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Navigating Coffee Sourcing Part 1: Coffee Pricing

September 11, 2019 by Posted in: Coffee

Often times, I am faced with a hard nosed truth: most people just don’t care about where there coffee comes from. As Director of Coffee, someone whose job is literally to care about where coffee comes from, it can be a hard pill to swallow. But for many westerners, it’s simply a part of their morning routine, as important yet as expendable as their oatmeal or avocado toast. In an era where every industry is telling you that you are short minded, never thinking beyond your impact of purchasing said commodity….who am I to tell you that my industry is any different? According to the 2014 SCAA Economics of Supply Chain Report, coffee related economic activity comprises approximately 1.6% of the total U.S gross domestic product (GDP). That’s $225.2 billion of economic impact, 1.6 million U.S jobs, and a whopping $28 billion in taxes annually. Americans are going to drink coffee, it’s been that way for generations. Unfortunately, all coffees are not created equal. Sadder still, is that the biggest differences are ones that we consumers can’t even see. In this two part blog, I will give an overview of coffee sourcing and the long journey it travels to get to you. In this first installment, I will give you a clearer view into one of the murkiest, most misunderstood parts of the coffee industry: coffee pricing.

The Coffee Belt: Beautiful but Challenging

Coffee is a temperamental crop. While the coffee tree itself can grow in many different environments, it will not produce a quality fruit (if any at all) unless it is planted in a unique microclimate. High Altitudes, stable annual temperatures between 50-75 degrees, adequate rainfall, and acidic soil greatly reduce the scope of where growing high quality arabica coffee is feasible. This goldilocks zone is known as the “coffee belt”, running just north and south of the equator. In the coffee industry, we recognize that almost all arabica coffee comes from a handful of growing regions: Central/ South America, Central / East Africa, and Indonesia/ East Asia. These mountainous rain forests are some of the most beautiful places in the world. The proximity to the equator in addition to high altitude ensures that there are never freezing temperatures, and even the hottest of days are mild. They are hard to get to, so they are sparsely populated. The flora and fauna are unique to the microclimate, and many of the bothersome insects from the lowlands of these regions don’t venture up to the cool mountainside.

While the mystique and beauty of the coffee belt is something to marvel, most of the economic and social situations in these regions are unsettling to say the least. There are reoccurring themes of poverty, poor infrastructure, gender inequity and corruption. These are complex, endemic problems that are incredibly difficult to take on. On top of internal struggles, each coffee producing country must face the hard reality of today’s coffee market. the New York “C” or stock market price for coffee is currently valued below the cost of coffee production. This means that the valuation of 1lb of imported, unroasted coffee is below the cost to produce it. At the time of writing this, the New York C sits at $0.96/ lb. It’s a sad thought that $225 billion generated for the American economy, can only muster out a valuation below $1.00/lb for green coffee. If all coffee was purchased at this price, the entire industry would come to a screeching halt as farmers went out of business. This is where consumers should start caring about who and where their coffee is coming from. When I say that all coffee is not created equally, that inequality is carried on the backs of the farmers who produce it.

Understanding Fair Coffee Pricing and Sustainable Trade Relationships

The most important part of the entire coffee supply chain is what gets back to the producer. I measure this in terms of fair wages, sustainable trade relationship, and the support for better quality of life. Fair Trade and Organic Certifications increase the trade floor for coffee, meaning that there is always a buffer to protect farmers’ profits in market volatility. SPP (small producer symbol), a farmer owned third- party certifier focused on smallholder producer needs , calls for a trade floor of $2.20/lb . All coffee sourced at Amavida must, at a minimum, be purchased above the SPP certification benchmark. Higher quality coffees demand higher prices on top of the SPP trade floor, and this can push our price paid to 5 or 6 times that of the New York C price.

A big challenge of coffee sourcing is ensuring that the money is, in fact, getting back to those who produced it. Many coffee producers have very small farms, and in an effort to increase the volume of coffee to export, they will create or join grower cooperatives. These organizations provide financial stability, education resources, and function as an engine to export the coffee of small scale farmers to markets they otherwise wouldn’t be able to reach. A well operated grower cooperative distributes the contracted price of the coffee back to the farmers, and has the documentation to support that. These are the only groups that I work with, because transparency is crucial when working with a commodity that passes through so many hands. Amavida will continually buy coffee from healthy producer groups that grow quality coffee, year after year. Take for example, Fondo Paez located in Southern Colombia who we have partner with for over 15 years. Though the crop changes slightly year to year, the farmers do not. We continue to show them a sustainable, deep rooted trade partnership. This financial stability allows growers to focus on other local issues to improve their quality of life.

Help us Improve the Livelihood of Coffee Farmers

I can’t convince a customer to care about their coffee or how much it should cost. I can only share what I know, and hopefully shed light on some of the darker parts of the industry that fuels millions of people every morning. With every purchase there is a choice, and with that choice there is a transactional vote. When you purchase coffees that are sustainably and ethically sourced, you are voting to improve the livelihoods of farmers. You are giving them a market to sell coffee at a price that they deserve. You can rest assured that Amavida will always offer coffees that have a positive impact at origin; it’s our promise to you.

In part II, I will cover the next crucial step in coffee sourcing: ensuring coffee quality.