This episode is an informative discussion with Johan Kwe, manager of mill operations for Simalem Coffee & Tea in Karo, Sumatra, Indonesia. Johan shares insight into what it means to be a middleman in the coffee industry.
This audio was recorded at Simalem Coffee & Tea, Karo, Sumatra, Indonesia in 2022 and was later transcribed from the recording.
3 Beans Coffee
Recorded: 3 March, 2022
Transcribed: 27 April, 2022
[Beginning of recorded material]
Michael: Johan, thank you for meeting with me I appreciate it.
Johan: Thank you. Nice talking to you. I hope you’re enjoying your time here.
Michael: I am It’s absolutely wonderful. The facilities are great. The hospitality is great. Just everything about it I’ve enjoyed.
Why don’t you tell us about you. I know you’re a Q-grader, you’re a Q-processor Pro Instructor, you’re also a Q-Processor pro. You work here at Simalem. You also have your own business; 3 Beans Roastery—3 Beans Coffee. Why don’t you tell us all about Johan.
Johan: Well, there’s really nothing much to talk about. Well, like I just say, like you just say; I work here at Simalem, Simalem specialty coffee as a wet mill manager. And I also own my own company called 3 Beans Coffee. I do mainly, in my own company, is roasting coffee. I’m, like you say, I’m a Q Arabica Grader and also a Q Processing Instructor for the CQI [Coffee Quality Institute].
The job has been good. What I do normally here, it’s something that I truly enjoy. But one thing that I want be clear about being a processor is that; if you know the popular saying “If you like what you do you don’t have to work a day of your life.” That doesn’t apply for coffee processors.
Michael: Why not?
Johan: Because I love what I do here, but you still gotta bust your butt everyday. Especially during harvest season. I mean, you have experienced it a couple nights ago. That was one of our easy nights. So we got off, we got everything pretty much done by 11pm. But during peak harvest season, especially during our hight harvest, we won’t get done before, let’s say 1am, or maybe even 2 sometimes. So it’s hard work, but if it’s something that you truly enjoy, it kinda takes the load off.
Michael: Yeah. It’s a good way to put it; it’s not that it’s not work, it’s still work.
Johan: Yeah, it’s still work.
Michael: And to tell everybody what we did that night; we hopped in a truck and drove down, what was it, an hour away? Was it an hour drive?
Johan: Yes. It’s an hour away.
Michael: And we went to two different places to pick up freshly harvested cherries that you had purchased.
Johan: Yes. I know that the way it works is different from region to region. But the way we do it here, they used to be, our farmers would deliver the cherries to us. But then, what we found that, usually the farmers would get everything done over at their end before they start delivering here. What we end up with like people, the farmers delivering cherries at around, let’s say 1am. And when our workers started complaining to me, it’s like, they were already asleep before we have to wake them up to work again.
So we decided to just go and pick up the cherries ourself. Since we already have our own truck and a driver. We will go pretty much every day during harvest season, go to a few collection points. We went to two of them a couple nights ago, to pick up cherries, however much cherries we can get. So like a couple nights ago we got roughly about what, 300 kilos from one collection point, about 200 kilos from the other collection point.
But another thing that’s good about that is then our staff or in this case our driver and the guy who actually go to pick up cherries can actually mark each of the bag. So we know; okay this bag comes from this collection point from this village. Which kinda like work really well with our goal here at Simalem Specialty Coffee because each of our bags is traceable. People talk a lot transparency, talks a lot about traceability but in reality, this is actually how you do it; starting from the very bottom. From every collection point mark every bag. So you can point to any bag at my warehouse, I can pull up the data, and tell you like who’s farmer that coffee’s, which farmer that coffee’s from, what village, and what is the harvest date.
And I’m not just saying that. You have experienced that and you see how our driver, couple nights ago, actually mark each bag, with like the initial of the village, and also when we dump it here in our fermentation tanks, we dump it into two different fermentation tanks.
I think that’s like step one when you want to start talking about traceability. That is step one. Everything starts from there.
Michael. And it’s technically difficult because not only from the fermentation tank, but you have to track that lot through your entire process. So it goes from your fermentation tank to your sorting tables, from your sorting tables to the drying tables or drying patio, wherever you’re taking it. And it needs to follow, that identity needs to follow that coffee the whole way through your system.
Johan: Yes, that’s true. And also for what we are doing; yesterday when we were doing a few experimental lots, and one of the rules when you’re doing experimental is that you want to minimize parameter as much as possible, except the one you are actually testing.
So we were doing some inoculating experiment. And I want to make sure the raw material that we are using is actually the same raw materials. So what we were using, all those two or three hundred kilos are from the same village.
Okay, so we know that that coffee harvested on the same date, from the same village, and the only variable that differentiates between them is like one is inoculated, the other one is control batch.
