How may digital platforms reshape upgrading for local coffee producers in Brazil?
Digital platforms incorporate a vehicle for superior knowledge, learning, and the building of TC for coffee producers in the digital age. The study finds that these have proven to mainly feed into product and process upgrading as well as an empowerment vis-à-vis domestic agents who used to profit from farmers’ lack of knowledge. Innovation and TC have shown to be a prerequisite for upgrading in which innovative platforms introduced new and added functions as well as the access to new markets and buyers outside of the traditional coffee trade in Brazil.
Coffee producers’ superior value creation in light of enhanced TC and quality coffees was captured and redistributed by GVC actors in which coffee producers were not able to improve their position in the coffee GVC through the advent of a digital platform. Instead, the study shows that enhanced TC incorporate a prerequisite to remain competitive in GVC in which local capabilities to innovate are closely interrelated to the lead firms’ growing demands in light of „hyper-transparency”, capability improvements, and sharing of information.
How may digital platforms reshape governance in the coffee GVC?
Digital platforms enable a higher tolerance of distance through virtual relationships and interactions that reshape the roles and activities of coffee GVC actors in the digital age. Lead firms centralized control may transition to a more decentralized and collaborative learning environment where responsibilities are shifted towards traders, agronomists, and farmers and towards digital devices in light of the possibilities in 4.0. Suppliers’ learning, innovation and upgrading have proven to influence governance patterns but these dynamics are attributed to be highly favorable for lead firms. The study proves that digital platforms may reshape how governance is executed but leave the prevailing “captive” governance form unaltered.
Governance in the coffee GVC remains dependent on leading roasters that capture superior value through superior technologies and innovative platforms that give rise to a “data-driven supplier squeeze”.
This study draws on primary fieldwork in Brazil as well as 20 in-depth interviews with heterogeneous actors in the coffee GVC in an attempt to explore the “state-of-art” of how technologies in light of “Industry 4.0”, executed over digital platforms may reshape value creation and distribution in the coffee GVC. The novelty of technologies has delimited the number of coffee producers to conduct. More research and long-term empirical data are needed to investigate the role of technologies in light of 4.0 on a farm-level. Given the small sample size, caution must be taken in the representativeness of findings that may moreover be subject to differentiations considering the velocity and dynamics of technological advances. The results are additionally not transferable to other coffee-producing countries, as it is to be highlighted that Brazil is home to one of the most sophisticated farmers worldwide.
Despite the critical take in this study, advances in technologies may have promising effects of coping with current challenges in the coffee production, namely rural depopulation and climate change. However, these dynamics offer superior opportunities that are equally accompanied by high risks. These need to be subject to future research, both in academia and politics, governments, and the formation of adequate laws. The coffee GVC and “big data” can no longer be treated separately and raises the need for further research in questions around the ownership, security, and privacy of information.
The study has contributed to academia by showing that GVC and innovation disciplines need to be further integrated to understand the complexities of an increasingly virtually connected and globalized economy that is fueled by ongoing advances in technologies. The findings prove that these dynamics will impact actors and activities in the coffee GVC in the digital age – introducing a digital coffee that makes not only coffee but moreover data a valuable commodity.
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APPENDIX: NOTES
Table Appendix A: M&A of major roasters from 2012-2018
Year of acquisition
JAB Coffee Nestlé
2018 Pret-a-Manger, Dr Pepper Snapple Group (Dr Pepper, 7Up, Schweppes, Canadian Drs, Orangina)
Starbucks License Agreement (Starbucks, Seattle’s Best),Torrefazione Italia
2017 Au Bon Pain, Panera Bread Company, Bruegger’s Bagels, Balzac Coffee, Cia Cacique, Oldtown Berhad
Chameleon Cold Brew, Blue Bottle Coffee
2016 Keurig Green Mountain, Supergroup, Coop CAFFEE , Café Seleto, Krispy Kreme Doughnuts
2015-2012 Intelligentsia Coffee, Stumptown Coffee Roasters, Baresso Coffee, Espresso House, Mondelez Coffee, Brother Bagels, DE Master Blenders, Caribou Coffee, Peet’s Coffee and Tea 2014-
2012
Mondelez Coffee, Einstein Brother Bagels, DE Master Blenders, Caribou Coffee, Peet’s Coffee and Tea
Source: Table constellation, based on Panhuysen&Pierrot (2018)
APPENDIX: QUOTES
2.5: BACKGROUND BRAZIL
“Right, first of all. You are touching on coffee farmers in Brazil who are probably more educated that other coffee producers in the world. Brazil is very, when you look at the all the coffee producing countries in the world one of the most developed ones. So, they might already have some knowledge about digital platforms, they might have a Smartphone, they might know how to even develop an app or someone else. This is usually not the case in the world of coffee trading or the world of coffee producing. Now these digital platforms I believe can be very interesting for the whole supply chain, therefore for coffee producers as well, coffee is a very traditional business meaning that some companies, you have the coffee capsules you have innovations along the chain but there are certainly other industries which are more innovative than the coffee industry.” (I: 17:03.20).
