Direct Trade Sourcing Strategies for Specialty Coffee.

This article analyzes how specialty coffee roasters optimize their direct trade (DT) sourcing strategies for single-origin (SL) coffee beans under uncertainties in harvest yield and blend-label (BL) coffee prices. It identifies three distinct optimal sourcing strategies—specialized (no downward substitution of SL beans into blends), diversified (consistent downward substitution), and mixed (intermediate use)—and characterizes the conditions under which each strategy is preferred, primarily influenced by the mean BL price and the marginal cost of SL beans. The study introduces the concept of the "farmer's curse," where negative correlation between yield and price lowers the weighted average price received by growers, suggesting benefits from fixed pricing set before harvest to mitigate this effect. Additionally, it highlights a virtuous feedback loop in DT relationships, where roasters’ investments to reduce yield volatility strengthen grower partnerships and potentially improve grower welfare. The findings are robust across alternative demand models and have implications beyond coffee, applicable to other agricultural and quality-differentiated supply chains.