So that’s also…another good point back to the one I just mentioned is besides traceability, it’s also what we call direct trade. Right? So that’s also another point that I think a lot of people talks about. ‘Okay, I want to start doing direct trade. I want to start doing direct trade.’ But do you know how quote-unquote “direct” your direct trade is? For a long time, I normally do not use ‘direct trade’ but I say, I’m sorry, I do use the word ‘direct trade’ but it’s, the concept of my direct trade is actually a bit maybe different from most people think it is. You know we actually go to farmer. So it’s kinda like a direct trade in the purest form.
I know a lot of roasteries, that when they talk about direct trade, what they do is just, they go to, like maybe a certain co-op, or something from an area and just they call that direct trade. But we go one step further than that. We go directly to the farmer.
Michael: And that’s interesting, once you get further down into the chain, so once you start talking about a cafe, and they say they’re doing direct trade, are they doing direct trade with somebody like you, who is doing direct trade with the farmers directly, or are they doing direct trade with some collector who’s pulling in and aggregating, and they don’t have the kind of traceability and transparency?
Johan: Yeah, that’s the biggest issue. And I’m not pointing fingers. I’m not saying that the cafe or the roastery is lying. No. But that’s like, they are doing the best of their ability. So they’re going to a co-op, or they’re going to a collector and they say ‘okay, I’m going to do, I’m doing direct trade.’ But it all depends on the collector or maybe on someone like myself.
Like they could be coming to any processor and that processor could be maybe not doing what we are doing right now, like you see. I could have just combined all those cherries that we collected a couple nights ago and say ‘this is single origin, single estate’ and nobody would know. Not that I’m saying I would do that. But nobody would know. Right? But that’s just not a very, maybe ethical is a big word for it? But it’s not something that I would do.
Michael: It’s not honest.
Johan: Yeah. So I really want to, when our buyers come, like our resellers from Europe, from. Asia, some other countries, when they come, they can clearly see it: we are not just like, stamping that on our jute bags, saying ‘traceability is our priority’ and just saying that.
No. You can come here any time of the day, not that I staged everything. You know, it’s not staged. You can come here, you are a coffee professional. You know when something is staged or not. They can come here any time of the day, they can see this is how I set up my staff to do. Like this is our SOP. Differentiate everything.
And besides quality, traceability is also our priority.
Michael: It’s difficult, traceability or direct-trade. If you imagine just Joe Roastery wanting to come and do direct-trade with a farmer, they have to know where the farmers are, they have to be able to find the farmers, they have to establish that relationship with the farmer, and decide ‘okay, how much are we going to buy for?’ There’s a lot that goes into that.
And so when, one of my pet peeves is when people talk about how bad it is to have middle men. So in a certain aspect you’re a middleman in the chain. But you serve a purpose and you add value to the coffee as you pass it along the value chain.
That to me is one of the important aspects that often gets glazed over is how the middlemen add value. Like you have connections with farmers. You have relationships with farmers. It’s like you were telling me; you had another coffee professional approach you to buy Sumatran coffee and they needed your help because you were networked in here. You know the people. You know Sumatran coffee. You know a lot of people, especially in the Karo area.
And I think that is something that’s very interesting to me about your story. And it folds back to the whole, what understanding what the supply chain is in its complexities.
Johan: Talking about middlemen: I think middlemen has been getting a bad rep. I’m not saying that all middlemen are good. And I’m not saying that all middlemen are bad. But I think it all comes down to the individual. Like you say; I consider myself as a middleman somehow right?
Because you’ve been with us collecting cherries. Can you imagine some green buyers like out of United States just came to Karo. You think they would be able to trace down all those collection points that we just went to? There’s like, in the middle of no-where. In a small road. Tucked into somebody else’s house right?
Johan: So you definitely need locals. Like even ourselves here, who are based in Karo, I actually have one staff who’s job is primarily to just go around the villages. And it’s kinda like building relationship with the villagers. Building relationships with the farmers. Kinda like our “PR.” on the field. So she’ll go around, talk to farmers and ask them whether they would be interested supplying to us and stuff. And when they agree upon a price, then we can start collecting from them.
And obviously we are going to visit his or her farm before we make that decision. When a farmer decides, to say ‘okay we’ll supply to you,’ we’ll pay a quick visit to his farm. Just to make sure that it is her farm or his farm, you know it’s not somebody else’s, and he or she is not like merely a collectors.
It’s also part of the SOP. Before we actually go pick up the cherries and we process it here.
Michael: So tell me more about Simalem and what you do here, what your capacities are, how you process, what are your, what’s your philosophy?
Johan: Okay, Simalem, the estate itself. We span across 206 hectares on the top of Merek hills, in the Karo regency, right by Lake Toba. We are right, literally on the top of Lake Toba.
