LOTSA Potential: The Long-Term Supply Agreement as a Tool for Financial Stability and Building Relationships
March 11, 2020
3 Minute Read
Richard FutrellIn October of 2019 I had the good fortune of spending a couple weeks in Colombia and Peru during harvest, working alongside our PECA teams in the field, our QA teams in the labs, and our receiving teams in the warehouses. Witnessing coffee transition from tree, to on-farm processing, to delivered parchment – and discussing the costs, value-added work and payments at each transition – was one of the most eye-opening experiences of my career.
North America Sales Manager
Over the past 20 years Caravela has put tremendous effort and resources towards creating value for the coffee producers we work with - from the development of the PECA team, which offers free technical assistance to producers, to paying producers an average of 60% above market prices in as little as 2 days after delivery of parchment, and providing 100% supply chain traceability to roasters all the way down to the kilo.
During my trip I was presented with the Caravela model by founder Alejandro Cadena. One phrase he used that made a lasting impact on me was, “Caravela is really an exporter with a few importing offices.” As I spent time visiting producers who had been working with the PECA agronomists and cupping coffees with the QA teams at the receiving stations, I kept thinking about that phrase – “we are an exporter.” As I witnessed the parchment being delivered and samples immediately being milled, roasted and cupped, with full and transparent feedback being made available to producers about quality and pricing, I realized then the importance of an exporter in the process of fostering fully transparent relationships between producers and roasters.
In our discussions about relationships between producers and roasters, and our responsibility in developing and fostering these relationships, it was made clear to me that long-term, multi-year contracts are the ‘holy grail’. Roaster relationships with Caravela typically start out with a Spot purchase of a coffee that is needed immediately, or perhaps a particularly high-quality coffee that will be used for a specific purpose. This exchange gives the roaster a chance to get to know our people and processes. A forward contract for the following harvest is typically the next step in the relationship with Caravela, giving the roaster a chance to lock in the grade, quantity, price, and delivery month for a specific coffee, and they will also receive a Transparency Report of the purchased coffee, listing each contributing producer and what they were paid. At this stage roasters will often get interested in learning more about the producer or groups who are responsible for their coffee and they may choose to make a trip to origin to meet them, discuss the coffee and learn more about each other.
The objective of the process is to help create a relationship that will be long-term rather than transactional. At Caravela we are calling this tool LOTSA, which stands for Long-Term Supply Agreement. The advantages of reaching this stage in a relationship between roaster and producers include:
1) Supply security for the roaster – ensuring supply of core coffees year after year is essential for product consistency and financial planning.
2) Demand/Price Security for the producer – ensuring demand and price year after year can help producers with financial planning, farm investment and personal income planning.
3) Relationship Development – having the security of price and supply enables each party to make investments in the relationship that will have guaranteed returns. For example, roasters can feel confident that origin travel is a worthwhile investment, and producers can have confidence about infrastructure improvements that will benefit the relationship.
In conclusion, a LOTSA is a great goal for any roaster, and Caravela is poised and ready to help roasters take the steps necessary to enter into this mutually beneficial contracting tool. your roasted coffee needs to impress your own customers with each experience. We would love for you to use the strengths of our supply chain to make it easier to accomplish.
A Chicago native, I spent my college learning about coffee by frequenting coffeehouses all over the city and upper Midwest. Inspired by the unique café atmospheres and the exotic origin stories of the coffees, I moved to North Carolina, opened a coffeehouse of my own, and began my now decades-long career in coffee.
My 10 years as a shop owner (The Third Place Coffeehouse in Raleigh, still open today), 11 years as a manager for Durham-based roaster Counter Culture Coffee, and 3 years at Volcafe's Genuine Origin, has prepared me for my current role as North American Sales Manager at Caravela Coffee.