Buyers, importers, roasters and consumers of specialty coffee are having a big and important conversation right now about coffee prices. Regardless of our role in the supply chain, we all wonder the same thing when we drink that amazing aromatic beverage. How much of what I’m paying gets back to the producer’s pocket? And how much did it cost to produce? Is it fair?
As one of Equal Exchange’s Green Coffee Buyers, pricing is an important factor in my work. While I’m completely aware that you can’t change the world via a blog post, I also know that we need to have this conversation with all actors. It’s about time we start now with our community of readers.
Based on various studies in different coffee-producing countries, the price paid for green specialty coffees often does not cover the full cost of production. The price isn’t high enough to support thriving livelihoods for farmers and their families. It’s certainly not high enough to support the on-farm innovations that are essential for climate mitigation efforts. So, what does this mean? Unless we move beyond a reliance on the international commodity market (also known as the C Market) to make pricing decisions, more and more producers and farms will struggle to find a generation willing and eager to take over coffee production.
In the coffee industry, most pricing decisions rely on the C-Market. When I say most, I mean the big chains, like the ones with the mermaid logo. (Equal Exchange’s minimum price per pound is much higher than these prices, but that’s something I’ll get into later on.) The C-Market sets a benchmark for the majority of the coffee sold in the world. You can think about this the same way you think about the price of oil going up or down in the news. Traders don’t necessarily make direct contact with the physical product, but they are making forward contracts or predictions about what purchases to make over the next several years.
The problem is that the market is volatile and these market participants are making money off that volatility. And those gains or losses usually do not benefit farmers, the actual producers of the coffee. They’re left to the mercy of the market.
Just for reference: The market closed today (2/24/2020) at $1.07/lb. That’s actually up from the decade low we saw last May, when the price of coffee on the C-Market dipped to just $.89 cents/lb. Wait, you might say. Aren’t fair trade and organic pricing structures designed to fix this? While Fair Trade and Organic certification do include a pricing component, the fair trade minimum price is $1.60/lb for conventional coffee (FT) or $1.90/lb for organic (FTO). Generally, many would agree that FLO/FTUSA has been successful in that the certification includes a minimum price known as a floor price. If the C-Market price increases, the agricultural cooperatives who sell the coffee — and therefore, theoretically, the individual farmers — still can benefit from that increase. And yet, as we alluded to above, even these margins do not provide enough for investment at the farm or organization level.
The feedback we have received from our partners is consistent with what we shared in May of 2018: $2.20 to $2.50 per pound allows for solid farm gate prices. That means the co-ops can pay farmers a sustainable price, and it leaves some margin for the organizations to invest back into their operations. Equal Exchange currently pays an average price of $2.38/lb.
Many players in the specialty coffee industry — buyers, importers and roasters — are looking for a path to move away from the C-Market. Using the C-Market to determine prices for specialty coffee is like referring to a price list for Honda Civics when the car you actually want to buy is a souped-up Audi. My apologies to those of you who love Civics– the point I’m trying to make is that these are two drastically different products and should be compensated as such.
As our friend Michael Sheridan from Intelligentsia Coffee recently said in a podcast: “In reality, the most acute threat to the long term sustainability of coffee is economic.” This means that while climate change is very real and threatens coffee production and quality in certain regions in a significant way, the sustainability of prices paid to co-ops and farmers for that coffee is an even more important factor. I couldn’t agree more.
This is why publications like the Specialty Coffee Transaction Guide are coming at the right moment. The guide aims to differentiate pricing structures based coffee quality, lot size, producing region and country. By doing this, it will make available alternative reference prices for coffee in the specialty market.
The guide relies on a large group of data donors, including Equal Exchange and many others, who provide detailed contract data covering specialty coffee transactions from recent harvests. Researchers at Emory University use this anonymized and aggregated information to create annual Transaction Guides that report on the distributions of recent FOB prices for green (that is, raw and unroasted) specialty coffees. This year, the 2019 Specialty Coffee Transaction Guide gathered data from 57 data donors including specialty coffee farmers, support organizations, exporters, importers, and roasters describing 38,000 contracts that cover more than 625 million pounds of green specialty coffee valued at $1.4 billion. Thinking about this in broad strokes, Equal Exchange’s individual contribution to this guide is the data points on our 218 shipments, equaling ~ 8.8 million lbs of green from Q3 2018 through Q3 2019.
