Young Chicago coffee entrepreneur traces success back to the farmer

By Ann Meyer

Jacob Elster, co-founder of Crop to Cup in Chicago, can trace the coffee beans he sells to the family farmers who grow them; Photo courtesy of the U.S. Small Business Administration

– Jacob Elster knows a good cup of coffee when he tastes it, but he also likes to know where it came from.

That’s why Crop to Cup, the fast-growing coffee business Elster started with Taylor Mork in 2007, includes on its website and on farmer profile cards the stories of the farmers who grow the beans it sells.

It turns out, a lot of customers share Elster’s interest. “If you’re a roaster, the biggest … thing that defines who you are is what kind of coffee you roast,” said Elster, 29, who was recognized Friday with the U.S. Small Business Administration’s Young Entrepreneur of the Year award.

By emphasizing quality and sharing the stories of the family farmers in Uganda and other parts of East Africa who grow the specialty coffee beans, Crop to Cup last year saw demand for its coffee outpace inventory.

Elster is projecting sales of $1.2 million this year, up from $500,000 in 2010, he said. “It’s as fast as we can grow,” he said, noting that he turned down a private label customer because it wasn’t financially feasible given the lower margins.

Despite the company’s swift sales growth, Elster said, it has been constrained by the cost of capital. It needs a line of credit or other funds to bridge the gap from the time it pays the farmers for their crop to the time it collects from its customers, Elster said.

With credit lines difficult to obtain, Crop to Cup has turned to private investors. In January, Kirkland & Ellis set up an instrument called Coffee Notes allowing the company to solicit private investments of $10,000 and more, Elster said. So far the company has raised $250,000 and hopes to attract another $250,000 by the end of the summer.

At the same time, the company is working with farmers to expand the supply of quality coffee, Elster said. The company starts by organizing the farmers locally so that they can produce enough beans to fill a shipping container, instead of selling smaller quantities to middlemen who take a chunk of the profits.

But the company also has started providing financial incentives for quality coffee. The company’s goal is to pull up the quality of the farmers’ crop overall, so that even commodity grade coffee is improved, Elster said. “You can taste the tartness if it’s picked pre-ripe,” he said. “You can taste and smell if the drying process wasn’t done correctly.”

Neil Balkcom, quality control specialist, visits the farmers and provides feedback. “A lot of coffee farmers are tea drinkers. They don’t taste their coffee. They don’t even know what it’s supposed to taste like,” Balkcom said.

The company works with local partners who train the farmers on picking, hulling and milling techniques. While traditionally, coffee farmers have been paid by the weight of their beans, regardless of whether they were ripe or under ripe, Crop to Cup pays a premium for specialty grade coffee. “It allows us to reward farmers for good coffee,” Balkcom said.

Instead of cherry-picking the best of the farmers’ crop, the company now buys all of the coffee they produce. The result has been an increase in overall quality, Elster said. “There doesn’t have to be bad quality.”

The company’s direct connection to the growers provides a further incentive for improvements, he said. “We’re excited about a new way of doing business, one that includes the farmer at the table,” Elster said.

To complete the circle, Crop to Cup has connected the farmers with customers in Chicago through video chat, Balkcom said.  People were “drinking coffee and talking with farmers in real time,” he said. “It’s an exhilarating experience for all of us.”

Ann Meyer
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Posted by on May 13th, 2011 and filed under Management. You can follow any responses to this entry through the RSS 2.0. You can leave a response by filling following comment form or trackback to this entry from your site

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