My boss, before I joined this company, has already started processing coffee. So they’ve been doing coffee processing for roughly about ten years before I joined the company. But my boss was with limited knowledge. They have to make-do with what they know. So you know, they ended up with like a mediocre quality coffee. I mean, it’s not bad but it’s nothing special. It’s like a very typical washed coffee: not much complexity, not much characters in it.
In 2019 my boss decided then, it was time to upgrade our coffee, the Simalem coffee. And then when he asked around, he asked one of the company consultants then, he said ‘you know, do you have any idea how we can improve the quality of our coffee?’ And the consultant suggested to my boss saying that ‘well, you gotta start from the top, so of quote-unquote “the top.” You gotta start from processing. You already have a farm, but you do not really know how to process your coffee.’
And my boss pretty much just asked him, well how do I do that? And he said ‘okay, you gotta hire a professional.’ ‘Is there such thing as a professional processor?’ My boss was asking. And he said ‘yeah. A friend of mine, he’s a licensed Q Processing from CQI. You can probably talk to him.’
And I sort of did my interview in 2019 and I started from there. And like I say, the rest is history.
But when I first, on my first day of the job and I came here, I looked around, before I even visited the mill, before I even visited a mill, I cupped the coffee, because I do not want to have like a biased judgement. I don’t want to be like seeing their mill and suddenly have to start, no this is not going to be good, right? Because of how they do things.
So I cupped their coffee before I actually visited the mill. It wasn’t very good. The coffee I still remember, I score, the highest one I score is 80.75. That was like the highest lot among three lots that I cupped. And I was like ‘wow, there’s a lot of room for improvement.’ And when I visit the site, sort of that could come from like my first day at work. I saw how they process their coffee, which was far from the quote-unquote “industry standard” of how I was taught by CQI on how to process coffee
And then I start making changes. One of the first changes I made was like how they like to, they like to add in things like, I know infusion coffee is a big thing now. But then they didn’t have a good idea of like why they do the infusion but they just throw in everything. And I’m not talking about fruits. You’d be surprised what they put in the fermentation tank. They put in like papaya leaves, they put in some vegetables and stuff. And I was wondering, I even asked one of the staffs, like ‘why are you doing this?’ ‘I don’t know, we just, you know the boss say try different things, so we just throw in vegetables and stuff in the fermentation tank.
And I was like ‘okay, stop doing that.’ I started from what I would consider as my control batch. So for almost the entire season, all I did, I established five different protocols, sorry, four different protocols; the natural, I start doing naturals, starting from what I would consider as conventional naturals, where you just float the cherries, sort it and just dry it on the bed. And then also I did honey, also like a very standard, standard-issue honey. A washed, a fully-washed, and also a gilling basah, you know we’re in Sumatra.
For almost the entire season I just did control batch after control batches. Just to get a better idea of like the kind of raw material I’m working with and the result I can expect without doing any extra treatment.
The next, the season after that I just started adding treatments like I found that the catimor—we grow catimor here in the Karo region—without an extra in-cherry fermentation step, most of the time you’ll end up with just like a very, very, very mild naturals. I mean very, very mild acidity naturals. And mostly you would just taste the herbs, the spices, and the nuttiness in the natural. I thought ‘well, I could improve this.’ So I did. I started implementing the in-cherry fermentation.
That takes another season, because then I have to know how long should I do the in-cherry fermentation for my natural, to be able to get that fruity notes that I want in my naturals. So we started from like doing in-cherry fermentation for 24 hours, 48 hours, keep going 72 hours, all the way to 21 days
Michael: Fermented for 21 days?
Johan: Fermented for even 30 days. So you’ll see like those paint buckets those 10-liter paint buckets they’ll be like lining up, okay? Then I will be labeling everyone, okay this one fermented for 1, 2, up to 30 days and then I’ll be cupping each one of them, keep cupping each one of them.
And then we decided, ‘okay, so many days is the one that I want to be on my offering list, it will be part of my portfolio. So that’s only for one natural. And then I decided that ‘okay, I’m going to do another style of natural, a slightly milder naturals, because not everybody likes very funky, fermenty naturals, right? So I kinda created another naturals that’s slightly milder. I think you cup it yesterday? I do that, and also do same thing for honey; got to repeat the whole process doing, starting from what the industry would consider as a yellow honey, red honey, black honey. And then I cup everything. And I decided ‘okay we gonna do like this honey, here at this mill.’ Why? Because I don’t want to go all the way to black honey because I found that the flavor is too close to our natural. So I say I want something different but I still want something that has this honey, honey process character. So we decided to go with red honey here.
And then I also have to do pretty much the same thing again for my washed and also for my wet-hull. You know, I have to do wet fermentation, dry fermentation and then decide which fermentation I want to implement here at this mill. And the same thing with giling basah. It was a long process. It took me about two harvest season to kind of get everything done and get like a fixed portfolio that I can start offering to our potential buyers.