„Yeah, also so the supply chain in coffee really depends on the origin. On the country, in your instance Brazil is working with a lot of agents, working with the coffee farmers itself, and then they are selling this to exporters (..).” (I: 17:03.20).
„The landscape is totally different here. You talk to multi-millionaires that is at the same time a producer. And you have producers that are poor and produce coffee to survive. There is not one picture of a producer, the landscape is totally different here.“ (E1: 05.02.20).
“Brazil is the second biggest if not the biggest consuming market of coffee exporting countries. There are more than 200 exporters in Brazil, so you have an idea about how big the fight about coffee in Brazil is. (E1: 05.02.20)
„Yea definitely. And the good thing in Brazil is that farmers here they are very open for new technologies, new ideas, if they really think that it will work. But if they have some doubts, the give a chance you know. They are very conservative, you went to one of the most conservative coffee areas in Brazil that is [Minas Gerais] (E2:
13.03.20)
„Cerrado, yea they are way more open mind I would say. The area that you went, because now we are very close to [..]. People are very close mind but they are very conservative, the old the farmers they are the old people still.
If you go to Cerrado, you have the old and the young generation working together they are more open like I said.
They are more aware of that the technology is bringing much more benefits to the farm.” (E2: 13.03.20)
„I think they do and especially this depends also on their mindset if they are open to new ideas so you need to understand the historical information from this farmer and in Brazil you need to look the historical information of the region. (..) one is the south of Minas and the other is the Cerrado region..so in the south of Minas you have fourth or fifth generation of farmers and it is very traditional is in the mountains.. a lot of the agriculture
activities are still manually and is not of mechanization and technology so it is way more difficult to work with technology with these farmers than the farmers from the Cerrado region, which is a region which was occupied
recently just after the ..the farmers moved from Parana to the Cerrado region. So, they are there and the oldest ones are 40 years old working in this region. So when they occupied this region they brought all this new mindset. So this area is totally flatlands, organization was there in a big scale and after mechanization all the technology evolved. So, in this are you have well everything that you see in innovation is coming from there.
You have technology, innovation, you have new products so there it is way more easy to work than in the south of Minas and then you need to look to the farm size.” (R1: 24.01.20)
“We estimate that we have more than 300.000 farmers in Brazil (most of these farmers are smallholders and families).” (R1: 24.01.20)
„So, this is happening but it is not, if you take Minas as an example, which is the biggest coffee region in the world you have a very traditional mindset. This we need to break still. A good thing of technologies is that it connects with new generations. Farmers succession is a big challenge for the future it is really linked to
sustainability. When you think of the future we need future farmers and we need young people to go and see and look for the coffee farms as an alternative and when you have technology they go..because the cerrado region is a good example. There you don’t have this challenge. You see the new generation of farmers and they are there working already with their fathers and mothers because they see this alternative and the coffee farmer activity as profitable and and the same time the technology is something that make them connect easily and if you go to south of minas there is still not a lot of technology you see that manually performed and its heavy and it is not easy to work on these farms so with i think without technology and without this connectivity the new generation would not go..of course you have all these instruments such as the certification of origin.. which works really well for wines and we hope that this will work well for coffee also. Because it makes the farmer feel proud of the product that he is producing.” (R1: 24.01.20)
4: ANALYIS
4.1 Case Study: Digital agricultural platform 1 Page 37
„In our region, where coffee plays a big role, most of the properties that work in this line of business nowadays got inherited, which means, it's been passing through generations (..) Back then producing coffee wasn't seen as a business, way more like tradition, inheritance (..). I believe, that today everybody sees the property as a business and not something they have to keep on working on, because it belonged once to their grand
grandfather. (..) People didn't want to move on and sell the land, because that would be somehow disrespectful to their ancestors that worked so hard on that land and then passed it on to me, I have to somehow make it bigger and more productive, so my descendent has more when he/she inherits it.” (CP3, 12.12.2019).
