Episode 006 | February 14, 2022 | Duration: 33:56
Transcript
Note: This transcript has been auto-generated and lightly edited for clarity. It may contain minor errors.
Joachim: [00:00:00] All right. Welcome to the Green Innovation Group podcast. It’s late. It’s been a long day, but I have the most exciting thing left to do. And that is talk to you Sebastian, from Slow Coffee. Welcome to the podcast. Thank you very much. Thanks for having me. You are all about coffee in all different shapes and sizes, but more about it at scale than the particular cup.
What drove you into the coffee world and why is coffee important from a sustainability perspective?
Sebastian: Well, that’s a good question. So actually we didn’t start slow as a coffee company. The idea was to solve the deforestation issues in the tropical build. And then we spent [00:01:00] half a year elaborating on how we can actually make an agroforestry model.
So to create food from the forest rather than drive deforestation and do monoculture, coffee is the second largest commodity. It’s a huge volume market and it’s one of the large drivers of deforestation. It’s one of the six commodities that drives 80% of the tropical deforestation.
Joachim: Because basically, you cut the trees down today or burn them in order to create fields.
Sebastian: Yeah, exactly. You remove the forest, you do monoculture. The problem here is that we have an economy that’s all about yield optimization. When you have sun grown coffee, you have larger yields.
What happens is that typically micro farmers will do the deforestation, and then they can have more yield and improve their livelihood.[00:02:00]
Joachim: So already a lot of things coming out here. Yield driven, output driven. You’re only focusing on how many kilos come out at the end, less on how they’re made, what the quality is, and so on.
And then we have key concepts coming in here as well with coffee that’s grown in the sun and coffee that’s grown in the shade in the forest, where you don’t have to cut it down. So it was pure analysis and this was the most effective way you came up with to battle deforestation in the tropical bill?
Yeah.
Sebastian: It is a huge market. The coffee represents a nice value. That’s the first step.
Joachim: Yeah.
Sebastian: So you’ve called it slow coffee. It is actually just [00:03:00] slow.
Joachim: Yeah.
Sebastian: Because you can do a lot of stuff in the forest.
Joachim: Yeah.
Sebastian: Coffee is a great starting point.
Who knows what the future will bring for the slow journey, but for now it’s coffee.
Joachim: So the whole key thing is what can we grow under the trees as valuable products rather than having them cut down today. How can we go from growing one thing at a time, monoculture, to growing multiple things at a time. Not all of that has to be products, but grow multiple things. I think that’s a good segue. In simple terms, like you would explain it to a 5-year-old, how would you explain this slow model?
Sebastian: I would probably start to compare it to monoculture.
When you cut down the trees and have monoculture, you’re cutting down the carbon sequestration. [00:04:00] There’s no carbon sequestration in the trees anymore because we remove them. When the trees are gone, the wildlife disappears. Birds, mammals, insects, and so on.
Now you have a situation where you have no carbon sequestration, no wildlife. You need to add chemicals, fertilizers to improve your yield because there’s no natural habitat anymore. Therefore we need to add stuff.
Joachim: Yeah.
Sebastian: That’s how coffee is done in an industrial way. Coffee was not always grown this way.
By growing it in the forest, you get the trees. If you do it in a natural forest with a blend of fruit trees and some of the endangered tree species. I think it’s 50% of the world tree species that are endangered, going towards 2050. [00:05:00]
That’s a lot of trees. By keeping these, you keep the insects, the birds, and eventually the mammals will come back. This will be in harmony with nature.
Joachim: Mm.
Sebastian: A very strong contrast to a yield optimized world, as much of the agricultural world is.
Joachim: There’s a lot of things happening in slow, and I think it would be great to understand the really high level structure. You’re growing coffee in the forest, or creating forest, and you’re selling it to large companies in the western world, [00:06:00] mainly. So walk us through this high level model and then we can dive into how you actually go about changing from monoculture to agroforestry and all the other nuances.
Sebastian: That’s a good question. So what we learned back in 17 in our feasibility study was that the coffee we drink changed hands up to 20 times.
Joachim: Wow. Throughout the supply chain.
Sebastian: Throughout the supply chain. That’s a lot of middlemen. That’s a huge value loss for these 15 or 20 middlemen.
