Creating new international supply chain outlets proves challenging
In 2009, Richard Bernsten embarked on a project that explored the bean export supply chain from Honduras to the United States.
July 11, 2016
Richard Bernsten retired from Michigan State University (MSU) in 2011, where he served for 26 years as a professor in the Department of Agricultural, Food and Resource Economics. But he hasn’t strayed too far from campus. Each semester post-retirement, Bernsten has sat in on a class. He doesn’t teach or interject. His purpose for attending is simple: enhancing knowledge.
The courses have covered topics such as vegetable crop production, plant pathology and entomology. An economist, Bernsten is seeking to learn more about the science behind the cropping systems he’s spent decades studying from finance and policy perspectives. Why now? Because he still cares about improving the lives of people all over the world, a cause to which he’s dedicated his entire career.
Bernsten’s passion for international development originated during his time as a Peace Corps volunteer in Sierra Leone. From there, Bernsten was hooked. After completing master’s and doctoral degrees in agricultural economics at the University of Illinois, he made his way to the Philippines to join the International Rice Research Institute. Wanting to return stateside after four years in Southeast Asia, he obtained a position at Winrock International in Arkansas, a nonprofit that works with disadvantaged populations in the United States and abroad. In 1985, he jumped at the chance to join MSU and focus on international projects.
With funding from the Legume Innovation Lab (LIL) at MSU, among other entities, Bernsten has investigated ways to bring economic opportunity to developing countries. He has a particular affinity for Honduras, where several of his former graduate students and collaborators are from.
With Juan Carlos Rosas, a Honduran dry bean breeder and professor at Escuela Agrícola Panamericana, and a team of graduate students, Bernsten embarked on a project in 2009 that explored the bean export supply chain from Honduras to the United States.
In need of cash, most Honduran farmers sell their beans just after harvest. The downside is that prices are low because the market is flooded. Bernsten wanted to devise ways to give farmers more selling options.
“We were looking to assist small-scale farmers in making larger profits from the beans they grow,” he said. “There is a market class in Honduras called small red beans. This market class isn’t grown in the U.S., but it accounts for more than 90 percent of all beans grown in Honduras. With the growing interest in fair trade in the U.S., we thought fair trade beans might be a good idea.”
Around for many years, fair trade practices have begun to flourish only in the past two decades. Coffee is the most popular fair trade product, but others are gaining steam. Proponents tout the standards set by third-party certifying organizations that respect growers and the environment. Bernsten believed he could help farmers tap into an emerging upscale U.S. consumer base that was increasingly concerned with worker conditions and food origins. Plus, farmers growing fair trade beans would receive a 10 percent price premium.
Rosas initiated conversations with local growers to gauge their participation interest, while Bernsten attempted to address the main concern: who will buy these beans? Jack Allen, a retired professor in the MSU Eli Broad College of Business, recommended speaking to one of his former students, a regional manager for Whole Foods Market. The manager connected Bernsten with the bulk commodity buyer for Whole Foods in Austin, Texas, and negotiations began.
“We had to establish a price that was fair to the farmers and take into account the cost of all steps of the supply chain,” Bernsten said. “As we delved further into the process, the complexity of fair trade certification became very apparent.”
Whole Foods agreed to purchase 20 metric tons of beans if the farmers formed an association for fair trade purposes, met standards set forth by the International Marketing Organization (IMO) and agreed to the price. This required the farmer association to complete a 50-plus page application that vetted the group’s membership and governance. To gain and maintain fair trade status, the association needed to pay an annual fee of $2,700 to cover associated costs.
Bernsten determined that certification costs, shipping, fumigation, customs brokerage fees and more would require a higher price than the $1 per pound initially settled on. In addition, a purchase price must be arranged six to nine months prior to delivery. Initially, the farmers accepted the offer. But as the local price of beans increased because of supply shortages, the farmers asked for a higher price. Whole Foods agreed to the new price again. But as local prices continued to climb and farmers asked for yet another increase, Bersten said negotiations came to a stalemate and eventually fizzled.
“These are farmers who are used to selling on the spot market,” Bernsten said. “They don’t know if the price will rise or fall in six to nine months, so it’s a scary proposition to forward contract. If it was only a portion of their crop, they could dip their toes in the water without jumping all the way in.”
In the end, an agreement between the farmers and the retail chain could not be reached. Bernsten said the group gleaned information, including the possibilities of expanding target customers.
“I was extremely impressed with Whole Foods and the excitement they had to partner with us,” Bernsten said. “It’s unfortunate that we couldn’t come to a price agreement, but it just shows the unpredictable nature of the marketplace. The price of beans isn’t the only volatile thing here. The price of shipping can go up, as well as any number of other complications. There’s a tremendous amount of uncertainty and risk for small-scale farmers who want to sell their produce in the international market.”
Cynthia Donovan, the deputy director of the LIL, praised Bernsten’s innovative work with fair trade beans. This project, along with others led by Bernsten, provides hands-on experience for students.
“The research was extremely valuable, as it involved farmer organizations and the U.S. private sector opening up a new trading channel that is growing today,” Donovan said. “Dr. Bernsten has done amazing international development work, and his graduate students have gone on to flourish in their careers.”
Bernsten said he has advised more than 40 international graduate students. He tries to stay in touch as frequently as possible and has derived significant pride from monitoring their success.
“I’ve always said the best thing about being a faculty member is following the careers of your students,” Bernsten said. “It’s not your publications. It’s not the classes you teach. It’s seeing your students go on to do amazing things that impact a lot of people. We don’t always get the perfect result with our research, but we take what we’ve learned and apply it to the next project. It’s a valuable teaching tool, and it helps us get better as researchers.”