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Speaker 1: Hey sorceress fans. This is part two of our coffee episodes. If you haven't listened to part

one yet, let's go back and take a listen. We cover Ethiopia, how coffee is treated there,

and Ethiopian Xsporter. Welcome back to part two of our coffee episode. We'll come

back. So excited. So this is the consumption side of coffee. Let's talk about why we

wanted to do this. I think for me [00:00:30] the important part here is consumers are

the ones that are drinking and paying for the coffee. And you're also the ones that are

listening to this podcast right now, so we want to give you an insight into what you're

buying and what you're drinking and what effect to you have on the market, right?

Speaker 2: Yeah, absolutely. I typically either buy coffee online or I walk into a cafe, but most

people buy their coffee in a grocery store. Carolyn, what do you look for when you're

looking for coffee?

Speaker 1: I have no idea what I'm doing. When I [00:01:00] stand in the coffee aisle, I'm

overwhelmed and I usually stand there for five minutes before I just freak out and pick

something. I don't know if you're not gonna like this answer, well maybe you will but

you'll, you'll understand. We've talked about this in depth. I usually pick something

that's like middle of the road price wise because I have no idea how to do it otherwise

you also know how my brain works so I get all tripped up. I'm a marketer so I know that

certain packaging costs more and certain brands cost more [00:01:30] and I'm torn

between the pretty packaging that I know costs more and is that related to the price

that's available versus the certifications that are on there versus all these things in my

brain just gets so jumbled because I'm so connected in all of these systems and I'm so

connected in these and I still don't know what the right answer is. Yeah, like that's wild.

Speaker 2: It's interesting you bring up marketing because these buzz words that were used in

marketing before like fair trade and organic [00:02:00] and we're going to get into that

in this episode are showing up less and less and there is more emphasis on nice bags

and having a great typeface and not having so much information on the bag and people

really trusting that they're doing the right kind of sourcing where you know typically if

you can see that there is a farmer name, most of the time that coffee has been

compensated for fairly. That's how I make a choice.

Speaker 1: That's good to know and I'm going to remember that because that's not [00:02:30] one

of the things. I mean it's also just information overload. There's so much on a bag of

coffee.

Speaker 2: There's not many coffees like that in the grocery store because what do they do at

grocery stores? They say we need everything to be cheaper because we do have

volumes and if you want access to more customers, we need it to be in this price range

and all of a sudden you're put against multinational companies and this independent

brand is right next to them and they have to be price competitive with someone that 50

[00:03:00] to a thousand locations depending on who your next to. It's just an unfair and

unrealistic situation and it drives Co, you know, drives prices down while confusing

people in the marketplace. No wonder people don't know what to do.

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Speaker 1: In this episode you're going to hear us say the C market a lot. You probably heard it a

couple of times in the first episode we do have an educational episode that's all about

commodities, which is what the sea market plays into or is, but [00:03:30] why don't

you tell us what the c market is in terms of the coffee world?

Speaker 3: Yeah, so the c market is based in New York City and it dictates the price of coffee for

almost everywhere in the world. And you get these prices by trading volumes of coffee,

which feel virtual but actually are real and the commodity grade meaning below a

certain quality. The biggest producers in this landscape are Vietnam and Brazil. And

when their yields, meaning how much coffee they're producing goes up or down, the

market goes [00:04:00] up or down. The main thing to know about the sea market is

that it has historically been too low for at least 40 years. So a good way to think about it

is that in the 1970s the c market price for coffee was about the same as it is today. So

imagine if you were earning the same amount of money or if your Labor had the same

value as in the 1970s but you had the costs of today.

Speaker 1: It's kind of like this mystery zone where, and you'll hear this [00:04:30] if you go and

listen to that commodities episode, but most of the food and beverage that we

consume comes from the sea market. But it's this no man's land where consumers don't

really have a connection to what's going on, how much is getting paid. And it's dealt

with like like Wall Street.

Speaker 2: Yeah, it's very insular to like my first job on the trading floor. It was so confusing to me

because there were screens and you know you were [00:05:00] adding up prices based

on what these screens were saying and you were, you know, you have the price, then

you have the differential and then you had margin and there's someone that's making

all these calls and it just felt so disconnected from what I had seen in coffee before,

which was no, you're your farmer. This is entirely a numbers game and it's also how

much of coffee is traded. I don't know specifically numbers wise, but I would say 90% is

safe to say

Speaker 1: wow. And that's crazy. But I also don't really believe that, you know, I'm out fundraising

for my company right now. You know, especially [00:05:30] being out here in New York,

I have a a closer tie to a lot of markets that I didn't when I was living out in California,

and this was one of the interesting things that came up for us in research was there are,

because coffee has been growing at such a clip in popularity, they're now being

consolidated by these very large companies and this is something that happens. So

we're not calling anybody out here. This is happens in all markets, but this is something

that [00:06:00] is happening very recently in coffee and there's one company in

particular, J B Holdings that from 2012 to 2018 has quietly consolidated all of these, all

of these companies I'm about to read off. Intelligentsia Peet's coffee and tea,

Stumptown coffee, mighty leaf tea, Caribou, coffee, Pinera, Einstein, bagels, Craig and

like a handful of others. That's a lot of [00:06:30] coffee. Yeah, all going through one

holding company.

Speaker 2: They have a vested interest in buying coffee specifically this way because it lowers their

risk thresholds. But the thing about the seed market is it's, it's volatile so much that

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weather patterns in Brazil can make the prices go up or down for all the countries in the

world and because they are such a large producer and so although this is widely known

that this is not the way [00:07:00] that we should price coffee. Most roasters are still

buying some coffee on the sea market if not all of it, and they don't always even know it

because if it looks cheaper to them, it helps them with their margins and I'm not sure

many people question it. It's kind of meant to be secret. Honestly, when I first saw how

this was working, I was kind of terrified.

Speaker 1: It is meant to be a secret. It's not something anybody sits you down and educates you

Speaker 2: about and how Liana spoke about this and part one where [00:07:30] why are these

companies taking a vested interest? Why are they purchasing all of them? It's because

coffee is highly profitable only in one sector and that's in the consumption sector.

Speaker 4: We're going to start this segment by looking at the cultural side of coffee consumption.

In the u s here's Carolyn again. Hello. She's going to take us through the rise of the

specialty coffee industry, which can be grouped into three waves of preparation and

consumption trends.

