#62 | Re:co Podcast - Merling Preza on the Role of Cooperatives (S2, Ep. 3)

Today, we’re very happy to present the third episode of “Cost of Production and Profitability for Coffee Producers,” a session recorded at Re:co Symposium this past April. Buyers and producers alike need to understand what it takes to produce specialty coffee so that it can be produced sustainably, so we convened experts to ask: Do we really know what specialty coffee costs?

If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

What role do cooperatives play in the resilience of the specialty coffee sector? Merling Preza, who was one of the founders of PRODECOOP in1993 and now serves as its General Manager, reflects on the experience of farmers in Estelí, Nicaragua, and the surrounding areas during the current price crisis, the crisis of the early 2000s, and the years in between.

Specialty Thanks to Toddy

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

Full Episode Transcript

0:00 Introduction

Peter Giuliano: Hello everybody, I’m Peter Giuliano, SCA’s Chief Research Officer. You’re listening to an episode of the Re:co Podcast, a series of the SCA Podcast. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, the SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. Check out the show notes for links to our YouTube channel where you can find videos of these talks.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

2:15 What is Prodecoop and its vision?

Kim Elena Ionescu: Thank you for being here with us. The first thing I would like to ask you, thinking about this subject… You’ve been working many years with Prodecoop. Could you tell us a bit about what Prodecoop is, how was the organization founded, what was the reason for the foundation, and what role did you have there, and in what year was it founded?

Merling Preza: Good morning to everyone. Thank you for giving me the chance to share our experience. Prodecoop is a cooperative center of small producers in the north of Nicaragua. We have 2,417 producers, we are organized in 38 base cooperatives, we are level 2.

We organized in 1993, there was a process before, from 91 to 93, and in 1993 we organized, and it was really simple, it was the necessity of commercializing the coffee of the small producers, who didn’t have at that time direct access to the market, and in a time where the price of the coffee was US$70. So there were two things: To put the coffee on the market, and to try to obtain the best prices.

Fairtrade played a very important role for us. It was the entry door to the market. My role at that time was part of the creation team, apart from the base cooperatives, to work with the cooperatives, we also began in the commercial part. We didn’t know by that time, I’d say, how to even drink coffee, because we used to drink what was sold in the country, which we know was a mix of everything, and in that time there wasn’t good coffee. So it was a process of learning along with the producers on how to get into the market.

Kim Elena Ionescu: And how many producers were there at that time? How many of you were on the team? What vision did you have? Did you have a vision of growing as much as you have grown? Or would that have been a dream at that time?

Merling Preza: At that time, it was to put the coffee of the small producers. It was a pilot, initially, we started with 3,000 quintals of coffee, but with more than 69 cooperatives. It was a much bigger amount of cooperatives, but it was an exercise of much trust. We bang with a team of four collaborators, then six or seven, and the leadership of the cooperatives, which was a board of directors of 10 members. The producers would drop off their coffee at a beneficio. When we bought the service, we did the entire process.

We also asked for credit to all the services, because we didn’t have resources, and then we exported the coffee, and when they paid us, we paid the producers and to the collaborators. So during that process some cooperatives left, others stayed. So from the 69, 38 stayed, which were those ones that became stronger over time. The vision was to join the market and to have a better price. We didn’t talk about volume by that time, because the truth is that we didn’t know much about the market.

And we joined the niche of fair trade and specialty, so it gave us certain advantages to learn, but the challenge was bigger, to be able to sell all of our members’ coffee, of which there was a higher volume. At that time we are talking about a production of 40,000 quintals. Now we are commercializing 100,000. But we started with 3,000 quintals.

6:15 How does today’s crisis compare to the one Prodecoop survived in 2001?

Kim Elena Ionescu: You mentioned the role of fair trade, and Prodecoop was founded in 1993, 1994… That means you have experience with the last price crisis. The last time that we as an industry used that term, was around 2001 or 2002, right? When the prices dropped. And I would like to know if there are things for you, thinking about that crisis, and thinking about the actual crisis, Are there similarities, or is it much different? Is it familiar to you? Are the discussions we are having in this room familiar to you?