Michael: Now that’s two harvest seasons here, so that’s within twelve months?
Johan: One year.
Michael Yeah, within twelve months.
Joahan: One year. So yes, it has been good. And I would be cupping our daily lots and until today. So like my staffs, they know that okay, each harvest season, like what we just harvested yesterday, when it’s all dry and good-to-go they will just pull a 200 gram sample and send it to me for me to cup, just to make sure the flavor profile is still within range of what we want.
And also like I will be doing like experimental lots from time-to-time. When I say okay, if I get a very good raw materials, or let’s say, well, it’s almost Christmas season and you know, I want a, I want to have a very special lot for like this Christmas, sort of “Christmas Blend.” It’s not really blend, it’s single original, but it’s kine of like our Christmas Lot, right? So I would do something different and then just offer it. And we only have like five bags of it and you know, we’re offering it to our local partners. Say ‘hey we have this limited quantity Christmas Lot, would you like it?’
Things like that. The way I operate my mill it’s almost like, almost like a cafe I would say. You know how cafe always have this Christmas Blend, and have this CNY blend [Chinese New Year] maybe, right? We’re pretty much doing the same thing. So, okay, I want to create something special for CNY 2023 for example. Okay, I’m going to start producing like a special lot that tastes maybe a bit different from our regular lot. Yeah.
Michael: It’s your marketing mojo.
Johan: Yeah, it’s kinda like, it’s marketing, yeah. It’s marketing.
Michael: You have to do it.
Johan: Yeah, I guess I got to do it.
Michael: So then yesterday we had a presentation for your yeast.
Johan: Oh, I’m sorry, I forgot. I forgot to answer one of your questions about my production—of volume.
Yeah, you were asking about like the kind of volume I would be producing. Sorry, I totally got lost about when I was talking about the marketing thing.
We specialize in producing nano-lots. So up until now, we have never exported container loads of coffee. So the most we have exported, it’s about 5 tonnes. So that’s roughly about five pallets of coffee, because of our capacity. Yeah, and always, I always have to remind myself; ‘do not bite more than I can chew.’ Well a contract for ten container lot, it’s very appetizing, you know, like the money and everything. But then I have to remind myself, do I want to risk the quality? Because my facility is not equipped to produce such volume.
Now, we can produce, per season, for natural, usually we produce roughly 3, to 4 tonnes of naturals and for gilling basah, for our wet hull we can go as high as about 8 tonnes to 10 tonnes per season. So you know, everything else is like fall in between.
Michael: And how would you define a nano-lot? We talked about this earlier.
Johan: Yeah, so I think, when you’re talking about nano-lots, it will be different when you’re talking nano-lots to a Sumatran producers like myself versus like a Brazilian producer, right? I mean, for Brazilian producer nano-lots may be it’s like five container loads, that’s nano-lots for them. But for a Sumatran producer like myself, when you say “nano-lot” I’m thinking five pallets. That’s my nano-lot, right? Not five containers.
Yeah, it’s kind of very lose.
Michael: It’s relative.
Johan: Yeah, it’s very relative in terms.
Michael: That’s funny. Then going to the yeast: I found, so you’re going to offer yeast for fermentation inoculation. And just aside from, I’m fascinated by the yeast and inoculating your, using starter cultures for the fermentation tanks. But I’m also interested, very much so in the conversations that were had during that presentation yesterday and then the lunch that followed after that. Because I think that dovetails nicely into a lot of the conversations that are going on right now in the industry as a whole, like on Twitter, about how do we improve the livelihood of the smallholder farmers. So why don’t you talk about the yeast, the inoculation, how it works with, you know the CQI and the classes that CQI has, as well as what it means for farmers here, what it could mean for farmers here, what it means for you.
Kind of put all of that together if you can—it’s a big picture, I know.
Johan: Yeah, well, let me start with, okay. We are very honored to be appointed as the Lalcafe distributor for Indonesia, so thank you Lalcafe. Thank you Margarette for the trust. We’ll definitely do the best we can.
So back to the training that we did yesterday. So yesterday, when Michael was talking about the training, it was the product knowledge training for Lalcafe. And I invited several smallholder farmers to attend the training. Most of the farmers that attended, they are “millennial farmers.” Meaning that they are like the newer generation farmers. And they are generally a bit more open-minded to changes. And I talked to them about the possibility of increasing the quality, hence will increase the selling price of their coffee.
And I was giving them an example of another region, Gayo region, I said, like our region here in Karo, when we’re talking about volume, there’s a, we’re on the low, there’s no way we can match the volume of what’s being produced in Gayo. And also price-wise. The price for cherries here runs about 11,500 rupiah, which is about, I would say about 80 cents US, a kilo. Whereas in Gayo, they are slightly cheaper. I think they runs for about 70 cents a kilo. So they have bigger volume and they have lower-priced cherries. Whereas here, and it doesn’t take a genius to figure out which one will have higher production costs and which one would add up with a more pricey product.
