What is Conventional Sourcing?

 When we use the term conventional sourcing, we mean purchasing coffee through the commodity market based on quality characteristics and market pricing. Certainly, we can and do purchase high-quality coffee through conventional sourcing practices, but when we do, we have little or no knowledge of who produced the coffee, how they produced it, or how much of our purchase price actually reached the producer. Commodity coffee prices are set through global supply and demand, while the trading process in the United States is administered by the New York Board of Trade®. Generally, when societies rely on mechanisms such as the commodity market to set fair prices according to supply and demand, they do so based on some version of the theory of efficient markets.

The theory of efficient markets holds that a market is the fairest, most effective, and most efficient way to set prices, assuming certain conditions are met. These conditions, or assumptions, include:

• Perfect information – we all know everything we can know about all the choices we have; 
• An individual’s utility is not affected by altruism or concern about the consumption of other individuals – his or her utility is only affected by his or her consumption; 
• Goods consumed by private individuals only affect the individuals consuming those goods – i.e. no externalities exist.

It is fairly straightforward to see that these assumptions don’t hold true in real life. None of us possesses all the information we could and would want to know about the products we consume. All of us care about others, and that care can affect our buying decisions. All acts of consumption have externalities. Accordingly, in a typical market transaction, we may be pricing commodities based on imperfect information, without regard for the effect our consumption choices have on the world or the people we care about. This scenario plays out in the coffee industry fairly regularly, with results that are costly at best and tragic at worst.

When prices fall below the cost of production on the open market, we have a market failure. Relevant factors or market signals have not been incorporated into the market price. These externalities include: the lack of long-term investment in coffee quality, community disruption, illegal drug crop cultivation, mass immigration and urbanization, and social unrest.

Fair Trade Certified™ coffee is one way to remedy this market failure through auditable standards and consumer pull. By selling Fair Trade Certified™ coffee, coffee producers can make enough to cover the cost of production and make a reasonable investment in their future. The Fair Trade system actually helps to maintain and increase the supply of high-quality coffee.

Conventional sourcing offers short-term benefits for much of the coffee industry, including us, but the long-term costs are very, very high. As a global society, we must evolve our markets to incorporate externalities, the social and environment impacts of our industries. By acting in collaboration, we can acknowledge the true costs of these externalities, work to address them fairly and effectively, and help break the cycle of poverty, injustice, and environmental degradation in our world.

Currently, about 60% of our coffees are sourced conventionally. As we expand our Fair Trade Certified™ and Fair Trade Certified™ organic lines, we expect to continue to reduce conventional sourcing as a percentage of our total coffee purchases.