Speaker 1: The first wave in coffee was all about increasing [00:08:00] consumption. It began in the

1930s and lasted until the late 1950s was full of cheap, low quality, dark roasted coffee

in airtight cans and pre-ground portion packs. First waivers are those who made what

we like to think of as bad coffee. Commonplace. In that respect, the first wave was really

a precursor to the demand for higher quality coffee consumption in the u s continued to

develop and the second wave of specialty coffee began to take shape. [00:08:30] This

time the coffee industry started to look at the product from an artisan's approach from

the 1960s to the mid 1990s these second waivers borrowed knowledge from the wine

industry and applied it to coffee origins and roasting. The Specialty Coffee Association of

America or SC a was founded in 1982 with intentions of creating coffee quality

standards. The SCA created a for dialogue through forums between all sorts of coffee

entrepreneurs.

Speaker 1: [00:09:00] They published quality control literature as well as their newsletter in good

taste. Starbucks is often used as an example of a hyper second wave company because

it introduced specialized coffee words like Latte and Machiatto to a wide base of

consumers who are not currently using those words. Meanwhile, Guatemala and El

Salvador, major coffee producing countries. We're in turmoil, military coups and

guerrilla warfare damage to the country's ability to produce [00:09:30] coffee estates,

which were seen as major sources of potential wealth light at the center of these

conflicts. Neighbor to neighbor and activist group based in San Francisco. In True San

Francisco fashion picketed the SCA conference that year. They had dumped buckets of

red stain water on the steps denouncing death squad coffee, even Red Apple, New York

City's largest supermarket chain temporarily agreed to suspend Folgers purchases and

then to display neighbor to [00:10:00] neighbor literature in their stores. The fair trade

label first evolved from these particular conflicts.

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Speaker 1: The concept emerged through the existing company, equal exchange, fair trade,

guaranteed minimum price. Regardless of market fluctuations, they created their own

brand and certification process. Certifications. Greatest strength to this day is that it's

still the only certification to set a minimum price regardless of quality. By the mid 1990s

[00:10:30] coffee giants were wrestling with companies that promoted ethical buying

because consumers began to respond to certification labels on coffee bags as a

marketing of ethical purchase. Now we get to the third wave, the third wave of specialty

coffee. It began as a reaction to companies like Starbucks who wanted to automate and

homogenized specialty coffee through their franchise. Each store had identical interior

design and menu offerings and automatic instead of manual espresso machines.

[00:11:00] This is where the third waivers differed. It took the artisan approach from the

second wave and emphasized artisanship at both ends of the coffee production and

service.

Speaker 1: These third waivers were not the first coffee guys to realize that farmers mattered, but

they are the first to travel constantly and communicate readily with farmers in remote

areas. That brings us to today where specialty coffee is trying to figure out where to go

from here and how the [00:11:30] fourth wave industry professionals have generally

rejected the certification model and instead are looking to contextual data. The idea of

trusting Afirma's was word instead of having a third party certification to prove their

practices has largely been successful, but with that started a trend of exclusivity and the

idea of a standard score as the lowest acceptable quality on a menu with less focus on

trade ethics

Speaker 5: and continuity of buying relationships. In general, it's understood that buying year to

year from a farmer [00:12:00] is the best way to create stability on both ends of the

supply chain. Packaging design, beautiful buildouts and social media branding is largely

how brands communicate with their customers.

Speaker 1: We're going to cover a lot on this one. It's a little bit of a different format and we have

two guests this time we speak with Mike Nelson, a cafe owner that talks with us about

the challenges of cafe ownership and customer education and we also get to chat with

Nick Kirby from in Veritas about how their new technology [00:12:30] is allowing them

to map the coffee world and it's going to change the landscape of what claims we can

make in the industry from here on out. Thanks for joining us and let's dive in.

Speaker 5: Okay.

Speaker 5: Last February when I was in Ethiopia and spoke with Eliana from part one, I also met

with a guy named Raymond. He emailed me to ask to come and taste with our team

while we were in town. I had heard rumblings of this company called and very task

[00:13:00] who the company that I work for was going to partner with in the coming

year. When I met with him, he told me he was there as part of a project to map the

coffee world, to get contextual data, to communicate to consumers in hopes that they

can fill the gap in information and to break the binary ideas of ethical purchasing as a

black and white affair. So when I knew we were going to do a consumption side of this

episode, I called up Nick Kirby.

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Speaker 6: Yeah, absolutely. Well thank you for having me on. I'm happy [00:13:30] to pick up

where Raymond left off. Mapping the coffee world is something that I think in our mind

it's very important. If we want to play a positive role in coffee value chains, we first need

to understand who the population we're focused on is. Um, and having an accurate

number. Even about the number of coffee. You know, how many coffee farmers are

there in the world has been something that no one has settled on. And you would hear

everywhere from, you know, 125 million farmers to 30 [00:14:00] million farmers to 10

million farmers to everywhere kind of in between. So the focus of Envera tosses to

reach smallholder farmers. And in order to do that, we need to know how many there

are. So the first piece of work that we undertook as an organization was to conduct a

global farmer's study and try to answer this question, how many farmers are there in

the world?

Speaker 6: We landed on the number about 12 and a half million farmers. You know, a large

portion of them are small holders depending on how you define a small holder, is it

below five [00:14:30] Hector farm below 20 hectors. Um, you know, do you control for

places like Brazil where there are larger farms? Um, but somewhere in the range of 60

to 80%, depending on how you define a smallholder farmer is what we found around

the world. In doing that and using available resources that were out there, be they

official statistics from governments, other studies that academics and NGOs have done.

Um, census data, you [00:15:00] know, looking at information from, um, you know, the

World Bank, the UN, different things like that and coupling that with satellite imagery

and using artificial intelligence to detect where coffee is located. Looking at, you know,

not only where the plants are but then where the communities are around them.

