Coffee Prices: What Does Transparency Mean?
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?
Coffee Prices That Sustain Farmers
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.
Certifications and the C-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.
The Specialty Coffee Transaction Guide: Making Coffee Prices More Transparent
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.
Why Will Equal Exchange Take Part?
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.