Insights

Perspectives On PRM, Part 1: Ed Canty – “Risk Management Is Everyone’s Business”

by | Sep 28, 2015

Key Insight

Managing risk is inherently risky if you jump into it without a practical knowledge of how to use advanced tools.  Start by understanding your risks and enter into contract negotiations with the mindset that bearing that risk is unacceptable and bad business for all involved.

A few days ago, I wrote about the need for producers to manage their exposure to price.  Let’s start with a disclosure:  I have no formal financial training.  However, my work with the coffee sector, I recognize that my focus has been on mitigating the risks on the production side – climate change, diseases – all of this work could be rendered useless if a farmer/cooperative does not also manage their risk to price and the market.  As I started to learn about price risk management – I recognized that there are lots of folks who have been working on this topic and who are trying to provide cooperatives and farmers tools to be able to deal with market volatility.  My goal was to start a discussion with various points of view – traders, producers, cooperatives, NGOs, certifiers – with the goal of trying to demystify this topic. The first interview is with Ed Canty, former lead coffee buyer at Keurig Green Mountain, and currently running his own consulting business.  Ed was the Fair Trade coffee buyer at KGM when he got serious about finding ways to incorporate PRM strategies for the coops he bought from.  The following is a condensed and paraphrased conversation from our last few phone calls.

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KK: I’m coming around to your point of view – that price risk management is an issue for the entire industry and not just for producer organizations.  You told me that all public financing that has been invested in coffee producer organizations gets put at risk if the organizations don’t have a PRM strategy in place. This risk is then borne by the PO, but has effects throughout the supply chain…

EC: All lenders, NGOs, certifiers, importers, and roasters who consider their relationship with producer organizations as an investment have an interest in PRM strategies.  The commodity market has become increasingly volatile in recent years.  Without PRM strategies, organizations risk liquidity issues barring them from completing their commitments; or worse, threatening their entire business.  This risk extends to their partners.