What does Toyota have to do with the price of coffee?

2018-09-20T13:27:00+00:00 September 19th, 2018|Categories: Insights|Tags: , , |0 Comments

By Daniele Giovannucci

At its peak, Toyota Motor Company was the world’s largest automaker. It famously drove extraordinary levels of efficiency among its suppliers. And then it went too far. The company learned that when you are the big guy, yes, you can ask for almost anything of your suppliers. They will cut everything to the bone and bend over backwards. But is that what a smart company wants to do: to severely test its relationships? Well, the news was full of the catastrophic failures that occurred as a result and that tarnished the once unassailable Toyota brand.

The coffee industry – certainly the downstream side that includes traders, roasters and retailers – has enjoyed decades of growth and favorable prices. For the better part of a year, the prices paid to farmers have stagnated and recently tumbled further to below one dollar per pound – a quantity that yields 40-60 cups of coffee in case you want to do the math. The last price-driven crisis in 2002 triggered humanitarian problems across coffee communities in many countries. These calamities sparked a major interest in sustainability and considerable investments but left an industry less diverse and less resilient than before.

I love the coffee industry – all of it. So, I ask myself, what would a leader do? A bold leader would work for a healthy industry – healthy for all of its members – and get creative. Choose greater sustainability. Take a bold stand for their suppliers, rather than letting them suffer.

Equally concerned should be the policymakers who cannot seem to get in front of a financial industry where unfettered speculative activity drives massive commodity price volatility divorced from the market fundamentals of supply and demand. Policy is also partly to blame for distorted incentives that drive record production levels that in turn push record profits for a few but only do so by creating mass pain.  

Consider that some farm families may be worryingly rubbing their hands that they may not be able to send a child to school or secure enough food to adequately feed them. Perhaps you can dismiss that as soft-hearted. Then consider that gradually losing a healthy ecosystem of suppliers will leave the industry increasingly dependent on fewer choices or feeling the anger and disappointment of consumers. I invite you to be bold, take a stand, and make a difference in your own way.