Another thing, on the top of the prices and the volume, is that the yield. Gayo, from my experience working in Gayo, the average yield, from cherries to green beans is roughly about 16%, okay? Whereas in Karo, we’re only been able to get roughly about 14% of yield. We pay more for our cherries, we have less volume, and then we have lower yield. What does that equal?
I was kind of like, I don’t want, I didn’t want the training to sound kind of like a propaganda, but I was kind of like pointing out to them, say ‘hey, the only way, if you want to quote-unquote “survive” in this business or to compete with Gayo is that you have to increase your quality of your product.’
One of the achilles heals of the Sumatran coffee is its consistency. And I say ‘what can you do to improve in that department?’ I know that CQI has taught us a lot about all the steps needed during processing to be able to create like consistent products. But sometimes you know you just, you, sometimes you might just need a little bit of help okay? And Lalcafe has products that would be able to help us in that sense.
You know, once you get hang of the kind of quality and the kind of consistency you can produce, and maybe you want that, a little bit of that competitive edge, you can probably apply some of the Lalcafe yeast according to your goal of your coffee. And results have shown that by properly utilizing the Lalcafe yeast, you can improve, you can increase your SCA cup score, sometimes up to 4 points. Okay? And we all know, in the specialty coffee industry, cup scores often associate with selling price. So the higher cup score, we all know you will have potential of selling it higher, for higher price.
And I say, maybe ‘surviving’ is such a harsh word and I don’t think it’s the correct word, but to be able to sustain in this kind of business, maybe this is something you can consider.
One of the farmers, and you already talked to her, she kinda switched from coffee to carrots. And she was saying, for coffee, she’s kinda like downsizing her coffee farms, right? And focused more on carrots. And one of the things, one of my goals through this training and through this, maybe perhaps this Lalcafe is that I’m hoping that I can somehow trigger interest again. Let’s produce better quality coffee.
See, if we have farmers who are downsizing farms here in Karo, imagine what’s going to happen in ten years. The supply is going to keep going down. And some people might say ‘well, you know, supply and demand thing, right?’ I mean, you have lower supply then you can sell for higher price, right? But think about it. If your supply is low, but the kind of coffee that you produce is like a 78-point coffee, do you think that’s going to generate a good price? No.
If you really want to limit the supply, make sure you can generate like an 86-point coffee so then you don’t need that kind of volume to be able to generate that kind of revenue.
Michael: Corner the market.
Johan: Yeah. But in order to do that, you need helps. That’s one of my, quote-unquote moral obligations I could say, as a Q-processing instructor, is like, to share my knowledge. But some of the knowledge I do realize is bit technical. And it maybe couldn’t be accepted to a lot of the current farmers, except the millennial farmers, you know? And I have to kind of quote-unquote “tone-down” what I say. I have to put it in a language where they can understand. Like, okay, this is how you do it, this is how you do it.
You can not take everything off the book and just throw it at them. First, they might not accept it. Second, they don’t totally understand what you’re saying. So you kind of have to like translate into their local language. And just show them; ‘okay instead of doing this, why don’t you just doin this. This is going to improve the result of your coffee.’ You can probably explain a little bit why this will improve, but the main point is telling them to do the right things. Yeah, for them to be able to sort of improve.
Michael: Yeah, it was an exciting thing for me to see because you had, you had the next-generation farmers, which you’re calling millennial farmers, you had three of them were women farmers, and you were talking about a highly technical subject. And I think the presentation did a very good job of tempering the level of technicality while also introducing them to concepts and ideas and vocabulary that will hopefully generate curiosity. Like you were saying; to move forward into that. And I think that’s one of the things that gets the millennial farmers, or the new, next generation farmers excited about coffee; is the technical aspect of it. So start bringing in precision in the farming, precision in the processing. And I think that that is part of what’s going to regenerate interest, rejuvenate interest.
Johan: Yeah, it’s definitely, like this, I sort of label them as millennial farmers, the younger generation farmers, as you met them, there are four that attended our training. One of them is actually a CQI Q-processing professional, one of the farmers. And the other young farmer, she’s actually western-educated, right? So these millennial farmers, these up-coming farmers, these young farmers, they kind of break the, what do you call that, what did I call it this morning? They kind of break the…
Michael: Break the mold?
Johan: Yeah, break the mold of…they are mostly college educated. Let’s put it that way. So, oh, they break the stereotype of being like farmers being low-educated job. No, no, no. They’re college educated. And one of the farmers actually western-educated, and speaks really good English. And like I say, the other one is CQI Q Processing Professional.
