I will never forget seeing my father cry. We were on the campus of Stanford University, meeting with the renowned economist W. Brian Arthur to learn more about his theory of increasing returns. I didn’t expect it to be an emotional conversation. But when my father, Ernesto, started to describe our family business, illycaffè; our industry, coffee; and his desire to see more of its returns distributed to the developing-world farmers who supplied its beans, his voice cracked and tears filled his eyes. He described his deep frustration over vast disparities in the living conditions enjoyed by the world’s consumers of coffee and those endured by its producers. He explained that our goal was to spearhead a change.
The Chair of Illycaffè on Creating Virtuous Agricultural Ecosystems
In the 1990s most coffee beans were still commodity products, cheaply priced, undifferentiated by quality, often blended, and sold through an exchange. Suppliers were underpaid not only because they sat at the bottom of the value chain but also because margins were very thin. Francesco Illy founded his eponymous coffee company in 1933 with higher ambitions, intending to create an institution respected for both its products and its contributions to society. His son, Ernesto, and grandson, Andrea, pressed on in that tradition—first by implementing better quality-management systems and pioneering direct trade with growers, and then by adopting their new production model at scale. The idea was to incentivize farmers to cultivate more-flavorful beans, thereby generating bigger profits to be shared among all stakeholders and reinvested in further improvement and growth: a virtuous circle of increasing returns. Over the past two decades illy has been accomplishing what it set out to do. Its annual revenue is currently €500 million, with earnings before interest, taxes, and depreciation of nearly €60 million and a compound annual growth rate of 10%. And it pays its growers an average of 30% more than market price for coffee beans and is consistently recognized as one of the world’s most socially responsible companies.