems of scale, but it’s the best we have”.

Coffee buying is just one example of the in-built power imbalances that benefit those on the consuming side of coffee’s value chain. Holding onto the vast majority of profits is the most obvious and pernicious asymmetry, but there are subtler ways in which the status quo is maintained. Most coffee trade shows still take place in consuming countries, for example, which makes it onerous for farmers to attend, learn, and build relationships. 

Another is that, once they sell their green coffee, farmers have little control over the final product—many have never even tasted the coffee they grow. In the other direction, there is a long history of coffee professionals travelling to origin to “build relationships” or “educate” farmers on best practices. As Vava Angwenyi, owner of the social enterprise Vava Coffee, told Ashley Rodriguez in Curiosity Magazine, these visitors might mean well, but they “[forget] to understand that all we want is for them to buy the coffee, treat this as a business transaction, and let us run our business”.

Today, the majority of coffee farmers live in poverty, while big companies—and their executives and shareholders—make millions. In my article on profit capture in the coffee industry, I asked the researcher and author Karl Wienhold if there were any ways to address this inequity. In the absence of a total restructuring of the industry, Wienhold said that one solution was farmers working together to keep more of the value that they create.

“I think by far the most viable way forward is simply the powerless organising together to leverage their collective power”, Wienhold said. During our conversation, he elaborated: “There’s always surplus that exists between farmers and consumers, but it’s not making its way back, because it has to be transmitted through these bottlenecks, through the owners of capital, the owners of the roasting machines”.

Instead, Wienhold said, if the farmers were the ones who owned the roasters, they could keep more of the surplus that gets syphoned out en route. This is the approach that farmer-owned coffee roasting companies like Pachamama and Paso Paso are now taking.

‘It’s Our Coffee’

After several years as a coffee buyer and then sourcing manager for the trading company Ally Coffee, Bram De Hoog wanted to start his own coffee roastery—but he wanted it to be different. He formed Paso Paso in partnership with five coffee farms based in Central America and Ethiopia, with nearly two-thirds of the company owned by the producers.

The concept for Paso Paso, De Hoog tells me, came more from “frustration than inspiration”. As a coffee buyer, he saw roasting companies reject coffees that they had bought the previous year, or change their minds and leave farmers in the lurch. Meanwhile, producers wanted consistency, to know year after year that their coffee had a buyer. He was constantly balancing different priorities, and eventually decided: “You know what? I’m going to stop juggling this for other people, and make sure that the producers want to deliver to the roastery, and the roastery wants to take the coffee from the producers, by uniting them under one roof”.

Paso Paso’s farmer-owners are Diego Robelo of Aquiares Estate in Costa Rica; Jorge Vasqúez, Daniela Vega, and Alex Vega of Roble Negro, also in Costa Rica; Diego Baraona of Los Pirineos in El Salvador; Hester and Dawit Syoum of Bette Buna in Ethiopia; and Silvio Sanchez Orellana of Santa Teresa de Mogotón in Nicaragua. For Diego Baraona—whose farm, Los Pirineos, has been in his family for 130 years, and has won multiple awards in El Salvador’s Cup of Excellence competition—joining Paso Paso was a way to diversify his business and gain some measure of control over the supply chain.

“I feel like it’s my own project, instead of selling to a third party”, Baraona says. “It’s us; it’s our coffee. So I think there’s more of a sense of pride in this, and there’s more control with how the coffee is roasted, with how the coffee is traded. In the end, it’s about maintaining control of the overall supply chain”.

For Diego Robelo, who runs the famous Aquiares Estate in Costa Rica, being part of Paso Paso enabled his company to continue innovating and growing. “It speaks to the vision and maybe our desire to go a step further in every direction”, he says. “We’re pushed by different challenges that are very present and very constant on the farm—climate change, labour shortage, the international market price—all of these different pressures have ignited a need for us to innovate and to be very creative. This is just another avenue of that, and it feels like a very out-of-the-box one”.

‘A Double Win’

Paso Paso is very new—the company officially launched at the Nordic Coffee Festival in February 2024—but De Hoog says that they have already been contacted by numerous coffee farmers who are interested in their approach. “I get messages, at least one per month, and I’m always very happy to share how we did it, but we’re not set up per se to have other people join”, he says.