So imagine in a few years, if we have more and more of this young generation become farmers with the knowledge and the social media, and all this technology, I’m seeing a huge potential. And also their mindset. I found that this younger generation of farmers, they are more open-minded. They are more open to changes.
I’m not saying that the older generation farmers are not open to changes. But they’re youngsters, they know what’s in trend and kinda want to follow it. And well, maybe the older generation, they get so used to doing things the way they do when they were younger, they might hesitate sometimes when they see something that’s too far from what normally do. But this younger generation of farmers, yeah, they’re willing to experiment.
Like, for example using this Lalcafe yeast. I would imagine older generation farmers, when you hand them this, say ‘hey, just use this.’ And they’ll be like ‘what is this thing? Why do I need it? I’ve been doing fine this whole time.’ Right? But this younger generation farmers they know how cool it is. They have done some cupping workshops and they know the difference between like a very nice, beautiful, clean cup of coffee, versus a commercial grade coffee. And they will strive to be able to produce such coffee. That’s why they are, I think one of the reasons why they are more willing to experiment and to try new things.
Michael: It’s also the conversation you were having at the lunch table after the presentation, about the competitive edge. And the ability to differentiate your product. So during the presentation you were talking about, you asked them what are the characteristics of Sumatran coffee, it’s chocolatey, it’s spicy, it’s earthy. And then you showed the slide that talked about the different products from, the different yeast products and the influence that they have. So you can get a product that adds a floral character to your coffee or you can get a product that adds a fruity character. Or you can get a product that just increases the speed, decreases the speed, increases the speed, decreases the duration of wash time.
And I thought that that was pretty interesting talking to the farmers with business language, like ‘competitive edge.’ And that’s one of my other, I don’t want to call it a pet-peeve, but it’s one of the things I talk an awful lot about is we need to treat the smallholder farmers as business people and they need to treat the farm as a business and not as the family farm.
Johan: Yes, I totally agree with that. When they were seen all this, what we actually showed them after lunch. And we showed them the difference between one inoculated with Lalcafe the other one is not. And they can see it themselves. Like, okay, that’s the difference.
And also, back to the very stereo-typical Sumatran coffee being earthy, chocolatey, and everything, I say, well, in the presentation I even brought it up. I say, ‘if A, B, C, D, and E are producing the same coffee from the region, what you are going to end up with is competition in terms of price. Because you are essentially producing the same thing, right? All your coffees taste the same. So what’s going to make your coffee stand out? A buy comes, he goes to A, and if A says ‘okay, I want to sell my coffee for $5.’ And they go to B. He cups the coffee, it tastes exactly the same, and then if B says ‘I’m going to sell it to you for $4.75.’ Where do you think the buyer’s going to buy his coffee?’ It’s the same coffee. Why would you pay more?
So again, back to being sustainable in this kind of business. One of them is to be able to create something better, I mean something different, not necessarily better, but something different from your neighbors. So when A, B, C, D, and E produce different tasting coffee, each one of them can label their own price. Okay, you want this kind of coffee? I’m going to sell it for $5.25 for example, right? You want that kind of coffee? It’s like $5.75.
And they seem to be agree with it. They say ‘yeah, we are going to kill, murder each other if we don’t do this. Because, like, me and you offering the same-tasting coffee. You know, I will try find out, okay, how much is Michael selling his coffee for? Oh, $4.75. Okay, I’m going to sell mine to you for $4.65.’
Michael: It’s a price war.
Johan: Yeah. So it’s price war. So where do you think this is going to go? We’re just killing each other, right? How low can you go? Pretty much. So if you have that competitive edge, you have that kind of weapon to make your coffee special, everybody’s happy. Right? I can sell it for a higher price, you have a different kind of coffee, so we’re not directly competing. We’re just offering different things. You want fried noodle or you want fried rice, right?
Michael: So I wanted to talk about one more thing before we wrap it up. You and I have talked a couple of times during my visit about producers roasting, selling roasted coffee. And in fact, one of the farmers, she brought it up as well, she asked the question about her roasting coffee, her farm roasting coffee and selling it.
You guys sell roasted coffee. What are your thoughts around this?
Johan: Okay, I believe that this plays a lot on where you are placed in the coffee supply chain. It determines a lot by that. As a producer, your main offering is going to be green, green coffee. We do sell roasted coffee, but total volume of roasted coffee is not even close to 10% of our total sales compared to our green coffee. Because people know us as coffee producer, coffee processor, not coffee roasters.
And again, I say it depends on where you are in the coffee supply chain. Like people wouldn’t go to, let’s say Blue Bottle and then say ‘hey, I want to buy green.’ Right? I mean, they know they’re going to get latte from there. It’s the same thing here. When people come to, when green buyer comes to me, he or she is not going to say ‘hey I want to buy your roasted beans.’ No, because he’s here to buy green coffee. Well obviously you’ll still have some people who come and say ‘hey, you know out of curiosity I’ll just buy a couple packs of his roasted beans, see how good he roasts.’ Right?
