Pricing Crisis
As the world watches a dramatic plunge in coffee prices, the worst decline in more than a decade, losses in the coffee lands are mounting. Exporting coffee no longer appeals financially, making domestic markets increasingly important, a fact few acknowledge.
SAO PAULO, Brazil
By Kelly Stein
As prices continued to slide through the fall and winter, and now into spring, leaders of the coffee community worldwide called meetings and debated how to proceed.
A video that went viral of a Brazilian producer chopping down his coffee trees in desperation illustrated the severity of the crisis. “Rubão” an angry man with a machete shouts, “It is not worth it! We take care and when harvest comes, we don’t have prices! So cheap, we have to cut down.”
Podcaster Lee Safar shared the video on Instagram the same day that arabica fell to $0.87 per pound on the C-market, a price that declined even further May 7. Prices for Brazilian naturals fell to their lowest level since September 2005 $0.89 per pound. The video was an awakening call for the whole industry.
Last year was intense as prices dropped to 13-year lows. Institutions such as the International Coffee Organization (ICO) and the Specialty Coffee Association (SCA) organized efforts to find solutions. So far, nothing has worked. Colombia is considering untethering from the commodity benchmark while in Brazil – the world’s biggest coffee producer – growers refuse to sell their coffee with prices this low.
The grower’s dilemma, should they: Sell at a low price? Hold till prices rise? or, just let the cherry fall? One answer is to make domestic consumers part of the solution.
Last year Brazilian coffee drinkers bought 21 million 60-kilo bags, registering a 3.2% increase in volume compared to 2017. According to Euromonitor International, “coffee has 98% penetration in Brazilian households where per capita consumption is growing. The local industry was able to meet the demand, especially related to specialty coffee clients.”
For Vera Espíndola Rafael, a development economist, former UTZ field manager and a member of the SCA board of directors since 2018, local markets provide an attractive alternative to export volatility. “This provides an opportunity, a new market outlet, closer to home in a country where the producers are neighbors of their consumers, where negotiation can happen in their own language, exchange on cup profiles can occur while facing their buyers,” she says.
National markets present a great opportunity in hard times.
Pricing Crisis
Coffee education and sampling stimulate domestic sales of specialty grade coffee.
Seek refuge in a country of coffee drinkers
Two scenarios come to mind: aggressively market lower quality and cheaper coffees that are generally withheld from export, or promote exceptional export-quality coffee to local specialty coffee roasteries and shops (nano lotes with great sensorial profiles). At current prices on the world market, either strategy can benefit farmers thanks to Brazil’s lower cost of production.
National roaster 3 Corações Group is launching new labels to meet the growing demand from consumers interested in regional and farm-branded coffees.
As the industry moves toward better-quality coffees, shop owners are showing a willingness to pay top dollar for unique sensorial profiles.
The Rituais (Rituals) brand, now sold in grocery stores, cups at 80 points or greater according to the SCA protocol. Florada Project differentiates its coffee by only selling lots produced by women. Florada coffee is selected by a team of judges, led by the coffee expert Silvio Leite, who determines which batches will be sold.
“In our case, we already paid BRL1,500 ($375) for one 60-kilo bag,” says Hugo Wolf from Wolf Café. “In producing countries, there are consumers at every level of experience. There is room for everyone to enjoy great coffee,” he says.
Photo courtesy Sitio Santa Rita
Pricing Crisis
Investing in coffee tourism and offering authentic experiences at their property is another way that Miria Ayres’ family found to increase their income.
Clobbered in the C-market
“Considering the low prices in the commodity market, several producers in Brazil are rethinking their export business and investing more time and money in the local market,” explains Miria Ayres from Sítio Santa Rita, Espera Feliz, in the state of Espírito Santo. The family-owned venture decided to diversify, building a coffee shop to serve the specialty coffee it produces to tourists willing to pay for an authentic coffee experience.
“Different options are offered accordingly to the client’s demand/profile. We can be very technical in the fields, with agronomic information or explain how we roast our coffee en loco,” she explains. Blessed with beautiful views adventure tourism is an option with fresh-brewed coffee along exotic trails. The property also has an e-commerce website and provides coffee to more than 30 coffee shops in Brazil. This is an outcome that can inspire producers all over the world.
Per capita coffee consumption reached 6.02 kilos of green coffee in 2018, up from 5.81 kilos in 2017, according to ABIC (Associação Brasileira da Indústria de Café). When GDP and the number of inhabitants are considered, there is a huge market to explore especially in coffee-loving Brazil, Mexico, and Colombia.
“Would perhaps national markets be a viable option for specialty coffee producers? How big is the potential?” questions Vera Espíndola Rafael. She is working part-time as an advisor to the secretary of agriculture in Mexico. Her research, funded by HIVOS/SAFE platform and supported by SCA, will focus on Latin American and African domestic markets, with case studies planned in Brazil, Colombia, Mexico, and Rwanda.