Paso Paso is a limited liability company formed in Germany with shares held by De Hoog and the farmers in their various countries, which makes it “terribly bureaucratic” to add new members—although De Hoog doesn’t rule it out as the company grows. 

The concept is, however, clearly very attractive for coffee farmers. And for good reason: “It’s like a double win in the end, because we can guarantee that the coffee is going to be bought every single year with Paso Paso, and then we are earning some sales with the brands in Germany”, Baraona says. “So it’s a way to diversify the business as well as open new markets”.

Of course, not every coffee producer can follow suit—in order to get Paso Paso off the ground, the farmer-owners all invested their own money, and the majority of farmers likely don’t have surplus income to reinvest. But much like a producing cooperative might pool the resources of hundreds or thousands of farmers to gain improved market access or invest in processing equipment, a different farmer-owned coffee company in California is doing the same thing for roasting and brewing.

Organise and Compete

Pachamama Coffee was formed in 2006 in Sacramento, California, as a global cooperative “vertically integrated from South to North”, according to the company’s most recent impact report. That same report notes that ownership is spread among 400,000 farmers from five producing cooperatives in Peru, Nicaragua, Guatemala, Mexico, and Ethiopia.

“Necessity is the mother of invention and Pachamama is no exception”, co-founder and CEO Thaleon Tremain tells me via email. “The founders of Pachamama sought to de-commoditize their coffee and create a brand that would generate sustainable profits for future generations of smallholder farmers”.

Today, Pachamama has a roastery and five cafes alongside a wholesale business, as well as a recent collaboration with the University of California, Davis. As Tremain explains it, the inequities of the coffee industry are laid bare when you compare the retail price of coffee to what the producers typically earn. “When Pachamama brands and brews coffee as a beverage, its retail value is north of $60 per pound, so it can be a highly profitable business”, he says. “Unfortunately, virtually all of the coffee profits are earned by brands and retailers downstream, because they have the power to serve the consumer”.

Much like Paso Paso, Tremain says that his company’s vertical integration allows its farmer-owners to keep more of the profit from the coffee they grow. The impact report compares the difference in income between the conventional system and Pachamama’s cooperative model: Average revenue is seven times higher for a Pachamama farmer-owner, more than $15 per pound compared to $2.25.

The Pachamama model is also scalable, Tremain explains, with the ability to add more farmers as the company grows. “Pachamama proves that it’s possible for smallholder farmers around the world to organise themselves and compete on a global scale”.

Farmer 🤝 Consumer

Whether it’s individual farmers roasting coffee on their farms or several banding together to open a roastery on a different continent, these sorts of value-adding steps can offer a real alternative at a time when consolidation and wealth capture are further narrowing the already meagre slice of income available to farmers.

As Wienhold pointed out during our previous conversation, such a shift in emphasis from consuming to producing countries is not the only way to solve the coffee industry’s wealth distribution problem, but it is one option. “If whoever is in the middle is not willing to [share], then the entire division of labour and ownership of capital necessary to go from farm to cup, that can change hands”, he said.

For the farmers themselves, the benefits are clear—who wouldn’t want to be part-owner of a company that means you can earn seven times more money for the same product? Additionally, as Robelo notes, it’s a model that can challenge the way coffee consumers think about the product they’re drinking, and their purchasing power. “Sometimes you don’t realise how much of that dollar you spend goes in the right direction, versus to some middleman”, he says.

This is also something Pachamama is focused on. “We offer consumers a direct link to their farmer and deeper impact with every coffee purchased”, Tremain says. “These relationships are the roots of our business and, when you think about it, the most essential roles in the coffee supply chain are the consumer and the producer”.

The model of connecting farmers directly to consumers might be relatively new, and the sample size small, but the potential is huge. Farmer cooperatives make up a sizable percentage of the world’s green coffee production—upwards of 30% of Ethiopia’s harvest is marketed through cooperatives, while cooperatives represent almost 20% of coffee farmers in Peru. Paso Paso and Pachamama might have slightly different approaches, but they demonstrate the potential for farmers to gain more power and profit by working together and selling directly to the final customer.

For Baraona, because of all the additional pressures and costs associated with coffee farming, finding additional sources of income and ways to add value is a must. “Whether you do it as a group or by yourself, being a producer who also roasts is the future”.