Merling Preza: There are similarities, of course. The price variation, that the producer had to sell for cheap… There were not these spaces for discussion. I think that’s one of the changes. I say that many years ago we producers were anonymous. We did not have a direct relationship with the industry. We didn’t have the chance to talk like we do now. There were other challenges, yes. The processes that were being held on certifications, and showing good practices at a producer level, were very positive and not imposing. It was about how we improved. Even the alliances between the industry and the producers, that started with specialty coffee, and with very ethical buyers. Small volumes, but with very good relationships, and much trust. So it was different when it came to that.

What we feel now is that, even though there is a bigger demand of fulfillment of rules, fulfillment of practices, that we effectively want to do, and one of the differences, for example, of Prodecoop, is that we were born to commercialize the coffee of our associates, but the main goal was the people. To contribute to improve the lives of our partners. You call it sustainability now, you can call it however you want, but we wanted to work for a clean environment. At that time the issue was not price, it was our water, and it was our climate conditions. Before the price crisis of 2001-2002, we felt the effects of climate change strongly. So we were coming out of tough times, and we had much support.

In this context, it has changed a lot, our costs of production are higher. We commit to good agricultural practices, but doing so is now more expensive. Climate change is affecting us more. We once produced coffee in a much better environment, with stable rains, under the right conditions, and now we face challenges with coffee leaf rust, with uncertainty around rain, or with what we can or can’t use. But then other requirements come regarding prohibitions around child labor, to fair wages for our collaborators, but providing a decent income to the producers is also important. So complying what all of that is a big challenge, because with the prices we have we hardly achieve it.

Fairtrade for us has been the pillar to be fulfilling these other things, but at the end of the day, you can’t see everything as fair trade. It’s ironic, we would expect that during this crisis we could sell more fair trade, and it was the contrary, we sold less fair trade. Almost 30% less than years before. So we would expect for more solidarity from the industry around that, and instead we had less Fairtrade sales.

Now, there’s been big changes, I think we have advanced more. During the last crisis we had less conditions as a producers organization, less working capital, less infrastructure, and our productivity levels were lower. We now have better productivity, we have infrastructure, but also more costs. And prices are at levels that, the purchasing value of the dollar doesn’t allow you to compensate. So the challenge is a fair income for our families.

11:00 What is the value buying from a cooperative?

Kim Elena Ionescu: Yes, there are many things in your answer I want to comment about, but could you please talk a little bit more about… You said something about the producers being anonymous at that time. And you also said a few things about what you, as an organization, do, and that now you have more access to capital, for example. My impression is there is a desire during times of crisis to find solutions, and especially new solutions, and sometimes we don’t look at, or we can’t recognize the tools that already exist. And I see [producer] organizations as examples of one of those tools that exist, and in certain cases have existed for many years, and that their experience is a source of knowledge, wisdom. Can you tell us a little of the type of support that organizations can give, or the services organizations can bring, for people who may be buying part of their coffee, from cooperatives, and part of their coffee from producers who do not participate in those structures. What are the differences? What is the value? Or what can an organization do in terms of life quality or services?

Merling Preza: Yes, I think we give services at the two levels. To our members, to our associates, which is the reason of being of the organization, but also to the market, our buyers. At a level that we are 365 days a year, we don’t go buy coffee and then leave. The organization is with its members day-to-day. So we work hard for the quality, to improve the processes, on education, we work on productivity, but also on other components that in this moment have helped us a lot, that we didn’t begin now, that we began many years ago, like working on food safety, on diversification, and on general good practices in our farms.

That has helped producers have other sources of income, like the honey we are currently working on, sugar cane, and other products. And for food safety basic grains, small livestock, egg production, meat, and so forth, for a better diet for our associates.

That, even though it really guarantees the nourishment to prevent the eating matter via coffee price, doesn’t deny that the price of the coffee should be different. It’s not about paying more, it’s about paying what it is worth. So the service to the industry that we can give, is that we guarantee the traceability of our products, we keep improving our processes, we guarantee the transparent income to the producers, and all the general certifications that require processes.