And that leads to value loss for the farmer.
Joachim: Yeah.
Sebastian: Because they have poor market access.
Joachim: Actually being paid very little, even when it’s expensive in the supermarket.
Sebastian: Extreme cases of very little. They’re [00:07:00] being paid very late. The combination of the two is not very good.
Yeah. That is the consequence for the farmer. But at the same time, you as a coffee drinker don’t have certainty of what you’re drinking. It changes hands 20 times. Where’s the transparency in this?
Joachim: So it’s being blended and mixed from warehouse to warehouse.
Sebastian: The traceability is increasingly difficult each time it changed hands. Those were two major learning points. If you think about it from a value chain optimization point, how about
We connect the farmer, the micro farmer, maybe a 0.9 hectare farmer. We’ve got a farmer in Huawei Village called Mr. Kiki. He’s got 0.9 hectares. I’ve [00:08:00] met him several times. He’s one of my favorites. I don’t have favorites, but he’s really great.
How about we connect him directly with a client in Denmark, in Sweden. Cut out the middleman. Take the value, redistribute it back to nature, back to Kiki and improve his livelihood, absorb the volume loss because when we grow coffee in the forest, we obviously have a yield decrease of 20 to 25%.
We can still absorb that and be competitive in Europe and that was a game changer. That was what enabled us to actually create slow. Now we decide what we want to optimize for. We want to optimize for nature and livelihood rather than middlemen.
Joachim: Mm.
Sebastian: But it’s not possible if we don’t have a market and off-takers.
Prices cannot go through the [00:09:00] roof. People are not willing to actually pay for sustainability or taking the ethical choice.
Joachim: Yeah.
Sebastian: They might say they are, but when it comes to actually doing the transaction with the tenders at the large organizations.
Joachim: Exactly.
Sebastian: For us, it was very clear that we needed to create something compatible.
Joachim: Yeah.
Sebastian: Because if we couldn’t, then we wouldn’t succeed at scale. Scale is important when you talk about impact. Otherwise it doesn’t matter. Then we need to do something else, give money to an NGO or or
Joachim: Then you’re doing a little thing over here and meanwhile half of the tropical forest are being cut down. What does it matter in the end? So what you’re saying is that your study showed there was enough value in the supply chain, it just wasn’t distributed fairly. [00:10:00]
Sebastian: Unfair, yes. Unfair for the farmer, unfair for us, unfair for people on the planet because we’re cutting down trees.
Joachim: Yeah.
Sebastian: It’s a redistribution. That was what launched the slow way. We started out working with local micro farmers like Kiki, and in the first couple of years we had roughly 40 families.
Joachim: Could you walk us through what happened when you’re meeting Mr. Kiki for the first time? He comes on board, wants to go together with Slow, has a small coffee farm. What changes does he undergo in this model and how does his coffee end up being grown in the forest and end up at a large Danish company?
Sebastian: He was growing coffee in the [00:11:00] forest. The first part of the slow journey was not regenerative focus. It was a preservation case because the first thing is to stop deforestation and create the incentive for farmers who were still growing coffee in the forest.
Make the incentive to keep the forest. What we did was conduct a thorough research and interviews with the families on how we can make what we call a 360 approach.
Joachim: Mm-hmm.
Sebastian: We needed to create an incentive for not cutting out trees and optimize for short term yield.
Joachim: Yeah.
Sebastian: It’s about financial stuff. Kiki’s got a two x income today.
Joachim: Yeah.
Sebastian: One of the main drivers here is actually working capital. What we do is we prepay 40% [00:12:00] of the harvest, expected harvest in September. The harvest starts around September, October, depending on your weather.
Joachim: That’s a huge difference from him getting his money late, many months or even a year later, to being paid part of it upfront so he doesn’t have to resort to short term solutions like cutting down the trees or selling
Sebastian: They sell the coffee berries, unprocessed coffee.
Joachim: Yeah.
Sebastian: By prepaying 40%, it’s five or six months, depending on season. Then he only sells processed coffee. That alone is an increase of the livelihood or income of probably 50%.
Joachim: Okay.
Sebastian: Just an instrument of working capital solutions. This could be replicated all over, not even doing it in forest.
