Paying Fair Prices for Quality Coffee

By Dan Shryock

Emilio Garcia, a fourth-generation Honduran coffee farmer, acutely understands the current coffee pricing crisis. He and his family produce as much as 75,000 pounds of green coffee each year and they need to get the best possible price for their crop.

The current economic climate, however, does not favor Garcia and other specialty coffee farmers around the world. The C-market price – the benchmark for coffee commodity trading – hovers near $1 per pound, a figure so low that farmers struggle to sell their beans at prices high enough to cover their operating costs.

The situation is so severe that the Specialty Coffee Association (SCA) established the Coffee Price Crisis Response Initiative. Headed by former SCA executive director Ric Rhinehart. The initiative is structured to better understand and identify solutions involving price discovery for the specialty coffee industry.

“We’re also looking to fully understand where we can apply efforts to change,” Rhinehart told STiR coffee and tea magazine. “We want [to create] a menu of things that coffee buyers might do to change the current dynamic. I personally anticipate the solutions will be divergent between the specialty coffee sector and [the] regular coffee [sector].”

While called a price crisis, it is not strictly an issue of dollars, Rhinehart said. “It’s not a problem of low price. It’s a problem fundamental to the market mechanism. Buying power outstrips selling power in every occasion.”

The solutions may lie in transparency and what Rhinehart calls price discovery mechanisms. If roasting companies know how their green bean dollars are distributed between the importer, the middlemen, and the farmer, they can make more informed purchasing decisions.

“Where does the money go? How much goes to the farmer? It’s not only OK for a roaster to ask,” he said. “It’s imperative.”

Rhinehart stressed transparency. “It’s incumbent on the roaster to know how much of the price they pay gets to the farmer. They must insist to vendors that the vendors show the price.”

Fair trade

Three companies contacted for this article have established their own means of paying fair prices for their green beans. Sustainable Harvest, an importer based in Portland, Ore., makes sure Garcia gets a good rate. “Sustainable Harvest is one of the few importers that really is committed to help the crisis of the farmers,” Garcia told STiR. “We don’t work with the “C” future price. We negotiate the price based on quality, traceability, and history. We do not just sell coffee, we sell coffee with values and history.

“This model helps us negotiate and set a price for the year until the next harvest,” he said. “Our working relationship with Sustainable Harvest is based on respect, trust, and transparency,” he said.

At Sustainable Harvest, the majority of transactions are fair trade, either Fairtrade International certified or Fair Trade USA, says chief coffee officer Jorge Cuevas.

Cuevas cited opacity, the industry’s “black box of information” that prevents some farmers from getting better prices. “The more information you have about the supply chain always will shed some light on the situation,” he said, adding, “Fair trade remains one of the most powerful tools to provide a better price for producers.”

There are 17.7 million small-scale coffee growers worldwide. Half of the 1.6 million fair trade certified farmers and workers grow coffee. Fairtrade International only certifies coffee cooperatives, not private coffee estates.

 “So a simple way of thinking about the difference between Fairtrade International is that Fair Trade USA extends the idea of “fair trade” to a new coffee supply chain actor that was previously excluded from achieving “fair trade” certification – the private coffee estate,” explains Robbie Lane, digital marketing manager at Sustainable Harvest.

“The basic tenets of the fair trade model – price floor, reinvesting the premium – apply to these private estates in the same way they apply to cooperatives. The main difference is how the premium is reinvested. At cooperatives, the money goes to benefit community/smallholder farmer members. Under the FTUSA estate certification, that money benefits the seasonal farm workers,” says Lane.

“I haven’t seen anything better come out that can have such an impact on the scale fair trade does,” Cuevas said.

Above the Equator

Equator Coffee Roasters, based in Ontario, Canada, takes a different approach.

Equator owners Amber and Craig Hall saw a pricing problem in 1998 when they founded the company. They started purchasing fair trade, organic certified coffees through brokers; but that didn’t satisfy their goals of transparency and connection with the farmers so they joined a green-bean buying cooperative.

After 20 years, the cooperative has eliminated middlemen and established long-standing partnerships with producer groups. As the coffee futures C-price hovers close to $1 per pound, Equator’s cooperative sets its base price at $2.20. “We’ll never go below that,” company vice president Shannon Hoops-Ripley said, “and we will pay more than that.”

“Small-scale farmers have not been able to cover their cost of production, not to mention paying themselves or putting food on the table,” she said.

Equator buys about 270,000 pounds of beans each year for its 100 wholesale customers, three retail cafes and online sales. “We work with roughly 25 producer groups,” Hoops-Ripley said. “Delegations from our coop visit farmers every year and we’re trying to make incremental changes and make each purchase fairer than the [industry standard].”

The cooperative buying concept is attracting attention. Roasters continue to join the group and acquire a share of the 100 containers purchased each year. “Each roaster has a similar philosophy” toward farmers, she said.

“Our way is not the most profitable model but we believe stakeholders matter as much as [stock] shareholders,” Hoops-Ripley said. “We’re more interested in spreading out more of the profit. We’re working hard to make this a level playing field.”

Another Equator’s approach

Across the North American continent in the San Francisco Bay Area, another Equator – Equator Coffees & Teas – has been building relationships with growers who strive to deliver the best quality beans for a sustainable price.

Equator Coffees & Teas, founded in 1995 in Marin County, roasts more than 1.3 million pounds of beans each year for wholesale, retail, and online sales. And, the company is willing to pay more to get more.

“We always use importers to move the coffee but for many of our coffees we negotiate directly with the producers,” said Ted Stachura, the company’s director of coffee. “Once we identify a cooperative via an import partner, we negotiate an FOB price and the importer will attach their cost.”

Equator Coffees & Teas pushes for high-quality coffee and “paying higher prices gives us access to better quality lots whether the market is up or down,” he said. Paying more means charging customers more, Stachura conceded, but the company’s 500-plus wholesale customers understand and accept the company’s position. “That’s one of the reasons customers are coming to Equator in the first place,” he said. “Most of our business is wholesale. We can’t compete on price, but we find that wholesale customers come to us because of these relationships that we have with coffee producers. We try to be competitive with other high-end specialty roasters and we are able to cater to different levels of the specialty coffee market.”

Shared vision

While the two companies are not related, both Equators share a practice of giving back to communities in coffee producing areas.

Equator Coffee Roasters in Ontario sets aside 10 cents of every pound of beans sold for SchoolBOX, a charity that builds schools in Nicaragua. A portion of the coffee sales also goes into an impact fund: producer groups apply for money that can be used for projects related to coffee quality and productivity. Much of these funds have been matched by third-party groups such as United States Agency for International Development (USAID) and social lender Root Capital.

“We’re working within a system that was built on inequity,” Hoops-Ripley said. “We have to figure out how to work within this system to bring more equity. It’s an uphill battle.”

Similarly, Equator Coffees & Teas in California sets aside money to finance micro-loans and support initiatives in producing communities.

“We look for opportunities to invest in quality improvement programs to give some benefit there,” Stachura said. Past contributions have supported local schools and women farmers who need legal help to file paperwork and acquire their land they already work in their own names. The company also sets aside money from purchases in Sumatra to support the Tiger Trust program for the protection of Sumatran Tigers. The Bengal tiger has been a company icon for more than 20 years.

“It’s the little things that make a difference,” Stachura said.