“My grandfather was an important person in politics (..) but there is still a story here (..) Because of him and to
to try to improve the financial conditions of coffee producers, and I ended up staying here directly, since 2016, it's been three years.” (CP1: 12.12.19, Audio 4)
“Here, we have a very large cooperative (..). The cooperative is starting to work with information now (..) they couln’t have that transparency because they ended up buying cheaper and reselling more expensive. (..) The point is that it is very close to politics (..) many conflicts of interest (..) but the purpose is what the producer needs. It’s that story: in theory everything is very beautiful, but whether it works or not is another story” (CP3, 12.12.2019).
“(..) The event promoted by (..) through the “(..)” program was very cool. Everyone said exactly that: we have new consumer profiles, and that is the profile of total transparency. And it is not whether you do it right or wrong: the question is not how often I use pesticides on my farm, the question is to show what I use, and how much I use. So it's not if I have all the environmental and labor care, this is already a prerequisite, everyone understands.” (CP3, 12.12.2019).
“The point is to give visibility to everything I do, whether good or bad. (..) But this transparency only exists through information and technology.” (CP3: 12.12.2019)
“Because the cooperative does not provide a structure for each producer to taste the coffee. (..) So one idea is to have collaborative environments to do this, and also because this exchange is important. What I didn't notice in my coffee, the other one sometimes did. So if you are trying it with other people, you can have an insight (..). ” (CP1: 12.12.19, CP3 Interview)
“(..) Having access to information is the most important thing there is (..) Nowadays if you don't have the most accurate information and accessible, you'll make bad decisions one after another (..) „So let's say this: the traceability is very faithful from the gate to the inside, but from the moment my coffee leaves there, I have no idea where it goes, who will consume it, and the person who buys is not using my information and I'm not having information about them, because that could also increase my number of sales.” (CP3, 12.12.2019).
Page 38
“The market is used to old models, where the producer was "stuck on the farm" and had no access to anything, needing many intermediaries to be able to do business and sell his product. Today the world is connected and the ways of doing business are changing, thanks to technology and the approach it allows. Because they are
accommodated, producers stopped in time and tend to think that only productivity is what matters, of course productivity is an important factor, but with the process of de-commoditization and coffee emerging with differentiation in the new market, other ways of working have appeared it, with identity and separation, each cafe has a history and are not all the same. What we want at [Digital agricultural platform 1] is to make the producer aware of this, today he has access to infinite markets, and knowing his product, physical and sensory
characteristics he can have more power to negotiate and achieve better values. We, as producers, also suffered from a lack of knowledge, but we are a new generation and we are not content to just wait or copy, we want to understand, and everything we can get answers to, we share with [Digital agricultural platform 1] customers, so that we can grow in a network, united in order to bring greater profitability and sustainability to the coffee producer and the chain.” (CP1, 15.03.2020)
“Technology has always present in my carrier, my way was totally internet-oriented. The internet reaches every corner, that means, it breaks boundaries and reaches almost everyone around the globe, it doesn’t matter where you are. So we thought that so could coffee. So having the knowledge of how the market works in big cities made us realize how we could insert the technologies in the coffee’s deficient market in our city.” (CP2, 12.12.
2019, Group Interview)
„ It is something we’ve managed to develop to help and optimize their daily routine and to teach them how to register the info from their crop. They were used to using paper, but paper can get lost and get wet. There used to be even an employed person to gather all this papers and to enter the info into the computer. The app is shaped to pass right in their routine and to optimize their tasks, representing no kind of diversion. So the great about the app is, that the producer gets to show what he does, so the info about the coffee comes directly from the person that produced it, not from a company, so there is more credibility from the view of the consumer. Also with the app the producer gets to keep track of all of his batches and of the feedback from consumers, see our
recommendations to his product according to the acquired sample. This all is supposed to help him make more effective decisions.” (CP2, 12.12. 2019, Group Interview)
„We decided to examine carefully the flow of money and why the producer wasn’t getting that much of profit.
We found out that the brokers, that have direct contact with the producers, were taking advantage of their lack of information instead of instructing them. The producers are really good at taking care of the plant but bad at commercializing it. They, for instance, give the product to a third party, that sells coffee, to evaluate the quality of it, because they don’t know themselves the worth of their product. All in all, we created the app to change this scenario.” (CP2, 12.12. 2019, Group Interview)
Page 39
“That’s the big difference. The app is just the iceberg tip. Behind that is all the knowledge of being a producer, everything we’ve learnt from our mistakes since 2015 and being able speak the “producer’s language” that, by the way, is really peculiar. Also the acquired knowledge from our manual testings helped us find out which process could be speed up and which couldn’t. That is what makes the app something you’ve never seen before, the experience from the people developing it. I believe something worth mentioning is that, we’re doing this all as a group, every department takes part to improve the app, not only me and [CP1] but the producers and the