By Dan Bolton
This is going to be hard to swallow: to survive, the coffee industry must fundamentally change the way it prices coffee.
Among tropical cash crops, coffee is perhaps the most likely to attain a sustainable future but only if roasters and retailers accept the fact that farmgate prices can no longer punish the world’s 25 million coffee producers.
From the Managing Editor's Desk
Dan Bolton,STiR managing editor
Raising the price for green coffee can be accomplished with trust based on transparency that will transform the way coffee is traded. It starts with a commitment to minimum pricing based on the cost of production - that’s the easy part of the formula. To be sustainable, the floor price must also provide a reasonable return that is at least double the current 10% estimated by the 2018 Coffee Barometer. Profitable roasters including Seattle Coffee Works, Kickapoo, Onyx Coffee Lab, Transcend, Higher Grounds, and Rave pay 25-30%.
In 2016 the International Coffee Organization (ICO) determined the composite price for coffee was just $0.02 higher than it was in January 2000. Prices have since declined to the point that farmers are turning away from their investment, convinced that prices will hover around $1 per pound for the next four years.
The Specialty Coffee Association estimates 70% of the cost of coffee production is labor. At current prices, farmers are not compensated for their time and workers receive less than a living wage leading to deep poverty. Debt is mounting, financing is tenuous, and worker migration underway.
This is a crisis that only a few in the industry are willing to acknowledge because its impact on the price of coffee for retail chains is negligible. Rent, labor, marketing, utilities, insurance, and taxes figure prominently in pricing a cup at retail. Coffee, after roasting and transport, amounts to less than $0.30 per cup in the US. It must be negligible because green coffee prices rise and fall while cup prices remain steady around the globe ($1.50 in Sao Paulo, $1.95-$3.15 in the US, $4.31 in Moscow, $4.98 in Zurich, $4.42 in Beijing, and $6.24 in Copenhagen according to a 2018 survey by Statista).
Colombia’s delegation at this year’s National Coffee Association convention made a compelling argument that Colombia’s farmers need to receive at least 760,000 pesos ($240.00) for a 275-pound shipment on the international market. Roberto Vélez, who heads the National Federation of Coffee Growers (FNC), said FNC intends to disengage from the New York market for commodities by simply refusing contracts for less than the cost of production, which he estimates at $1.50 to $1.60 per pound. He encourages other producing countries to act quickly and 35 coffee-producing countries from Africa, Asia, and Latin America agree.
“It is time for growers to think in a different way and sever the price of Colombian coffee from the market in New York,” he said. “While the industry has probably had the best two years making huge profits, coffee growers, as the weakest links in the chain are losing money... we are not asking $4.00 to $5.00 a pound, we just want prices to cover costs,” he said. Without a price floor basic out-of-pocket costs will mean that production remains below break-even for the next several years, he predicted.
In this issue, STiR recognizes the wisdom of roasters unwilling to follow the herd. Several explain their logic and point to the success of marketing to customers sympathetic to the plight of growers and willing to pay more per cup on principle.
Informing coffee consumers about the economic treatment of coffee growers is not a plea for charitable donations, it is good business. Look no further than Transparent Trade Coffee where roasters post the price and return at origin so consumers can — at the time of sale — know how much of their coffee’s purchase price benefits farmers willing to invest in producing quality coffee.
To focus on short-term gain at the expense of growers ensures long-term pain for all.