But it’s doesn’t contribute significantly to your total sales. So I think unless you really want to concentrate, or maybe if you want to, can I say, well set up a new company, or maybe branch out in their roastery. Like I say, Simalem Specialty Coffee, if my boss decides, okay, let’s do Simalem Roasters, right? Well maybe you can do that. But then you need a separate, kind of like a separate entity for that. Right? So people can know, ‘oh yeah, I want to buy roasted bean.’ And you, it’s a totally different, almost a totally different business model. A totally different business strategy. Because then you are dealing with, okay, I want to supply to cafe, I want to supply to restaurants, and everything. Whereas in green, we’re playing a totally different ballgame, and our marketing strategy is different. Even though they may cross paths sometimes, they may be similar in some way, but all-in-all it’s a different ballgame.
Michael: It comes up especially on Twitter, but it comes up in other cases as well like in 2017 I went to the World Coffee Producers Forum. And even the then-President of Colombia was talking about, he compared the price the farmer received… He compared the profit a farmer received for cherries to the amount of, the revenue that Starbucks gets for a latte, right? So he said that a farmer gets pennies for the cherries and Starbucks charges five bucks for a latte and people hear those two numbers and just compare the two numbers and say ‘well, the farmer is only getting pennies and Starbucks is getting five bucks.’ And you know, if you’re not in the industry, you’re not seeing the difference between…it’s apples and oranges. It’s not a fair comparison.
And this, your facility here is a great example. So in the cafe you have display stands with roasted coffee in it. And you have retail customers. You have guests who are coming to the resort and staying at the resort and they’re coming in and their target product, the product you are targeting to them is the bags of coffee. But then they’re able to walk right through and come down to the fermentation tanks, and see us processing coffee and they could, if they wanted to, talk to you about purchasing some green, un-roasted coffee. But they’re not in that market.
Johan: Yeah, exactly.
Michael: And so it’s not only different business models, it’s different skill sets and this is what we were talking about with the farmer yesterday, who asked that question. ‘Okay, you’re a farmer and you farm. You know how to grow and harvest coffee trees. And you might have the ability and the skill set to also process those cherries into a nice product. But then when you start talking about roasting, now you have to know about roasting as well. So that’s three compartmentalized skillsets that you have to have. And then across all the, all of them, is the business skillset. The ability to market, distribute, that whole thing.
Johan: Yeah, and back to the, like the price-wise. I couldn’t have agreed with you more. And as a producer, as a coffee professional, I often get asked that kind of question. It’s like ‘hey, so-and-so company sell their latte for five bucks, six bucks, right? And they should have paid you more. Why are you only selling four, five dollars for your coffee?’ Right?
And I say ‘okay, this is such a wide-range of problems and you are only seeing from one perspective’ I say. Think about it like this, okay? Let me walk you through. I don’t know a whole lot about the cafe business. But I can tell you, starting from the processing, okay? Let’s say if I buy coffee cherries…okay, let me just go ahead and talk in rupiah, because I’m much more familiar with that, okay, as a currency. So let’s say I buy, right now I’m paying 11,000 per kilo. 11,000 rupiah per kilo for cherries. With the current yield, which averages at around 14%, I’m looking at 85,000 as my, what my, the green is going to cost me. 85,000. That’s excluding labor, electricity, water, etc, etc, etc, all the miscellaneous charges. The bags and everything. Right?
Michael: The cost of doing business.
Johan: Yeah. 85,000. I might be able to sell that for let’s say 100,000. And you say ‘okay, that’s not bad. You make 15,000 a kilo.’ Right? I say ‘yeah, 15,000, but you gotta think about my labor. Everything. I mean, they gotta eat.’ You know? And I have about, what, ten, almost ten staff, in my department. So you kinda spread around, you’re gonna spread, that 15,000 ain’t much, okay?
And then, let’s say a roastery. Roasters buy my coffee for 100,000. He roast it. And it’s no secret roasters, you normally will double the price of the green. That will be like their retail or maybe their wholesale price. So if you’re buying green for let’s say 100,000 normally a roaster would sell the roasted coffee for maybe 250,000 to 300,000 rupiah, okay? Just to cover up the cost. Maybe he has some installment to pay for his Probat [roaster machine]. Right? And everything. And he staff, his packaging, his marketing, and everything.