Joachim: That’s just supply [00:13:00] chain inefficiency that doesn’t allow him to make the investment and keeps him stuck forever.
Sebastian: Exactly. What we are doing, we’re buying up to 75% of Kiki’s production. We don’t want to buy a hundred percent, we don’t want them to rely totally on Slow.
Something could happen. They need to have other income streams.
Joachim: Mm-hmm.
Sebastian: But when we buy 50, 60, 75%, we’re buying across the quality spectrum. We’re not just cherry picking the top 5, 10, 15% of the crops.
Joachim: There are differences in coffee berries and you get paid by size.
Sebastian: You’ve got peaberries, the small ones, and then you’ve got green size 13 and upwards.
What specialty coffee companies usually do is buy the best and leave the rest. The problem is that the rest is not as valuable. You’re [00:14:00] leaving goods that are hard to get a good price for. We’re buying across the spectrum, good stuff as well as not so good stuff.
So these instruments were game changing for the farmers. A livelihood improvement of somewhere between two x and 2.5 x amongst the 40 farmers.
Joachim: Meaning that if he had a hundred dollars to his family before Slow, now it’s 200. In very simple terms.
Sebastian: Well, Kiki had somewhere around 1,500 to 1,700 USD annually.
Now it’s doubled.
Joachim: Yeah,
Sebastian: That’s a significant increase.
Joachim: And we are in Laos?
Sebastian: Laos, in the Bolivian Plateau. It’s about a thousand to 1,200 meters high. [00:15:00] Close to Pax. When I was there in November 19, just before COVID hit.
And then I was there in 18, about 12 months apart, you could actually see the improvements they’ve made. Some of them started building houses with bricks instead of wooden ones. That’s a 10 year project, but just getting the belief that you can actually do this and start creating a home with bricks and mortar, that’s a huge step. You could see that, and we could definitely feel that we were onto something from a livelihood point of view.
Joachim: Last time you were there, there was no brick house, just wooden structures.
Now there’s a brick house. [00:16:00] That’s the foundation, exactly.
Sebastian: A foundation or one room, or at least they are planning to do it. Not all of them, but this was back in November 19. A lot has happened since then. COVID has been difficult and now we’ve got a team coming in these days to reboot and so on.
Joachim: So how do you then, if the end client is a large western company with tens of thousands of employees that need to get their coffee on time with high standards, and you have very small farmers at the other end of that supply chain. You’ve cut out all the inefficient middlemen, but still managed to aggregate all that. How do you fulfill that demand [00:17:00] for your large clients?
Sebastian: The first year was difficult because the model is very uncommon. They’d never heard about it. They were like, can this really be true? It was difficult to get started, but once they could show that it actually worked and they got paid a lot more, the second year was easier. During 21 we added more than a hundred new families. We could add more. Now it’s, I wouldn’t call it a waiting list, but we’ve got interest.
Joachim: So you’ve developed the systems and processes to aggregate the coffee from the micro farmers and make sure it’s shipped and processed?
Sebastian: We’ve got a team of about 22 or 23 on the ground. [00:18:00] We’re working with the families.
We are doing individual development plans. When you do a long-term contract, part of the payment goes into a development plan for the family.
Joachim: So if I’m a Danish company buying a long-term contract, is it usually seven years, or does it depend?
Sebastian: It depends, somewhere around five to seven years, whether it’s regenerative or
Joachim: I paid for the coffee, but on top of that I’m making a lot of good stuff happen for the micro farmers that deliver it.
Sebastian: I tend to say that we’re not selling coffee, we’re selling storytelling and sustainability.
We’re using coffee as an instrument.
Joachim: Yeah.
Sebastian: There’s some truth to that because if you buy coffee, your consumption can first of all make a financial difference for Kiki, but also his development program could be a rice cooker, a washing machine, or fruit trees to increase revenue streams.
If that’s part of your contract, [00:19:00] it enables us to do a lot of storytelling. We are connecting on the washing machine, explaining: I’ve got this washing machine that enables me to spend more time with the kids, in the field, or with the fruit tree program and so on.
A virtuous cycle. Very tangible. Slow is used for organizations to make sustainability or climate action activities tangible.
Joachim: Mm.
Sebastian: Because it is relatable. We have a break at the coffee machine, this is where you can communicate.