Speaker 6: And then also taking production numbers, you know, nationally reported production

numbers and knowing what we know about average yields, we sort of zeroed in on, you

know, what we feel are, are pretty accurate estimates as to [00:15:30] how many

farmers are located in specific regions in every, in every country around the world

where coffee is produced. So that was the first part of what we did and conducting that

work, creating this map has enabled us to then employ a new approach to reaching

those farmers to actually get a chance to speak with a representative sample of that

total population mapping this population. What is the main goal for using that

information? Yes. So the goal is to [00:16:00] ultimately, you know, in Veritas as an

organization is focused on eliminating poverty within coffee producing communities by

the year 2030 again, in order to do that, we need to figure out where we're starting,

what is the starting point and if we want to achieve that, we need to facilitate the

resources to flow to where they can have the greatest impact.

Speaker 6: And so the goal, you know, within the next, I would say within the next five years is to

start to, you know, not only [00:16:30] provide a best in class verification product, a

sustainability assurance product for roasters and start to generate a surplus of money

that we can use directly as in Veritas to invest in projects that, that we believe in, that

we believe represent the best return on investment for that sustainability spend. And

then in so doing also provide a level of assurance to roasters, a level of sustainability

assurance that goes beyond what's been historically possible through certifications

[00:17:00] and other schemes. And then also enable them to direct their resources more

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effectively. You know, a lot of roasters are spending money on sustainability

interventions and impact focus projects without a lot of awareness about what the

context is, what is necessarily needed in a given community, what can have the biggest

impact, um, and then who can do that work and then ultimately how to monitor it.

Speaker 6: Um, so there's a lot of money that, you know, is being spent in ways that lends itself to

further refinement. [00:17:30] And there's a lot of, there's a, there's an appetite for that

in the industry. And then more broadly, you know, within the specialty industry, there's,

there's this open question, does paying higher prices for coffee lead to better outcomes

in producer communities? Does that play out in the same way in every country? Uh, you

know, for farmers of different sizes. Um, so what we want to be able to do is, is answer

some of those questions. Um, and at least, you know, if we can't completely answer

them, get farther along [00:18:00] in the, in the investigation of those issues, provide

that service to the industry and generate enough money not only to operate and to

continue to innovate and, and develop this platform that's enabling us to gain this sort

of landscape level perspective on the sustainability conditions and producing

communities. But then also to generate our own surplus of money so we can fund

projects through other organizations that reach that population. That's very hard for

many roasters to reach.

Speaker 2: [00:18:30] Yeah, I think that it's funny because the third wave, you know, we talked

about farmers so much in this traceability and this, you know, high end lots and these

exclusivity and these, you know, continuity of buying and yet you're right, we talk about

paying more money for coffee, for quality and now the conversation is sort of shifting

where well maybe the highest quality coffee is, should get that much, but the lowest

quality coffee use should definitely get more than what are being paid now, especially if

they're purchased on the sea market. Right. I think that a lot of [00:19:00] roasters are

realizing that they don't really have enough information. Right. But the systems that we

have are very insufficient and you know, generally speaking they have rejected the

certification model. Some people still still use it, but in general people sort of got a little

bit weary. And I know one of the things that sets and Veritas apart among many other

things is that you're not charging farmers for this verification. Right. And you're also

choosing the word verification. So I'd love for you to talk about how you made that

choice and [00:19:30] how you figured out how to do this without charging farmers.

Because every, every single model from fair trade to organic, um, right to RFA, right?

They, they functioned that way.

Speaker 6: Yeah. We're doing something different. And I think the key distinction that sets us apart

is that we are not involved in the supply chain. We are a non commercial entity. Um, we

don't buy and sell coffee. We're a nonprofit. So we have, we have no vested interest in

the outcome of the assessments that we are conducting. Whereas with the certification,

[00:20:00] just by definition, if it's not certified, then you can't sell it as such. So

certifications and, and you know, various schemes promoted by, by traders, by anyone

in the supply chain, bring that baggage of the con, the conflict of interests. Just

structurally, you know, if I'm selling you something and I'm telling you it's, it's better

than what you can get from somebody else. It's, it's hard to know if that's, you know,

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just marketing speak. Is it greenwashing, is it real? [00:20:30] And, and what we want to

do is provide that beacon of independence and credibility.

Speaker 6: So actors in the market be they suppliers, producers, growers, you know, buyers and

buyer, ina traders, grocers, what have you. So they can see actually going on and have

an open and honest discussion that's not clouded by that commercial imperative to

make the sale. You know, that wealth is concentrated at the end buyer stage of the

industry. Wealth is concentrated among the roasters, [00:21:00] you know, and then the

trends of the last, you know, five years, 10 years within coffee, really speak to that. That

there's enormous wealth being concentrated. At the end of the chain. So if we're

focused on eliminating poverty and working towards a more equitable coffee world, it

seems to make sense to us that we should tap into that wealth and not further stress.

Farmers who are under so much pressure or traders who have narrow margins and

making that something that's free for farmers [00:21:30] seemed really, really critical to

us if we wanted to get to the truth, you know, if we wanted to work with farmers in a

way that they felt like we were actually adding value to this land.

Speaker 2: Yeah. When I first heard her, do you guys speak or when we first had our, our meeting,

the idea of categorizing sustainability as binary. Yeah. I was putting these things in these

boxes and saying this has a label and therefore to sustainable and this over here is not.

And I think having access to that kind of marketing, a lot of people are boxed out

[00:22:00] of that. Totally. And so let's talk a little bit about how you're gathering this

information and how you designed it to not be binary.

Speaker 6: Yeah. So we conduct surveys and we basically built a set of tools that we have designed

centrally and deployed globally that are, you know, it's a universe, a universal set of

tools, but it can be adjusted to local conditions. Um, you know, we can translate the

survey to different languages in different countries, [00:22:30] in different regions

within countries. We can adjust questions to fit the local context. You know, we're not

asking about a unit of measurement that is only used in Guatemala when we're talking

to a farmer in Uganda. Um, and various things like that. So there's some, some flexibility

to adjust the local conditions. But ultimately we built a set of tools and then we work

with local partners in the countries where we operate to build local capacity and hire

young people in coffee producing communities to go [00:23:00] out into those

communities and talk to farmers to make unannounced visits to farms, to small holder

farmers during the harvest and ask them to volunteer their time to request that they

participate in this study of coffee grind conditions.

Speaker 6: We keep all of their information confidential and then just aggregate the results of the

surveys. And of the observations that we're also taking while we're in the field to create

this landscape level picture [00:23:30] of what's going on in our region. Um, with respect

to the standards. So, you know, we have teams in, in, we're currently operating in 12

different countries around the world. We've done, uh, over the last three crop years.

