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What is direct sourcing? Is it the same thing as direct trade?

Life is too short to discuss what direct trade is, so call it what you want. However, as the industry moves away from the slippery concept, we choose to highlight a sourcing model that is more accurate to what really happens in the supply chain and that gets right the things that direct trade got wrong.

How it works

If coffee sourcing was a spectrum, you could think of buying SPOT from a trader on one extreme and direct trade on the other. The first process is fully managed by a middleman. The second, by you. Many roasters sourcing on Algrano’s marketplace use this terminology but we prefer to use something else. To be honest, we don't get too hung up on the names. The practices behind it are more important. We just think that direct trade isn't the most accurate way to talk about the reality of this kind of business. From our perspective, it should involve a direct financial transaction, which doesn’t happen most of the time.

We believe the terminology “direct sourcing” is a more accurate way to describe what the supply chain actually looks like on Algrano. It means that the sourcing process itself, from contacting the producer and receiving samples to getting an offer and agreeing on quality, is managed by you, the roaster. Everything else, from booking the container to making the payment, is done by us on your behalf. You give the order to buy. We execute it. But - and this is a big but - we understand that roasters might want to call their coffees "direct trade" because their consumers already have an idea of what it means.

On our imaginary sourcing spectrum, direct sourcing and direct trade are kind of blurred together. We like to think about direct sourcing as a necessary development of the direct trade movement, pioneered around 20 years ago by roasters such as Intelligentsia, Stumptown and Counter Culture in the US. Such roasters could purchase directly because they had the capacity to either contract full containers and finance them (though traders were still involved many times). Ironically, these roasters were promoting better practices at a time when the number of independent micro-roasters soared. Every new roaster wanted to do direct trade but few had the means.

The movement soon spread to the UK, where roasters like Hasbean, Square Mile and James Gourmet started developing their own transport solutions. By the 2000s, direct trade was widely used and, unfortunately, misused too. Like with Fair Trade, it was such a powerful marketing strategy to boast about a company’s values to consumers that it was largely embraced only in name without the practices to back it up. In 2017, Daily Coffee News pronounced the term dead. Today, the definition is so foggy that even traders will say their coffee is direct trade. Why did it go so wrong? The answer is simple: the necessary logistics and financing were not available at scale. 

The fourth edition of The Coffee Guide explains that direct trade “has been far less successful in implementation at scale than initially predicted. The direct trade model has developed slowly because, to work smoothly, it requires a great deal of input, a solid infrastructure and a high level of know-how and business skills – all of which are often lacking, as farmers and roasters are typically unfamiliar with the requirements and realities of international trading and logistics. Direct trade is often unnecessarily expensive and inefficient because many small producers and roasters do not have the resources or knowledge to manage international requirements.” 

Though great on paper, direct trade presented too many barriers to become a viable sourcing solution. On the other side, the movement was the fertile soil from which Algrano sprung. For us, direct sourcing is an upgrade. Yes, there are some producers and exporters who are bringing coffee to Europe and selling it from SPOT positions. But most don't have the capital for it. Direct sourcing requires less upfront investment from producers, is scalable and democratic. It's not without its challenges but for us, it is simply better. 

Algrano's sourcing principles

What direct sourcing gets right

It's democratic and scalable

Only a few roasters can afford to pay the farmer large sums upfront and have a team big enough (or overworked enough) to dedicate staff to manage the sourcing, logistics, contracting, quality assurance, and risk. Under these terms, genuine direct trade is bound to be a niche sourcing model. With shared containers that are managed by a reliable service provider, even micro-roasters can build relationships with producers and start changing the power imbalance in the coffee supply chain. 

We plan a number of shared shipments every year that can be used by producers and roasters to ship coffee regardless of volume. When more users trade on Algrano’s marketplace, our team can schedule more shipments to cater for the extra demand. More shipments mean more flexible delivery dates. It also means it is easier to introduce new producing countries where demand might not be high such as Ecuador and Bolivia and opens doors to new producers. 

How our logistics works

It's transparent and easy (at least for you)

Sellers offer the coffees they choose at the prices they believe to be fair and roasters decide what to buy. The “Coffees” page is the equivalent of producers online shops which they manage themselves. Everything is transparent, including our service fee, and the communication between seller and buyer can start even before a sample is ordered. As we don’t dictate the offer, roasters can comfortably say coffee has been sourced directly when they buy through Algrano. Our marketplace is merely an interface.  

Our logistics work consists of coordinating multiple shared shipments with partners in producing countries. We consolidate orders from multiple producers bought by multiple roasters in the same container and ship them together. It is a job no one wants to do because each 5-bag order demands as much work as a full container. However, direct sourcing would never become mainstream if no one was willing to do it. 

Our approach to transparency

It has real potential to grow

Though we don’t make buying decisions and we don’t source ourselves, we have clear principles that guide our collaboration with sellers and roasters. These are based on our founding values of transparency, traceability, independence and long-term commercial relationships that are mutually beneficial to all parties. The model we propose is guided by the ambitious goal of contributing to an equitable and sustainable supply chain. Though hundreds of roasters already use Algrano to source coffee, we believe direct sourcing is still in its infancy and that we have only scratched the surface... We couldn’t be more excited about this journey!

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