It’s a good platform.
Joachim: Yeah. I think coffee is a great way to start as well. It’s a high value product and a high focus [00:20:00] product in consumption for knowledge workers. It’s also about providing stability for the farmers and the supply chain.
The sustainability output that is created is of course the livelihood. But if we look at the planet and the climate sustainability, less forest is being cut down because you can grow it in the forest now, which is great for biodiversity. We can get back to later on how you enhance that by not just preserving the forests, but also planting a lot of interesting stuff.
There’s probably less waste in the supply chain, and you mentioned that the coffee is regenerative. Regenerative in simple terms means that whenever you take something, you put more back. [00:21:00] Whether it’s CO2 or biodiversity. Could you explain how that works? I think that’s a very new concept to many, although it should be the standard.
Sebastian: Let me explain that. But before, I just want to circle back to it. It’s not just livelihood.
Kiki is also on the environmental side. If you take the carbon footprint of monoculture coffee, it’s roughly 4 kilos of carbon per kilo of green bean, or per kilo of roasted coffee. With our agroforestry approach, it would go close to zero and potentially negative because of the forest and carbon sequestration.
Joachim: The regenerative part is when it actually becomes negative. That’s standing forest.
Sebastian: In my world, that would still be standing forest. You’ve got the forest already. Regenerative coffee in our world is what we do with, for instance, Core. They’ve committed to buy a lot of coffee for seven years.
If we go out and buy monoculture land, which is harmful as we talked about, [00:22:00] and convert it back to forest, try to resemble nature as much as possible. That is our regenerative coffee because we are bringing back forest, endangered tree species, fast growing trees, and fruit trees, and so on.
And that will bring back
Joachim: So it’s the opposite of cutting down or burning trees to create monoculture. You’re growing all different kinds of plants that enable species to live there and absorb CO2.
Sebastian: A lot of companies are focused on carbon, and that is of course important, but the next wave will be about biodiversity.
Joachim: For sure.
Sebastian: We’re solving both here. Trees are essential. [00:23:00]
Joachim: Definitely. We’re seeing a lot with our clients. When we work with large pharmaceutical companies, they’re relatively long on Scope 2.
Their energy consumption, they’re doing projects to lower it, buying green energy. But there are still a lot of CO2 challenges. Tackling biodiversity is a whole different animal. It’s very intangible, hard to invest in.
Often the best advice is just to consume more plant-based products. You provide a very tangible solution on how to increase the number of species.
Sebastian: We do annual audits on this. How does that work? We have a partnership with Forico, a Finnish spinoff of Helsinki University.
They do [00:24:00] audits every year. They go out and measure and count
Joachim: They’ll say, okay, on this square meter here, this is what we see.
Sebastian: Yes, this is what we count and measure. Forico is doing it for the regenerative site?
Yes. We’ve got a team of six people, our Farm Trace team. It’s a satellite monitoring solution for Kiki’s plot. Every year we go out and count and measure all the trees and tree species. By adding these data points, the system provides an algorithm for calculating the carbon sequestration.
That gives us a good idea on how we are actually doing.
Joachim: Do you have any examples of something that used to be monoculture and now you are?
Sebastian: Six to 12 months. We did the first planting on the first plot [00:25:00] in September.
It is this height now. We’ve experienced some unusual high mortality rates amongst the trees because we’ve got livestock walking around. We had to do some replanting and that’s a learning process. We’re going to plant in waves because when we talk forest, it’s not just one canopy cover. We want to do different layers. We’re doing coffee being the first, then we do three additional strata levels. We cannot build that way, meaning
Joachim: Various heights of plants and vegetation.
Sebastian: Exactly. It’s impossible to plant in one wave. We have to plant the highest layer first, wait a couple of years, and then plant again.
They will grow up. There’s a reason for the name. It is a slow process. [00:26:00] We cannot fast track it.
Joachim: I find that interesting. It’s slow, but at the same time you’re very ambitious and thinking at a large scale. It reminds me of a saying: “slow, smooth, smooth is fast.”
If you take your time to do it right, you will go faster. One of the key things you’re representing for me is a good solution to how to do the physical changes needed at a very large scale, because time is of the essence and scale is of the essence in the green transition.