You know, we're, we're sort of finishing up our third crop year of doing this. Um, we've

spoken to over a hundred thousand farmers around the world, which is an astronomical

number. Like, yeah. And if you put that in the context of certifications, you know, each

certification, [00:24:00] RFA, you know, fair trade and others annually, they're each

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doing about 2000 surveys. So we've done 100,000 and in this harvest we've done, we've

done about half of that on just scaling in the way that we have over the last few years.

Speaker 6: We've done about 50,000 surveys just this year. Just this crop here. And each survey is

basically, you know, a 45 minute conversation with a farmer and a local enumerator

who's gone through a pretty exhaustive [00:24:30] training program that we administer.

And then we oversee the daily operations. But ultimately, you know, this is, this is a

conversation happening between two people with a relatively similar background. You

know, these are not expats who are flying in talking to farmers, um, in a way that

they're not used to or in a language they don't understand through an interpreter. This

is people who are from the communities where we're working, who have learned how

to use the tools that we've designed and who have demonstrated, you know, their

[00:25:00] proficiency in using those tools and understanding what we're doing and, and

sharing the values that we have and are really excited to, to participate in this program.

Speaker 2: I'm curious both child labor and pesticides, which are two things that I think a lot of

consumers have been marketed at about, um, with some misinformation about context

of some of those things. What have you encountered in terms of either of those,

Speaker 6: you know, the questions that we ask around [00:25:30] child labor role. First I should say

the, the standing, you know, we have a standard titled No Child Labor and we are

reporting on three different aspects of child labor. The first one being whether or not

children under the legal minimum working age are being hired. Are they, are they being

hired by a farmer? If a farmer hires labor, are they hiring children under that legal

minimum working age? Sure. Um, secondly, if children are being hired, [00:26:00] are

they doing dangerous work? You know, are they operating heavy machinery or are they

applying band pesticides? Are they applying pesticides at all? Are they working with

agrochemicals? You know, are they doing other things that would be considered

dangerous according to the International Labor Organization? And then thirdly, if they

are working, is that impacting their ability to go to school or,

Speaker 2: or is there no school to go to?

Speaker 6: Or is there no school? Yeah, exactly. Yeah. [00:26:30] In which case, you know, and that

would be sort of, you know, follow up to the data that again, we could see, oh, they're

there. You know, we're, we're noticing a lot of respondents are telling us, yes, children

are not going to school. And is that because they are working on coffee farms or is that

because there is no school available? You know, and that's the kind of a line of inquiry

that we can try out with this data. But what we're finding in a lot of places around the

world is that I'm thinking specifically about Central America where [00:27:00] there are

a labor shortages. You know, and as we all know, specialty coffee is very labor intensive,

especially during the harvest. And so, uh, and, and you know, we've seen this around

the world where children may be working and it's, it's still pretty rare in most places in

the world for unaccompanied minors to be employed.

Speaker 6: It happens in coffee specifically. You know, Coco is a different thing, but sort of

unaccompanied minors who are seeking employment [00:27:30] and then not going to

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school and doing dangerous work, that's still pretty rare. You know, what's much more

common is to see children helping their families and they're collecting cherries. You

know, so the family is getting compensated by our definition. That's still child labor.

They are working, but it's not interfering with their ability to go to school in a dramatic

way that I would say it's more common for children to be helping their families. And

mind you, you know, part of the context in coffee [00:28:00] producing countries. This

school year we revolves around the coffee harvest. You know the same thing in the u s

right. Our, our like our sort of idea of a a summer off, you know that that dates back to

the 19th century. So we could all go work on the farms cause this was an agrarian

country.

Speaker 2: Can we go through the organic context as well? Sure. What's interesting is, and I know

that you know this too is that there was a shift when the coffee leaf for us, this fungus

was just wiping through central and South America. [00:28:30] Yeah. And they chose

varietals. They chose these coffee plants because they were more resistant. They sort of

started advising people to grow specific things. Right. And so, you know, we saw that

happen and now when I go to Columbia and I'm, you know, cupping through things and

we find something that's really rare, like a pink barebone this like wild thing that is not

that common in certain and a lot of areas of Colombia [inaudible] sometimes you know,

if the farmers there, we ask are you using pesticides? And the reason we're asking is

because it's high [00:29:00] risk if he doesn't have all of his organic practices together,

right?

Speaker 2: We want to make sure that this person is covering themselves and making sure that

they chose to grow something that was unique and possibly risky for them. So what

progressions are they taking on their end? Not asking them to use pesticides, but really

trying to learn that context. Have you found that that's the case for, for farmers growing

that kind of coffee or how has that gray area that we tend to put in two different

buckets as far as this is certified, this is, you know, two to three years of [00:29:30]

100%, you know, chemicals versus sometimes I have to use this because I made certain

choices or there's an environmental context. I could be less than profitable this year

Speaker 6: if I don't make this choice. Right. Yeah. I think you're describing, you're describing

something that we think about a lot in terms of this sustainability paradox. Um, where if

you think of sort of a horseshoe shape, you know, we're on the left, you have, you

know, a set of five fifth, the, the, you know, the top of the horseshoe is 100%

compliance with organic practices. [00:30:00] You know, on the left side you have very

sophisticated farmers who can employ those practices and who are certified organic and

are extremely knowledgeable and employing the best, you know, pest and disease

management and pruning and you know, maintaining high yields and agroforestry

systems and things like that. And then as you start to go, you know, sort of down into

the, the, the trough of the horseshoe, you see more farmers like who you just described,

you know, that [00:30:30] maybe there is a new variety, but it's, it's susceptible to

disease and they have the resources to purchase pesticides.

Speaker 6: And pesticides might be, you know, controlled substances in their, in their country, but

they're not banned. They're not illegal. You know, they might be illegal in the EU. They

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might be, you know, on a list in the United States, you know, the international

community might consider them banned. But in, in Central America, in Southeast Asia,

these chemicals are not, so they're [00:31:00] available. They're readily available in their

effective. Um, so farmers availed themselves of that. And then if you keep going and

start and you start to go sort of up the trough again back towards higher compliance,

you're essentially going into communities that are too poor to buy those pesticides. And

you start to find a lot of organic by default production. But what does that mean? You

know, is that, is that the same as a, you know, highly profitable, mechanized, very

sophisticated farm that's employing organic [00:31:30] practices, you know, doing

sophisticated agroforestry?