We have 2,400 producers, who couldn’t achieve any certification individually, due to the size of their farms, the size of their production. Yes, those are important services, and are things that, like you said, individuals cannot achieve those things alone.

14:15 What do coffee producers need in this moment?

Kim Elena Ionescu: When you were talking about this crisis, and how it’s similar and how it’s different from the last crisis, you mentioned some interesting things about the role on the market and the solidarity that you would like to see, and leads me to think that… What do you think that… thinking about the subject of this session, being costs of production, and profitability… What do you think the producers in the regions where you are working, where the partners are, what do you think they need? Maybe in terms of fulfillment of particular costs, specific things like that, or in terms of the answer or market support, at a micro and macro level? What do you think they need?

Merling Preza: In fact it’s clear that the income allows to improve conditions and practices, but also the financing of producers is very important, with sustainable rates, because the price went down, but financing remains expensive, so I think we have to work and invest in improving productivity without harming the environment, protecting what we already have, because I can increase the amount of trees, and the amount of production per block, while sacrificing the environment, so there must be a balance in this sense, and it must be paid.

But good practices, training if it’s necessary… and I think this is the alliance between the market itself, that paying a price for the coffee’s true value, the founders putting the resources so the organizations and the producers can keep working, producing and putting the coffee on the market, but I also expect cooperation in terms of technical assistance, training, and so forth. And we are actors that we all are in the coffee industry in one way or another, and we can be a tool. The cooperatives can provide that.

Most of the cooperatives, when we organize, it’s because members are looking for solutions. If we have enough support, we will find those solutions, and achieve what we all want, which is an appropriate income for all families.

16:45 How talking about this issue continuously in public forums impacts Merling personally

Kim Elena Ionescu: One personal question. Can I? You spend a lot of time traveling, visiting conferences, talking with groups like this group, or groups in countries around the world. Do you get tired of always talking about the same subjects? Or do you always have the energy, knowing that it’s an opportunity to raise the awareness of an audience that probably don’t know about the subject, who has not had any experience with a cooperative?

Merling Preza: The truth is that sometimes I get tired. Sometimes I get upset. I get upset because it’s the same subjects, the same things. I think told you once. What is the next step? Or is the problem better presented now? I mean what I’ve seen until now during the conference is that we are all trying to understand the problem better, and since the morning… Vanusia gave a great presentation of what the [producing] countries are proposing, which we have been repeating over the years.

Yes, I get tired, sometimes it frustrates me, but I think it’s our responsibility to keep trying to sensitize about this, because our families are there, our families are in the fields, and they are suffering the situation, some organizations or producers more than others.

We still have some alternatives such as Fairtrade, and other certifications, but other producers do not have that. People are migrating from the communities, and that price for the producers, as I was saying the other day, is a “to eat or not to eat” matter. It’s not easy to know that you are sacrificing your income, that what you are working on is subsidizing the coffee industry. Because your costs are above what you receive, so what do people do? What are they doing?

They are reducing their food, reducing their education, reducing their health. And food and health are basic. So just think that your son asks you for a little more food, and you can’t give him to eat because you can’t. And that’s happening in the farms. Or the father left, migrated, because he doesn’t have how to give him food. So, even though it’s tiring, I think it’s my responsibility to keep telling you.

Kim Elena Ionescu: Thank you very much, Merling.

Merling Preza: Thank you.

Kim Elena Ionescu: And I hope that during these two days we can move through good presentations to good ideas on how to face this and take action. Thank you.

Merling Preza: Thank you, I hope so.

19:45 Outro

Peter Giuliano: That was Merling Preza at Re:co Symposium this past April.

Remember to check out our show notes to find a link to the YouTube video of this talk, a full episode transcript, and a link to speaker bios on the Re:co website.

This has been an episode of the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.

Listen, Re:co PodcastSCA StaffJuly 29, 2019Re:co 2019, Re:co Symposium

#62 | Re:co Podcast - Merling Preza on the Role of Cooperatives (S2, Ep. 3)

Specialty Thanks to Toddy

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