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  • QA 212
    Question:
    Can brokers usefully link coffee producers and importers on a commission basis?
    Background:
    I am interested in starting business as a broker to source orders from US importers for Peruvian coffee and charge a commission for that. I already have contact with producers but I wonder if this activity is feasible in the coffee world?
    Asked by:
    Aspiring broker - US
    Answer:

    Yes, brokers (or agents) operate in the coffee trade but new entrants may find it difficult to gain ground. 

    First, some background to 'brokers' and 'agents' in the green coffee trade…

    Brokers are independent intermediaries who mediate between buyers and sellers and for which they charge a fee (brokerage). However, they are not responsible for the execution of the contract. Brokers can deal with many buyers and sellers but, usually, do not work directly with producing countries.

    Agents on the other hand usually represent producers/exporters (shippers) from producing countries. They provide information and procure orders for them from importers and roasters. Also agents are not responsible for the execution of the contract but they are expected to assist, for example by passing on requests and information.

    Over time the distinction between the two groups has diminished, especially so in the US where intermediaries acting on behalf of principals abroad are mostly called brokers - in Europe the term agents is still more prevalent. However, in all cases a broker or an agent always discloses the names of buyers and sellers. That is to say, they never physically come to own or handle any of the coffee. If the name of the buyer or seller is not disclosed, then the broker/agent becomes a principal himself with responsibility for contract execution.

    It is our impression that you intend representing producers, i.e. you will not buy and sell the coffee yourself but rather work as their agent…

    As an agent you will be required to promote the coffee of your principals and provide them with regular market information. You will have to report on how buyers judge the quality of samples and actual shipments, and you will have to offer assistance whenever problems arise. The very first requirement therefore is for you to know the coffees you will be trying to market, and to have a good understanding for what individual importers and roasters are looking for. Otherwise it will be very difficult to 'match' producers and buyers.

    You will also have to gain a good understanding of the contractual aspects of the trade in green coffee. For the US green coffee trading is nearly always based on one of the Green Coffee Association's standard contracts to which individualised clauses are added as buyer and seller may wish. Go to www.green-coffee-assoc.org for the contracts in question. For specialty coffee the major trade association is the Specialty Coffee Association of America at www.scaa.org where you can find much helpful information. Their annual conference (usually April/May) provides good opportunities to meet specialty coffee personalities. The National Coffee Association of the US is the overall industry body for the US coffee industry as a whole - see www.ncausa.org.

    One advantage to producers/exporters is that the agent or broker is on the spot and can gather information that they themselves find difficult to do. He or she can make regular calls to potential clients and visit them as required. However, an agent who represents just a single origin is not a great counter party for busy importers and roasters who get inundated with many approaches, often less than serious. Therefore, before making any approaches you should in our view first ensure that you absolutely meet the following basic conditions:

    You know your coffee. Is it specialty or mainstream (standard) quality? 

    You know your prospects. What quantities can realistically be supplied over time? It is pointless to raise interest without having the coffee to back it up.

    You have a story about your coffee. From which area? Why is it different? How is it produced, processed, exported?

    You have fact sheets. Variety, soils, altitude, annual rainfall, location, seasons, labour system, processing and waste management, shipping opportunities, etc.

    A good way to start would be to carefully read The Coffee Guide, and look through the Answers provided in the Q&A Archive.

    Finally, in the US the vast majority of roasters, both mainstream and specialty, buy their coffee either 'ex dock' or 'delivered roasting plant'. Importers therefore play a major role in that they take care of the considerable work that getting a coffee from on board ship to ''ex dock etc' involves. Unless you will be able to offer similar services (which entails becoming a principal…) your main market will be amongst US importers. But of course most importers are quite capable of sourcing their own supplies, especially given today's modern communication systems. We would suggest therefore one would have to come with something fairly unique (such as entirely new sources or very different coffees for example) to gain their attention…

    Hence our starting comment: Yes, brokers/agents have a role to play but starting from scratch offers its challenges!

    Posted 7 February 2009

    Related chapter(s):
    Related Q & A:
    Q&A 027, 032, 036, 079, 142, 171, 191