We’ve seen that digital companies can scale very fast. That’s amazing. But there are many challenges when you’re talking about physical companies, biological systems, and physical stuff in the supply chain with potential shortages, but we can’t let that stop us.
The things we need to change to save the planet are physical. [00:27:00] What have been your thoughts on how to move at scale and be ambitious?
Sebastian: The advantage of being a startup and starting on a clean sheet is that you can decide early what you want to go for.
Scale was essential for us. We’ve designed a company that is built for scale.
Joachim: Were there any paths where you said, okay, this won’t work because we’ll never be able to do thousands of tons?
Sebastian: No, quite the opposite. If you want to do impact, 40 hectares is not enough.
That’s a lot [00:28:00] of coffee by the way. It was clear that we needed to build something scalable in terms of volume and also crops. There are two dimensions here. One is that we can do a lot of coffee in the forest.
The other is 10 billion people in 2050 or something.
Joachim: Yeah.
Sebastian: That’s a lot of people. They require a lot of food, so we need to do more crops in the same forest. That was the ambition. To move into new crops, we need to have scale in one crop, financing the next step and the next step, trying to unlock the market.
There are a lot of very good sustainable cases out there, but what is usually missing is [00:29:00] the off-takers.
Joachim: Mm-hmm.
Sebastian: There’s not a strong link between the two worlds.
Joachim: Mm-hmm.
Sebastian: I think Slow is a good example of actually enabling the off-takers to do this green transition.
Joachim: That’s interesting. From what I understand of your case, you’re obviously doing a lot of good. Is it business or is it philanthropy? How do you view that?
Sebastian: We’ve got investors. It’s a corporation.
Joachim: Yeah.
Sebastian: The crisis we’re in, both carbon and biodiversity, needs to be fixed by someone. Maybe not someone in a white shirt
Joachim: Yeah.
Sebastian: Needs to fix it. It will be fixed by the market, not by governments [00:30:00] or NGOs.
It is a commercial thing and it needs to be market driven. That was clear from the beginning.
Joachim: Especially with consumer goods. The demand matters if you can pick and choose sustainable options.
Sebastian: I think it’s a super interesting movement we see in the market.
Something happened post COVID. We are more aware of what we are consuming. There’s something that happened in the agenda and that is needed because we are, as you said, in a hurry.
Joachim: Sure, it’s still an s-curve and we’re in the early parts, but it’s quite clear that the procurement departments are picking up and if they’re not already there, they’ll be there soon.
And thankfully, more and more regulation is pulling in [00:31:00] the right direction.
Sebastian: You’ve got the deforestation regulation on EU level saying you cannot import stuff that is driving deforestation. Hopefully it will be approved this year, effective next year. That will be one thing. There’s something about procurement because we’ve learned to optimize for price.
It’s about cost, cost, cost.
Joachim: Yeah.
Sebastian: That transition hopefully will pick up and focus more on the ethical choice and the planet and so on. We still got hope, right?
Joachim: Yeah. And it looks like you can be competitive still. I think that’s super interesting.
We’re seeing in a lot of places that sustainability is just good business. Not just to comply with regulatory, but if you look at it like “I’m not buying coffee, I’m buying value.” [00:32:00] What might that value be? I’m buying happy and proud employees and easier talent attraction. I’m buying a different story for my salespeople when they’re having coffee with clients, for more or less the same price.
That’s where we need to go. It’s not just the right thing to do. The value I’m getting is higher than the price because
Sebastian: I think that movement has started and hopefully this can inspire an industry to look towards change because it is needed.
Slow is a small company in a huge market. Hopefully we can inspire some of the larger players to actually start this transition and change the food system value chain around coffee.
Joachim: That’s the key thing. [00:33:00] The thing is that we are much further away in the food value chain system than we are in the energy system.
Which of course needs its own work. But for many cases the sustainable business models are not there yet. The supply chains are not optimized for it, which I think makes Slow super interesting as well. Thank you so much for coming in, Sebastian.
Sebastian: Thank you very much for having me.
Joachim: Thank you so much for listening. Highly encourage you to subscribe to the podcast on Spotify or whatever else you’re using. We will have more episodes to come, including another one with Sebastian, which I’m looking very much forward to. Thanks again.