Speaker 6: Or is it, you know, is that different when you can find the same outcome in a community

that is much poorer by those standards and so they can't afford those same kinds of

inputs and, but then the yields are much lower generally speaking, you know, and

there's not a very, there's a much more sort of passive approach to agriculture even to

thinking about it like that, you know, it's kind of like, yeah, it's my garden and there's the

trees. I just get the coffee when it's ready and I sell it. [00:32:00] That's all I do. You

know, there's not very much sort of active engagement, but we find the same kind of

environmental outcomes with respect to these things that we look at and we look at

organic inputs. So we were sort of mapping that out and seeing, oh, where, where, you

know, do we find a lot of chemicals being used?

Speaker 6: And it's generally somewhere in the middle. We've done a lot of work around this. To

try to unpack these issues. Um, so there can be a more open and honest dialogue

around [00:32:30] why this is an issue first and foremost and what can be done about it.

You know, what can we do to cause every, I don't think anybody is really excited about

the higher levels of pollution. You know, there's an alternative, there's something that it

works better. You know, I haven't met any farmers around the world that I take any

pleasure in harming the environment. You know, I think there's a general awareness

that they understand that they need the invite. That's, that's what sustaining, that's

what's providing them an income from coffee is a healthy environment. So the more

that [00:33:00] we can learn about the issues that farmers are facing in organic as it is a

great field of inquiry for this, the more we can understand the situation from their

perspective. I think the more effective we can be in terms of working together to find

solutions that you know, are affordable, are realistic for farmers, do result in the same

kind of outcomes that a lot of agrochemicals do, but don't compromise their ability to,

you know, continue growing coffee in the future.

Speaker 2: [00:33:30] Why do you think that this can happen now? Like it's interesting because one

sort of the third wave was moving towards, you know, know your, know your farmer,

know your relationships, and know the people that are sourcing it. That's how you're

gonna get like quote unquote ethical coffee, right? But we didn't have all of this data.

You just really had to trust everyone in your supply chain. And that's in part why a lot of

people traveled to origin. It's to make sure it's to go in person and to talk with the

farmer and make sure that they got paid what you thought they got paid. You know,

some [00:34:00] people make sure that they do that every year. So now that this is

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happening, it might change the landscape of buying marketing, all of these things, right?

But why now

Speaker 6: a technology, I mean that's the simple answer, the technology and the will to do it. You

know, David Browning and Carl Servo and the cofounders of Inventus just decided, you

know, they were gonna start an organization to do this.

Speaker 2: It's honestly, and I'm not saying this just to like flatter [00:34:30] you guys, but it was,

it's the first thing in a long time that's given me hope for the industry. Oh. Because it's

taking the standards of other codified knowledge structures and placing them with

context and perspective and tone and sensitivities and like, oh it just made me so happy.

Amazing,

Speaker 6: amazing. I love it. And there in lies the other opportunity that we have as in Veritas in it

to maintain our independence, to maintain that our values and our integrity [00:35:00]

and our focus on the mission. And so to the extent that we can provide some more

clarity about what's going on, where impact can happen, you know, is, is really

something that that keeps us motivated and encourages us to feel like it's actually

possible to achieve this goal than the poverty within coffee producing communities.

Could be something that is part of history and that we all live for many years in a world

where there are no coffee farmers [00:35:30] who are enduring the pain of poverty and

that we can play a small part in. That is something that gets us up in the morning

Speaker 2: thanks to nick for taking the time to chat and very tosses currently working on a totally

different problem than what they're tackling and growing regions. How do we

communicate this kind of information, contextual data that doesn't fit in the boxes.

We're used to checking when we design packaging or create marketing strategies. If you

have any suggestions for them or have any interest in [00:36:00] working with them,

you can find them online and very tossed at work.

Speaker 5: Without a doubt. The most pressing issue in coffee is price. How much should coffee

cost? Like any business, that number should come from an understanding of how much

it costs to produce the product plus a margin to become profitable instead of breaking

even. But as we learned in the intro, that's not how the majority of coffee is traded. The

company [00:36:30] I work for sets prices outside of the c market, that volatile method

of pricing coffee. That's the standard of trade. There's a few companies that do this. I

can only speak to the way we do business. We get our numbers a few ways. One of

those ways are cost of production studies, so I want to give you some context for the

next interview. A great way to contextualize this cost of production issue is looking at a

farmer's data. One issue with determining price based on cost of production is that it's

not common for a firmer to concretely [00:37:00] know all of their costs because

requires meticulous record keeping.

Speaker 5: So I'm going to give you one example of a firmer that we worked with that did one of

these studies. Maria Marcellia Martinez is a unique producer and her daughter

graduated college with an accounting degree. She keeps detailed accounts of her

expenses on her farm. Bingo, Los Angeles and also Vedo with the Columbia in the 2017

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2018 season. Maria and her partners, Fairfield trading, conducted a cost of production

study. Maria [00:37:30] is an extraordinary producer with 70% of her crop meeting the

highest quality standards of the industry. While the other 30% may be below those

quality standards, those lots required just as much labor and expense to produce

together. They found that it cost a dollar 71 per pound to produce both categories of

coffee, adding margin to make it a profitable business. It would not make sense for

Maria to continue producing coffee year to year if she received less than $2 and 50

cents a pound.

Speaker 5: So let's quickly compare that to the c market price [00:38:00] today. Today, the c market

is at $1 a pound. Even if we added a differential, meaning in additional number added to

compensate for the specific country or quality, it's unlikely that if Maria worked with

partners that priced this way, she would make any money. So what typically happens is

that Maria's high end coffees would get a premium and her lower scoring coffees would

get c market prices, meaning she would either break even or go into debt. Luckily that's

not the case here, and Maria can negotiate [00:38:30] based on her true costs. Now I

want to turn to our second guest who's a cafe owner, a coffee roaster and has studied

some of the issues we're talking about. We're getting his phd at Florida State. His cafe is

located in Portland, Oregon and if you just happen to stumble into his coffee shop, I

think you'd be surprised to know that this little roastery is making a lot of waves in the

industry. A few years ago I met Mike Co, owner of juniors rested Cottey. He told me he

wanted to fill the gap in his consumer base. He wanted to educate them about the idea

[00:39:00] of cost of production. If you look up the Hashtag, ask me about cost of

production. You'll find events in multiple cities, interviews, blogs, all praising this

conversation and approach. Let's dive in.

