How Much Should We Spend On Green Coffee?

In 2018, the US coffee futures price C price fell to one dollar per pound, and this made headlines not only for the coffee industry but the low futures price will become part of the long-term economic crisis.

In September 2018, the International Coffee Council and the World Coffee Producers Forum held in London held a press conference on this topic. Roberto, chief executive of the Colombian Coffee Producers Federation, said: "The situation is very critical, and we must let the coffee industry and consumers understand that the coffee industry will one day disappear."

Three months after this, the Specialty Coffee Association SCA released an initiative, saying that for those who continue to pay attention to the coffee industry, this is no longer news. For a long time, we have been listening to coffee producers and relevant agencies in coffee-producing countries. to this question.

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According to the specialty coffee retail price index SCRPI, since the middle of 2014, the retail price of specialty coffee has risen by 4.8-18.4%, while at the same time, the US coffee futures price C price has dropped by 41.1%, which is very surprising.

Let's look at the impact of these pricing differences in coffee producer terms. In 1976, producers had to sell about 56 bags of coffee to buy a Toyota truck. According to 2017 Anacafé information, using the same calculation method, you need to sell at least 1,450 bags of coffee to be able to afford the same model of truck.

The expansion of the specialty coffee market should create more opportunities for farmers. Consumers are more aware of coffee bean quality and are more interested in coffee planting altitudes, varieties, terroir, and processing methods. But farmers cannot be excited about the progress of the consumer market because the income they currently earn from specialty coffee is not ideal.

Futures prices rarely cover the costs associated with growing specialty coffee, let alone provide proper compensation to coffee producers. From the buyer's point of view, fluctuations in futures prices do not affect the quality of the coffee produced or inspire farmers to grow better quality coffee. With many of the problems at the root of future prices, the coffee industry started looking for a better way to price specialty coffee.

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Some people are starting to imagine the future of coffee if buyers and sellers can negotiate deals based on recent specialty coffee purchase prices, which will be the vision of the specialty coffee trading guide.

We shared this idea with a group of roasters, importers, exporters, and coffee-related associations during an informal meeting at the Specialty Coffee Association Expo 2018. Twenty-one of these continued to be data providers, providing us with detailed contractual data on the purchase of specialty coffee from recent harvests. A team of Emory University researchers used this anonymized data to create the 2018 Specialty Coffee Trading Guide.

In December 2018, we published this report, which covers contracts signed between October 2016 and September 2018, totaling more than 10,000 contracts, covering the trade of nearly 150 million pounds of green specialty coffee, valued at more than $340 million.

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This report takes the median price of green beans of different qualities and the quantity purchased, including the lowest and highest price green beans, and provides important information for buyers and sellers. For example, based on transaction figures during the 2017/2018 harvest, the median FOB price for bulk purchases of non-specialty beans, FOB, was $1.55 per pound of green beans, much lower than the per pound of microlots of high-quality green beans. The median purchase price of pounds 4 to $4.55.

The report also provides insight into the transaction prices of coffee from different origins. For example, in the last two harvests, the median FOB price of Kenya-produced specialty beans was $1.45 higher than the overall sample median of $3. However, using a regression model to control for differences in quality and batch between countries, the premium for Kenyan coffee drops to 66 cents.

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Since this report details the detailed transaction prices for premium green beans, it also provides an appropriate benchmark for price negotiation. These figures also account for differences in coffee quality, batch size, and growing region.

For example, coffee grown in Colombia has a cupping score of 83, which trades at a median price of $2.50 in Colombian coffee. That leaves $2.32 after the 18-cent discount. We suggest bargains for this coffee range from $1.47 to $3.20. By comparison, coffee futures on December 28, 2018, were at $1.01.

We are delighted to have 21 data contributors participating in the 2018 Specialty Coffee Trading Guide, with much positive feedback on this document and a large number of downloads expressing concern for unequal trade and the sustainability of the specialty coffee market. This time, the public's response indicates that many people in the industry have accepted the recommended practice in the guide.

But we also know that a single report won't take buyers out of the habit of referring to purchase prices in the past, and with that in mind, we've laid out our top priorities for the coming months:

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These data providers provide us with information, recommended practices, management, and other support. With the increase of these data providers, the transaction guide will become more credible to sellers and buyers. When the credibility increases, it can make the price of specialty coffee more distinct from the future price of coffee.

When the pricing observations in the guide are credible, which we hope will influence negotiation at the time of the deal, we will be reaching out to those who downloaded the guide to learn about their experience. The goal is to understand if and how this guideline changes the way prices are negotiated when trading.

In addition to providing information on price, quality, batch, and farm location, some data providers also provide other in-contract information. Is the price of coffee biased? Is the coffee certified? How long does the buying partnership last? What is the corresponding farmgate price? We hope that as the database grows each year, it forms the basis for a research program that will help us understand and improve how the specialty coffee market works.

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We will begin working with relevant agencies in producing countries to understand how best to help coffee producers move their farm operations to desired price points. In March 2019, business students from Emory University traveled to Guatemala to collaborate with a number of domestic institutions, including Anacafé, on a three-day workshop for women in specialty coffee farming. The workshop was based on a discussion based on pricing in the 2018 Specialty Coffee Trading Guide.

Over time, the coffee market will face a significant reduction in supply chain diversification. If green bean prices continue to be too low and volatile, the coffee supply situation will tend to leave those who can only produce cheap coffee cheaply.

The first coffees to disappear are likely to be of the highest quality, and these beans require higher production costs, often not achievable, combined with less production. Suppose this problem of coffee prices that are not very different from future prices persists. In that case, the most enjoyable flavors and aromas of coffee will become more difficult to obtain, and farmers will only look for other more profitable ways.

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And this isn't just a problem for picky people. Remember that there are very few people willing to specialize in specialty coffee, and most producers have to sell some, or even most, of their green beans with a lot of low-quality beans to be enough. Survive. In many cases, the coffee used to support farmers is sold with a cup score below 80.

Without a correct pricing environment to price coffee against production costs, it will be difficult for many countries to make a living through post-processing, logistics, and export-related to the coffee industry, which will affect the entire coffee industry.

We need a broad and constantly updated, and evolving set of references so that we can understand where and when pricing outcomes can put coffee producers and coffee supplies at risk. We need to use information and advice from well-established, market-based tools (such as the Specialty Coffee Trading Guide).

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