So if I, people say ‘oh, farmers only make pennies. You have to buy cherries for more. You have to pay the farmers more.’ Okay, if I buy the cherries for 20,000 rupiah, okay? If I pay the farmers for 20,000 rupiah that would make my coffee cost roughly about 180,000 rupiah, green. Okay? I gotta make something on the top of that. So I’m going to be selling to roasters for 200,000 rupiah. Okay? A roaster who buy my green, if there’s any roaster who will wanna buy my green for 200,000. Let’s say I found like a crazy-enough roaster who will be willing to pay 200,000. Okay? He or she will buy my coffee for 200,000 and he or she will sell his coffee for 600,000 rupiah. Okay? 600,000 would be what, 50 bucks a kilo? Would you buy that? Would you buy 50 bucks a kilo of roasted coffee? If you say ‘Yeah, I would try, I’ll try.’ How many kilos are you going to buy? A kilo? Okay? Maybe if you buy a kilo just to give face, right? ‘It’s Michael, selling, ah don’t worry about it, I’ll just buy one, you know, ‘cause Michael is selling it.’ Right? But would I buy like, do you think that’s going to be sustainable?
Okay. If you don’t think that ‘oh, no, the roaster shouldn’t sell for $50 then, he should sell for, well, since he’s buying for, let’s say $17, he should just sell for $25.’ Talk to the roaster. See if he or she is willing to sell for that kind of price. That kind of margin. Right? So if the roaster can not sell his or her coffee, he’s going to end up buying less. And where is that going to trickle down to? It’s going to go back.
Michael: We’re all connected.
Johan: We’re all connected. So it’s not as simple as ‘hey, pay the farmers more.’ Okay? And it goes back to the consumer. You as a consumer. You willing to buy $50 coffee? Okay. If not then, hey, stop right there.
Michael: Yeah, end of conversation.
Johan: End of conversation, yeah. For me, as long as I can sell my coffee, if a roaster come, if company A comes and says ‘hey Johan, I will pay fifteen bucks a kilo for your coffee.’ Oh heck yeah I’ll pay my farmers more. You know, I know, I mean fifteen bucks? Yeah, sure. I’ll pay you more, you know? But, let’s sign a contract, man. For like what, ten years? You gonna keep buying at that kind of price? Not for like, one pallet. Right?
So, it’s kinda like a dilemma, something that kind of works me up when someone brought it up. Yeah, the way I look at it is; okay, this guy is just been watching too many, you know, documentaries, and maybe seeing too many Instagram posts about this.
Every time people start talking to me like that I say ‘you know what? You should maybe spend a season over at the mill. Get your hands dirty, and then you tell me. Try to sell the coffee for the whole season. Try to market your coffee. Do it as if your life depends on it. As if your next meal depends on it.
Michael: And your employees’ next meal depends on it. Not just yours.
Johan: Yeah. Your employees’ next meal, your next meal, all depends on that. You spend a whole season there at the mill.
Michael: I think that what you’re doing with the farmers is a big piece of the puzzle to fix that problem. And the work I’m talking about is the Q-Processor Pro work, the yeast work—you know it’s not just offering a yeast product, it’s the education that comes along with it, it’s the conversations…
You know that product demonstration brought a group of farmers together and you guys, you had lunch afterwords, you spent basically the afternoon together and you were able to all discuss ideas, kick around ideas. And to me it felt like the beginning of the possibility of organization of farmers in the Karo area, to be able to say okay let’s work together and let’s figure out how we improve our product as a group and bring ourselves up. And I think that that’s a better answer than just saying ‘hey, we need to give the farmer’s more money.’ It would be great if we could do that, it really would. But like you said; there are trickle-down effects.
Johan: Yeah, yeah, I mean like I’ll be happy to be able to do more workshops like this, not only to Karo farmers, maybe to farmers from other regions in Indonesia too. You know, just like you say, education, I mean knowledge is very, very important. Especially for this millennial farmers. All these young-generation farmers because I think they are hungry for knowledge. They really want to do it and the fact that they decided to chose farming, like being a farmer than like a 9-to-5 kinda already showed that their willingness to actually learn and do things.
And this group of people, sometimes, I have a lot of respect for them. I mean, those young farmers you met yesterday, they’re not like your low-educated group of people. They’re college educated. They could easily just apply for a 9-to-5 in the city. Right? But then they decide to just come back and be a farmer. So I have a really high respect for them. It would be an honor for me to be able to share what I learned from CQI with them.
I know, I realize that taking classes sometimes would be a bit pricey for some of them. But you know, like a sharing session. I’m not talking about a full-blown, formal class. But kinda like a sharing session over a cup of coffee, somewhere informal. I think it would be a very good idea and I’m really looking forward to do more of what we did yesterday.
Michael: I think it was very useful, very productive.
Well thank you very much for sitting down with me. I appreciate it.
Johan: Thank you, thank you. I really enjoy, hope you enjoy your stay here for the last three days.
Michael: Absolutely, and thank you for putting me to work.
Johan: Well, I hope you come back.
Michael: I will, absolutely.
Johan: Thank you.
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