Speaker 3: You've made a few changes within your cafe to sort of have this conversation. I

remember seeing online that you had changed the either the Wifi password or the Wifi

handle to ask me about cost of production. So what's your experience been like sort of

having this conversation in Portland? I think it's really interesting, especially [00:39:30]

in Portland because the market is so saturated with coffee that it almost has the

tendency to drive prices down because competition is so intense. Do you find that to be

the case?

Speaker 7: Absolutely. I see this project as having two parts. First part was identifying the cost of

production and incorporating that into the contract with this first farm that we started

working with. So identifying that cost to produce and building into [00:40:00] the

contract, including farm reinvestment and margin. Second part is communicating this

information to consumers into the industry. This kind of information as you know, I

mean it's, it's not easy to talk about is not only uncomfortable, it's, it's just, it's a

complicated thing to get across quickly. You know, it's even, I mean direct trade is, that

concept was easy compared to something like this. And, [00:40:30] and I think that it's

because we're actually getting to what the problem is. I think that communicating direct

trade or fair trade, you know, I think that we have this like loose grasp that we're not

paying enough for coffee and you know, that's leading to poverty but not, you know,

not looking at these greater structures. So communicating this we want, we took a uh,

diverse approach. We, we needed a multifaceted strategy. So first thing we did was

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[00:41:00] we listed see price, um, the cost to produce and our farm gate price on the

coffee label.

Speaker 3: And that was on the bag of coffee beans.

Speaker 7: Exactly. And so you know, at the top of the label it's, you know, talking about where this

coffee is coming from, tasting notes and two sentences. And then at the bottom it's all

of this costs of production information and so on the label we also describe it as a cost

of production covered coffee. After that we [00:41:30] put together a comic book or

magazine and Call it a comic book for folks to engage with while they're waiting in line.

At the cafe we are, we've been working on distribution as well, getting this comic into as

many hands as possible. It's about five pages and details, the project, even the sea

Marcus, to give context in, in kind of a playful way, you know, that communicating some

very large concepts and ideas in a comic.

Speaker 3: [00:42:00] Yeah, I love that you, you chose that to be one of the strategies because I

think coffee over time has tried many strategies. Fair trade was prompted by, you know,

the uprisings and you know, the strength that was happening in central Central America

and then all of a sudden we were humanizing it, right? And so it was like, okay, let's try

the certification game and try to humanize it and have this conversation. And then then

you have, uh, you know, all of these different waves, then it's environmental, then it's

organic, then it's direct and it's like, I don't, [00:42:30] we still haven't been successful

having this conversation. We still haven't been able to get people to pay more for

coffee. And so I love the idea of a Zener comic because it's like, hey, let's try this. Let's

make it fun in a different way.

Speaker 7: It. Yeah, I mean people learn and in different ways and to have these images accompany

these concepts and I see comics and Zenes is you know, powerful activism tools and we

see customers reading these comic books with their kids [00:43:00] even, you know, I

think that it can appeal to all age groups and just coffee drinkers and non coffee

drinkers because where we're leading at the end of this comment is that this applies to

all the way in which we consume things. Aside from that, we've been hosting events

inviting people from the industry and non industry folks, the Wifi Password. It was

something that we kind of joked about at first, but became part of the strategy,

[00:43:30] changing the password to ask me about costs of production, you know, so

much so I can be in the office and I can overhear customers sharing the password to

each other. Um, and even just to hear customer production repeated so, so often in the

cafe. Cool. It makes me happy. I think that, you know, that's been something that we're

just going to keep kind of reworking and incorporating into our strategy.

Speaker 3: Wow. [00:44:00] What have been some of the conversations that you've had that have

sort of surprised you that you've had maybe with your customers? Probably not industry

facing necessarily. Are they surprised at this number? Do you find that they respond

consistently in a specific way when you share about this? Because it is really heavy,

right? So there's not always a good time or a place to learn about this. So if they're not

really actively seeking this out but they learn it, what's the general response?

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Speaker 7: But I'll say it's a mixed. Some folks [00:44:30] ask and some folks don't. Those that ask,

they think, wow, that's, you know, they'll say that's really interesting. Some people

honestly look distressed.

Speaker 3: Sure. I mean it is distressing cause you were like, Oh my God, I've been contributing to

something without even knowing.

Speaker 7: Yeah. You know it's, and I'm time that we talk about this uncomfortable stuff and that it

doesn't always have to be so uplifting that we have to talk about the hard stuff. We'll

usually direct people to the comic book too [00:45:00] if they want to learn more about

the project because we are counter service. And so you know, you've really got 10

seconds, you know, 10 to 15 seconds to interact with someone. Share this project that

took us a year and a half to roll out.

Speaker 3: Okay, so 10 seconds at the register, I've ordered a delicious cup of coffee. Give me your

pitch.

Speaker 7: No coffee is traded as a commodity that this price is a set by commodities and futures

traders. The price [00:45:30] is paid too. Coffee farmers per pound are often way below

the cost to actually produce that coffee. We found out how much it costs to produce a

pound of this coffee. We based our price on that as well as reinvestment back into the

farm or profit margin. That's one way to look at it. Farms are businesses just like us or

like any other business and the prices that farmers receive for coffee don't even cover

their own costs to make their product that we consume every day. This is why we need

to pay more [00:46:00] for coffee. And so I think that the angle that we started taking

with this project by stating that farms are businesses just like us. It's a way to kind of

bring that into people's backyards to connect with the consumer. As a small business

owner, people give it, you know, they, they understand. So I think that it's important to

get people to look at all producers, all [00:46:30] products this way. That's kind of, that's

been the common ground. That's my landing, this concept in someone's back yard

tactic.

Speaker 3: There are a lot of people who buy really cheap coffee because they build it into their

business plan, not really knowing that what they're buying is below cost of production,

even though they have a roastery. And I think that it's sensitive in multiple areas

because consumers don't know. But also roasters don't always know.

Speaker 7: Absolutely. Yeah. With this kind of project by paying cost of [00:47:00] production, I

don't want us to be seen as like saving any anyone, right? We're working together. This

is farmers are providing this excellent product. This is a partnership. They are helping us

with our business and I hope we are helping them with their business.

