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29 July, 2021      4.5 Minute Read


A Pivotal Moment for
Specialty Coffee

 


Alejandro Cadena
Co-founder & CEO

 

TAGS

Over the last few days, we have witnessed the C-Market reach a high of $2.17/lb., a level last seen in October 2014, almost 7 years ago. Since that last high, the market declined to a low of almost 80 cents in April 2019 and remained around the $1.00/lb. mark for more than two and a half years. Despite the ups and downs of the C-Market (called volatility in financial parlance), the average price of the last 10 years has been $1.39/lb. and since Caravela started business, in May 2000, the average price has been $1.22/lb., with a high of $3.04/lb. in May 2011 and a low of $0.41/lb. in December 2001. What these numbers tells us is that we can see much higher prices in the next few days, but that these prices generally do not last too long. 

Source: The ICE.

 

Frankly, it makes me happy to see coffee prices pass the two-dollar mark. Even though high prices tend to make our life as an exporter/importer much harder, I wish they could stay above that mark for the foreseeable future. In times like these, when prices rise so fast, growers rush to sell their coffee to the commodity market to take advantage of a windfall that they know very well will not last much longer. I cannot blame them for making that decision, rushing to market with whatever they have instead of picking only ripe cherries and drying their coffee slowly to produce an 84+ coffee. The reality they have faced for the last 30 years is that their costs continue to increase above inflation, but prices paid to them do not follow that same pattern.

In the last three decades producing coffee has not become any easier – at least not for the average Latin American smallholder farmer. On the contrary, every year it becomes harder due to lack of labor to pick it or the unpredictable weather patterns that we live with now (just ask the Brazilian coffee farmers who lost their trees because of the frost last week). And let’s not even mention the infamous roya or the dreaded broca.

 

Photo credits:
Jonas FerraressoEduardo Ferreira and Perfect Daily Grind

Green Coffee Prices Have Not Increased 

Coffee prices since the 1970s have been on average very stable, and despite inflation and a growing demand for coffee all over the world, the commodity price of coffee has not risen in the last 50+ years[1]. The average price of green coffee in 1977 was $2.50/lb. but adjusted for inflation would equate to a price today of near $10/lb.[2] Meanwhile, a barrel of oil has been substantially more expensive in the last 20 years than in the previous century[3] [4]. And yet car sales (and prices) have continued to rise, while the car industry has invested heavily in technology to offer consumers better fuel efficiency and safety features, benefitting consumers and car companies. One could argue that the specialty coffee industry in one way or another has benefited from the fact that coffee is a cheap commodity, even at the specialty level. With few notable exceptions, this benefit has largely come at the expense of the weakest actor of the supply chain, the coffee farmer, who despite being asked for more than it was asked for twenty years ago[5], continues to be a price taker.

Even though green coffee prices have not moved upwards in these 20 years, retail prices in that same period have increased. When I started working in the coffee industry 20 years ago, a 16oz bag of specialty coffee in the USA would be priced around $10/lb. Today, 16oz bags are not easily found as most roasters moved in the 2010’s to 12oz – and some are even now offering 10oz bags. That same 1 lb. bag today costs around $25/lb., more than double than what it cost twenty years ago. And I think everyone would agree with me that coffee today is of much higher quality (on average) than it was twenty years ago. In the meantime, real prices for coffee growers have not improved, as you can see in the graph below, which shows the inflation adjusted (real) prices for Colombian growers. On the contrary, they have hovered down.

Source: FNC.

 

I presume that a lot of roasters are not happy to see prices go up. The pandemic hit some roasters hard and raising prices is the last thing they want to do today. I personally disagree. I think this is an opportunity that the specialty coffee industry must capitalize, to reset the meaning and value of specialty coffee, for the entire industry. Twenty years ago, the 40 cents per lb. market was seen as an opportunity for a few pioneering companies to develop the direct trade movement, where roasters were willing to pay much higher prices for higher quality and develop long-term relationships with like-minded coffee producers. This movement inspired many people to start roasting coffee or opening coffee shops around the world. Caravela would probably not exist today if history would have been different.