For Equal Exchange, I see the Specialty Coffee Transaction Guide being useful for a couple reasons. If we decide to source from origins where we currently do not have a presence, the guide can act as a point of reference, helping us understand a fair and sustainable benchmark price. The data points also allow us to see how the prices we pay our current partners compare to peers who are purchasing at similar volumes from similar origins. This information makes it possible for us to reflect on our own pricing strategy in an informed way.
I’m excited to be a part of the Specialty Coffee Transaction Guide, and I’m hopeful that it will help the specialty coffee industry and farmers alike understand the value of their respective products and ensure that buyers pay sustainable prices today to improve the future for farmers tomorrow.
If you find this as interesting as we do, check out www.transactionguide.coffee to download the 2019 Specialty Coffee Transaction Guide and learn more about these and other critical pricing observations.
In the lush and isolated highlands of southern Peru, a region known as Incahuasi, meaning “House of the Incas,” one young woman, Habilia Vigoria Oyola, stands out. To celebrate International Women’s Day, we are highlighting an outstanding woman who is working to support the dreams of a long-term coffee-producing cooperative and ally, San Fernando and break the mold by increasing gender equity in her community.
What sets Habilia (Haby) apart isn’t the fact that she is a woman. It is her desire to build up a generation of future leaders. She is passionate about involving young people, creating more resilient and sustainable ways to farm coffee, and making gender equity the norm.
Haby is the middle child of six, and the oldest of four girls. She is brave and adventurous– in fact, I first spent time with her when she spontaneously decided to go on a three-day backpacking trip to the looming peak behind Incahuasi’s native valley, a mountain by the name of Choquesafra (16,000 ft). She is also dedicated and studious. In addition to finishing up her undergraduate degree in Agricultural Engineering, she is also learning how to cup coffee, which is an important tool for empowerment for any cooperative. Cupping is how coffee is tasted by producers and buyers around the world to check the quality of a batch of coffee. (Read more about it here.)
In February 2019, I spent three days with Haby in a workshop focused on equipping trainers to disseminate the importance of capitalization. Workshop participants learned how to genuinely incentivize small-scale farmers to invest in their cooperatives- the main focus of this work being that no famer is too small or too poor to invest. (To learn more about that, read this or this). Haby is committed to San Fernando. She says “cooperative work is really nice. The more members we acquire means more support. We share knowledge and we … feel like a family with all the members of the cooperative.”
Haby’s parents are indigenous smallholder producers of coffee, supplying their crop to the San Fernando Cooperative. The recognition that all coffee farmers face controllable and uncontrollable challenges propelled Haby to pursue agricultural engineering. Over the course of her studies, Haby has witnessed all the difficulties in growing coffee and is proud to support their work by sharing all her learnings and ideas with her family and the cooperative. For example, her senior thesis work focuses on coffee pests and plagues, and she is hoping to put together model demonstration plots to share what a healthy plot or “chakra” should look like.
When I asked Haby how we could engage more female members of the community, her response was thorough: “By making women know their rights — that we are all equal, that we receive the same benefits from the cooperative.” According to Haby, the next step is to “create and strengthen institutions specialized in the field of gender equality, by promoting the participation of women in these areas.” In addition, she spoke of the importance of training people in leadership roles so that there’s a “mechanism for follow-up and monitoring of equality and gender equity in the cooperative.” None of this can happen, she says, without dedicating “resources for the proper functioning of this important work.” In her studies, she often found herself as the only woman in her cohort. Because of her experiences, she understands firsthand how difficult it can be to work in a role that people are used to seeing men fulfilling. She is dedicated to creating a new normal.
Haby has ambitious plans for the future. Her personal goal is to finish her agricultural engineering degree and focus on that career. She’d also like to grow speciality coffee on at plot of at least two hectares and to cultivate cacao varieties to experiment. As for the co-op, she hopes to see advances like an on-site processing plant and fully implemented cupping laboratory, as well as the production of biological controllers.
I know that Haby is just beginning to make her mark in the beautiful Incahuasi valley. Every time we part, I’m reminded of how genuine and powerful her enthusiasm is. Perhaps most importantly, she’s sending her community and co-op an important message: when you give youth and women the tools to succeed, they will start by giving back to their own community.