Speaker 3: It's just good business. It's just good business.

Speaker 7: Right. And I, I think that the conversation up until honestly recently in the way it's being

framed is that by buying farm direct or direct trade or whatever, [00:47:30] that we are

saving producers. I think that's a just a really troubling way to frame things and to think,

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Speaker 3: yeah, you don't want to, there is this, um, this thing that you want to be really careful

of, which is this like white savior complex and I see it with some companies that are

religious and I see it with some companies that sources or particular way and then I see

people that do a great job and don't do that at all. But I think in general when you talk

about this relationship of like the global south [00:48:00] and a developed country and

overdeveloped country, I would say when they take care of everyone in the supply chain

or when they're doing quote unquote good that it's a favor when really this is just about

a dignified price and a dignified exchange. Right.

Speaker 7: Okay. Yeah. An appropriate price. Yeah. I think that too, this, this trade is rooted in

colonialism and to have any sort of change take place in this with our existing structures,

[00:48:30] I think that we need to focus on what matters to all involved. Let's say

stakeholders all involve members of this trade. You know, we need to, to listen and how

we produce knowledge, how we share it with each other. But I think that moving

forward it's hard to just have pasta production be kind of a, uh, think that there's a silver

bullet here or that there's an easy solution. I think that it's, we need to come at it from

several different [00:49:00] angles.

Speaker 3: Yeah. I've seen tech sort of jump in and it's been really interesting to talk to people in

that space that are saying, oh yeah, we're going to put blockchain in this and you're

going to know exactly what's going on. And they, and they sort of look at me like, do you

realize that this is fundamentally going to change everything? I'm, I'm really hopeful.

Speaker 7: Yeah. I think that it is so encouraging to see these, these solutions are innovative. You

know, I think that [00:49:30] suddenly this starts to see, seem like the, um, that silver

bullet or the panacea solution, like, oh cool. Like blockchain will that, that's it. That's the

answer right there. That's going to change the system where I think that, you know, we

can't, we can't forget about the fact that this commodity is so entrenched with the

world, you know, and, and our consumption habits and, and capitalism that their

behaviors to change their attitudes. And

Speaker 3: it's a cultural shift for sure. When I was living in [00:50:00] Chicago, I moved out to la. I

worked, I was a Barista in both places. And just seeing that in Chicago, people would get

so annoyed that they had to pay $2 and 50 cents a cup and then going to La, you didn't

get to choose your size. You didn't get to choose your coffee. It was $5 and that was it.

And it was no discussion. And in that culture it worked,

Speaker 7: you know, but it, but it does at this kind of idea of accessibility, [00:50:30] you know,

and just kind of where I've been, we're up in torn.

Speaker 3: I think that we've tried really hard to justify price with flavor. And I think that there's a

lot to be said with that in every industry. But the accessibility component and thinking

about where you are in the spaces you're consuming it in, I think is so, so important. Just

to, to echo on that, like, where are you going? Who are you hiring? What are your

Baristas look like? Like are, do they look like the neighborhood that you're in? Like who

are you trying to attract? [00:51:00] Are Your tables comfortable? Is it a comfortable

space to be in? Is it immediately alienating because of what you're doing? You know, I

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think that we're not always realizing that we're creating these issues and then being like,

yeah, but look, I can charge $6 for a Cappuccino. Um, it's like, yes, but for who? Right?

Speaker 7: No, absolutely. You know, I think that when we, when we opened, I had to get very real

about our budget, you know, the kinds of equipment we carried and you know, I have to

put my money where my mouth is and get very [00:51:30] real about cost to be totally

frank. I think that it's why we've structured the coffee many of the way we have with in

terms of flavor profile and honestly price point that while we don't have, we don't work

with blends, uh, we purchase Brazilian coffee so we can, you know, the flavor profile is

low acid, et cetera, et Cetera, you know, heavy, um, chocolaty. Yeah.

Speaker 3: Easy to drink, [00:52:00] super balanced. Yeah. But also it's cheaper to produce.

Speaker 7: Exactly. And so we can keep our price point down and have this be an accessible cup of

coffee in many ways.

Speaker 3: So are the Brazilian coffees that you're carrying, are they handpicked? Are they

mechanically picked? Mechanical. Okay. Yes. So you have a labor generally taken out of

it.

Speaker 7: Totally. So trying to weave that in more, whereas I, Portland is just such a, you know,

it's, it's, it's a [00:52:30] bubble. People come in asking for if we have any naturals in. If

we say no while we do right at the moment, but if we said no, people would leave.

Speaker 3: Yeah. Whoa. I wonder what the price threshold is for something that you consume daily.

Like coffee, like I, you know, sometimes I'll use beer or wine as an example to compare

and say this was produced, you know, this is a beautiful red from, you know, Oregon or

from California and you're totally [00:53:00] willing to pay this $9 per glass. Think about

your coffee. Could you pay $4 and 50 cents every day if you're going out for coffee? You

know, like we're, where are we? Okay. Spending our money and part. Sometimes I think

it's because it's a daily ritual and that people feel it more. Do you think that that

contributes to people's price thresholds?

Speaker 7: Oh Wow. Absolutely. I think that that absolutely complicates the issue is that okay, we

treat it as this specialty [00:53:30] good, but there are people that are coming in to the

cafe every day. I mean literally every day for the last two years that we've been

operating that get the same thing. They get a, you know, 12 ounce cup of coffee to go

same time every day.

Speaker 3: Yeah. And we want to encourage that. Right. Like it's so cool because that's part of cafe

culture is like being able to come in and have this community.

Speaker 7: So recently we just changed our prices in the cafe, uh, up [00:54:00] until up until

Monday we were offering free refills.

Speaker 3: Hmm. Interesting.

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Speaker 7: Ashamed. I'm ashamed to say it. It was something that we started with that was just

kind of like in the end felt like a runaway train.

Speaker 3: Sure. But that's quite common in Portland, right? I mean it's not uncommon there.

