relational trade [part 3]: visit to Level Ground Trading

Over the summer, I met Hugo Ciro, CEO of Level Ground Trading [part 1]. I am really impressed with Hugo and his business from a ‘relational trade’ perspective [part 2]. This week I took a trip out to visit Hugo and see Level Ground Trading first hand [part 3]. Mark, a good mate from College who also met Hugo over the summer and is doing a Marketplace concentration, came along.

It was a big day, ride to the bus, bikes on the bus and two buses to the ferry terminal, the 95 minute journey to Vancouver Island and then a 17.5km ride to Level Ground. When planning the trip, I thought was only appropriate that public transport and pedal power get us there, in honor of Level Ground’s environmental endeavors. Hugo’s recumbent bike was parked outside; Hugo greeted us and had a lengthy discussion about his experimental transit machine. We were sweaty, hungry and late, but Hugo was pleased to see us.

It was 2pm: after handing Hugo my two empty coffee bags (that can't be recycled, but can be turned into energy), brewing espresso from Café La Paz was the first order of business. I usually don’t take sugar, but thought I had to try Panela de los Andes – the cappuccino was sweet! We sat down, got to know each other a little better over a sandwich and coffee - all very relational – and we started to talk about Hugo’s background and the story and motivations that led to Level Ground’s birth eleven years ago.

On the ferry, Mark and I agreed we should start our time with Hugo by trying to understand his personal story and how that brought about Level Ground’s “relational business model” (how Mark and I saw Hugo’s business [see part 2]). Hugo told us about his childhood, spending two months a year on family coffee plantations in Columbia, then working in San Francisco and finally ending up at Regent College to think through missions work, where he felt affirmed by Eugene Peterson that he could be a Christian and pursue a career in business. Combining his knowledge of coffee, his desire for mission, and his entrepreneurial talents, Hugo came up with the idea of starting a Fair Trade coffee business. Hugo noted that it was the Mennonite missions group, Ten Thousand Villages, was the Fair Trade pioneer and gave Hugo the opportunity to distribute Level Ground’s coffee, on the condition that the coffee was excellent quality, and it is...

Here is where the four owner families of Level Ground got involved, contributing capital and expertise. My burning question was how and why did the four families agree on the relational trade model, instead of the typical profit-maximizing business model? For Hugo, this was easily answered – the four families had a shared story and values, they were followers of the Lord Jesus Christ. My sense was that relational trade wasn’t an ideological position for them, but rather it flowed naturally out of their identity in Christ. This still amazes me… my experience is that Christians don’t agree on much within the church, let alone in the marketplace, except that they often have nothing to say about how faith interacts with business. Yet, as Stacey (Hugo's business partner) put it, "everything we do is about relationships", and in a separate conversation, Hugo said his desire was to have "righteous relationships" as central frame for what Level Ground was about, which manifests itself not in "free trade", but in "fair trade".

Yet, Level Ground never considered itself a “Christian business.” Rather it is a business run by Christians (about half of the 30 staff) on Christian principles and values, as if there was no other way to run a business.

We weren’t long into the conversation when Hugo mentioned that an excellent question was raised by a reader in [part 2], about how to raise capital relationally. Hugo was excited, and after I heard what he had to say I was blown away! From before its first day of business, Level Ground has always raised capital relationally. It all started with a loan from one of the four founding families to buy the first shipment of coffee beans and has evolved into Level Ground issuing promissory notes to friends and family of the business. Level Ground pays 7.5% per annum and will pay back the money on demand. In today’s economic and credit climate, unsecured promissory notes are risky business. But, the friends and family of Level Ground like the business and are engaged with Level Ground’s ongoing story, and are happy to risk their cash. The money is loaned in trust in a relational context – as Hugo said it “we aren’t going to shaft our friends and family”.

Touring Level Ground’s facilities was an education, we learned how coffee is grown, picked, dried, shelled, shipped, stored, roasted, packaged and sold. It was also great just to be in a vibrant workplace – everyone was friendly, relaxed, in good spirits and not fazed that the CEO was walking through the facilities - there was a great vibe!

We talked at length about Level Ground’s advanced payment of a micro lot of beans from the Montaños family in Bolivia. The advanced payment was made by Level Ground unsecured – paid back at harvest time in coffee beans, the first crop that the dryer would produce. Quantities weren’t negotiated, contracts not signed, but a relationship was the basis of this deal to allow the Montaños to build their business long term, and to provide Level Ground with the best-of-the-best crop. Hugo admitted that any number of Level Grounds producer deals could go bad by doing business this way, not writing contracts, only letters of intent to buy X number crates of beans. Yet no deal has ever gone bad for Level Ground, the deals are made in relationships where faith and trust abound.

to be continued…

[part 1] / [part 2] / [part 3] / [part 4]

relational capital: lessons from Islamic finance?

In my previous post on relational trade, a question was asked about how to raise capital in a relational model - I offer an example of alternative capital raising in the comments. Perhaps Islamic finance may have a few lessons to teach us…

An interesting article appeared on smh.com.au this week: Islamic finance rides the storm. This is not the first time I have read about the rapidly growing industry of Islamic finance, but in light of the world financial crisis that is unfolding, and the Islamic finance industry's resilience to the turbulence of plummeting world markets, perhaps this is a good time to peer outside our dominant capitalist model to see how else things could be done.

There are several relational elements of Islamic finance (pulled from the article) that are appealing, such as:

• the partnership between the lender and borrower is arranged such that the risk is shared, and therefore the lender does a better job at evaluating the risk before granting loans
• interest is not charged because it is considered immoral as it does not take into account how changes in the value of the loan's security can affect the borrower
• the short sale of shares is not permitted because it stops traders profiting from assets they don't own
• depositor know their money will not be invested in unethical industries

I don’t have the expertise to layout a comprehensive analysis between our system and the “sharia” way - Clancy Yeates does a good, but basic job in the article. However, I find it fascinating that Moslem's have seen the incongruities between their faith and Western capitalist finance, and in response have developed a model that does not sacrifice their faith to the prevailing model. If Christ reigns over our world, and our economies and financial markets, why is it that Christians have assimilated their beliefs, largely uncritically, to a financial model that isn’t congruent with Kingdom values?

Readers who know more about financial markets and systems - any reflections in light of the credit crunch would be most appreciated. As would anyone who knows of examples of alternative, and perhaps Christian motivated, financing arrangements?