Unfortunately, after the increase in prices of 2011, and the increased competition, as well as many other factors that are not worth mentioning here, the specialty coffee industry started moving in the opposite direction, looking for cheaper coffee. It should be different this time!

 

Let Us Capitalize the Moment 

Coffee roasters, and in particular specialty coffee roasters, should embrace this moment as an opportunity to decouple themselves from “the market”, raise their retail prices and engage consumers around the idea that paying unbelievably cheap prices for specialty coffee is an outdated and exploitative practice where everyone ends up losing. And that if it remains cheap, most smallholder farmers out there, who are responsible for a vast majority of the coffee they drink every day, will not be here in 20 years. The new FOB minimum price for an 84-point green coffee should be $3.50/lb., while an 86-point coffee should fetch $5.00/lb. And the new average retail price for a 12oz bag of 86-point single-origin coffee should be $35/lb., while a 12oz cup of filter coffee should be worth $5.00 (or more, considering that a glass of wine and beer are generally more expensive but require much less effort to produce and serve[6] [7]).

Yes. If you increase prices, some of your customers will go looking elsewhere, unwilling to pay twice as much for their coffee. But aren’t those just not the consumers we want or need? And isn’t this an opportunity to help consumers understand why paying more for coffee is the right thing to do, especially at a time when people are asking for more equality in the world?

These prices would not only allow coffee growers to earn a profitable and sustainable income, but also pay farmworkers a living wage, and pay decent incomes to baristas, roasters, and everyone in between. Keeping gross margins equal (in percentage terms), a roaster and a coffee shop would be able to make more money, even if some consumers go looking elsewhere. This is the opportunity for the specialty industry to really become the agent for change that it so much says it wants to be. An opportunity to focus on constant improvements that benefit all of us, instead of on how to decrease your COGS (the race to the bottom). A moment, that extends into a movement, and invites everyone to win!

Who’s with me? 

[1] https://www.macrotrends.net/2535/coffee-prices-historical-chart-data

[2] https://dripbeans.com/coffee-price-history/

[3] https://www.thebalance.com/oil-price-history-3306200

[4] https://inflationdata.com/articles/inflation-adjusted-prices/historical-oil-prices-chart/

[5] Better quality, full traceability, transparency about costs of production, certifications, etc.

[6]  The price of a pint of beer in the developed world is on average much higher than $5.00: https://www.finder.com/international-beer-price-map

[7] The average price of a glass of a glass of wine in the UK is close to $6.00: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/kef4

 

6 Comments

  1. Roger

    Muy acertado en la información, es necesario ese apoyo de personas como uds para nosotros los productores.
    !!! Excelente!!!

    Reply
  2. caleb nicholes

    Thank you for this Alejandro. Specialty coffee has to decouple itself from the coffee market and all of the polluting downstream effects it produces for coffee farmers. It is short-sighted and abusive that we continue the downward trends in compensation while asking coffee farmers for more and more effort. I hope that we can better acknowledge and value the immense human capitol it takes to produce specialty coffee. If we can’t, it is hard to imagine why the next generations of coffee farmers would ever choose coffee as an economically sustainable option for themselves or their families.

    Reply
  3. Gabriel Cadena

    Agree. Very well to think in the future to have a sustainable coffee industry specially recognizing good quality and hard work in the farms.

    Reply
  4. Anonymous

    We are with you Alejandro, It is a very important moment for the coffee industry and one could only hope that everyone in the supply chain, down to the consumers (!) start understanding that much need value increase we have to give to coffee and its producers!

    Reply
  5. Marcelo Augusto Brussi

    Hi Alejandro, Thoughtful article. We also agree this equation is broken and should be fixed. I admire your efforts to balance this out, supporting farmers to keep their work in producing great coffee, showcasing to transform average in great.
    Marcelo Brussi – CEO and Founder – Minas Hill Coffee Australia

    Reply
  6. Kim Elena Ionescu

    I’M WITH YOU! And I’m grateful for your work, today as ever.

    Reply

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