Speaker 7: Yeah. Or, or like a discounted refill. But you know, where I was coming from, the coffee

companies that I worked for, like it was quite common. You know, you get a free

[00:54:30] refill with a cup to stay. So what we wanted to do was get rid of refills and

just refills the full price of another cup. We compromised and raised the price for a cup

and we're charging half the price of that cup for refill. So right now it's $3 for, you know,

12 ounce coffee and so for a refill it's a dollar 50

Speaker 3: that sounds like a steal to me actually. I mean maybe that's my San Francisco showing,

but I'm like, damn, that sounds good.

Speaker 7: [00:55:00] When I say, yeah, I'm simultaneously, we raised the prices to accurately

reflect our costs of goods for our food as well. And our other coffee drinks of, you know,

raising the prices on food, raising prices on coffee drinks. The only negative negativity

we've gotten from our customers has to do with refills.

Speaker 3: Really.

Speaker 7: That's the only [00:55:30] resistance that we've encountered with raising food and drink

prices. There's been with refills.

Speaker 3: Well I think that people that go for the free refill option, they think they see that and the

kind of people that gravitate towards that are trying to stretch their money. Right. I

mean, when I was in college I was all about that because I knew that I could sit there for

a certain amount of time and I could go back and I, it was like I was budgeting in that

way. And so maybe it's because that specific product attracted [00:56:00] a certain type

of customer. [inaudible]

Speaker 7: I think that too, it's folks that come in and they work in the cafe for several hours and

they're just down in cups of coffee. I've been torn between coffee is, you know, we treat

it as a specialty good. But I also want coffee to be accessible for everyone. Yeah.

Speaker 3: So you have a very educated consumer base and a lot of ways in the sense of

understanding what they're asking for or requesting specific things. And yet you also

have [00:56:30] people who are really frustrated that you're starting to charge for refills

even though it's half of what that cost of cubby, that cost of the coffee really is. So when

you made the decision to, you know, sort of shift a few things and then start charging

for refills and you landed on the a dollar 50 number was at a dollar 50. Yeah. Um, are

you hoping to eventually be able to eliminate them altogether or was the backlash so

intense that you're going to have to stick there sort [00:57:00] of for a while? What's the

longterm sort of goal of communicating that? Cause it sounds like you have a very

interesting ground to walk on.

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Speaker 7: I think, um, it was, the way I've explained it, um, to staff honestly, is that this was a

compromise. It truly pained me to do it because it makes me, it makes me feel like a

hypocrite with this project.

Speaker 3: But this is the reality of the applied version of it. Like we have price thresholds in the

marketplace, so [00:57:30] you have to compromise a lot. I think.

Speaker 7: So now I'm coming at it as a business owner thinking, okay, we do this. Am I actually

going to lose regulars? If so, like, sure. I know that some people would, you know, they

might think, well I'm not going to go there today cause I whatever, I don't have four 50

on me and I want two cups of coffee. But a lot of that, and that could be troubling. I

think what the refill folks have in common [00:58:00] with the people coming in

requesting certain varieties or processes is that Casa production is a new thing, is a new

idea even for the Niche Portland coffee industry. That like what you were saying with

roasters not knowing what the sea market was, we've run into that too at cost of

production events. So I think that we've been taking a lot for granted in the way that

we, uh, share information with [00:58:30] other industry professionals and consumers.

Speaker 7: And so I think that that's why we've kind of focused so much on the strategy itself of

communicating cost of production stuff is that I think that we've been just, we've been

sharing these concepts or not sharing them, uh, inadequately, you know, that what

we've been telling braces matters, I think is inadequate. I see this, I mean I am, we have

a business to run, but Karen and I, [00:59:00] when we started juniors, we didn't want to

just, I have a business for the sake of having business that we are activists at heart and

we, it's hard for us to just feel content with the way that things are going that as

business owners you have power, you know, to, to make decisions. It's hard because we

co we have baristas in the Portland coffee community saying, what can I do? My

manager or the business owner is reluctant to change [00:59:30] this. What can I do? So

Karen and I, we want to hear more from business owners. We want to see more

commitments from the people making these decisions. And that's honestly at events

that, uh, held or been a part of. It's kind of the people that you're not seeing turn up

great. Granted. Like, as you know, we're all very busy, busy as business owners, but it's

the people that need to be there. You know, the, the people at these, [01:00:00] they

get to make the final say. Yeah.

Speaker 3: When you chose to get into an industry that has colonial roots that has, you know,

something like the c market, which is completely predatory and volatile. That's where

you decided to like plant your seeds. You know, that's where you have the LLC, you're

buying equipment. Like all right, follow through. Let's do it together.

Speaker 7: Yeah. In the beginning stages of this project, I started not, not worrying, but feeling

somewhat [01:00:30] powerless in the sense that like, well, we're a tiny, we're a, you

know, we're like a nano roastery. Like what impact is this gonna have? Well, since we've

started, we've been talking with more and more of these nano roasteries that we can

start kind of forming larger bodies to tackle these really complex issues. If enough of us

get together and get behind this, we can actually have a voice.

This transcript was exported on Aug 06, 2019 - view latest version here.

Coffee Part 2 RC (Completed 08/02/19)

Transcript by Rev.com

Page 19 of 19

Speaker 3: When you [01:01:00] have something like this where you can go and see a farmer, be

able to fill their home with furniture, which is the first thing they're gonna, you know, do

clothing goods, making sure that they have things to be comfortable. That's the first

thing they need to do. They're not going to invest that rate back in their farm. They're

going to make sure they're taken care of. And when you can measurably see a family

impacted one roaster can do that. They can do that over three years and change the

game. So I think I tend to say, oh, these big systems, and it feels so overwhelming,

[01:01:30] but I mean, I imagine you've also seen first hand like this is real and it's not

charity. It's just like doing better. Business is good for everyone involved. Thanks so

much to Mike for joining us. You can find their Zeen and everything. They're up to

online@juniorsroastedcoffee.com

Speaker 4: sorceress is written, directed and produced by Carolyn Kissick and Colleen king. Our

music curator is Daniel Maggio theme music by flat broke robot. Special thanks to our

donors [01:02:00] who all helped to make this possible. Megan King, Ray King,

Christopher Kissick, Deb Maggio, Gus and Marianne Bonder, Hyde [inaudible], Courtney

Minnick, Jen Apodaca, Vanessa Brown, Jonathan Joseph, and Max Kaley. We couldn't

have done it without you. Thanks for joining us on sourcers. Till next time,

Speaker 3: stay curious.