Transparency in pricing

We would like to create a little bit more awareness around this topic. 

We as Cup-A-Lot strive for transparency from farmer to consumer. That’s why it was time we talked about pricing. 

If you have any questions after reading this post drop us an email at order@cup-a-lot.com & we will answer it the best we can & maybe share your thoughts or questions. 

#Farmers#Roasters#transparancy

Let’s talk about transparency in coffee pricing. 

First let’s talk about the two big world’s in Arabica coffee.

We have conventional coffee (95% of the Arabica coffee market) , that is traded through the NewYork stock market. And we have specialty coffee (5 % of the Arabica Coffee market)  .

Conventional coffee is determined by the daily fluctuations of the NY stock market.
But how does it work …
Today we could buy green coffee at the today’s market price. You can already book on the future’s for June, July, August or even next year. This means you can buy coffee that hasn’t been picked yet!
This has nothing to do with the sensory profile of coffee, the work behind that coffee, etc…. This part of the coffee world is about money & about gambling.

If you look at the graph below you can see that we are at an all time low! At 25/05/2019 green arabica coffee was sold at 0,92$/Lbs. Today’s price is lower than the coffee price during the entire 80’s. We don’t believe that our salaries are today the same as it was in the 80’s, is it? You can imagine that these prices are not sustainable & even not enough to cover the cost of the producers…

 

Well why is that? 

The answer is obviously more nuanced than what we are saying here but one of the main reason is a growing global production. More and more countries are trying to grow coffee. Brazil, the leader in coffee production, even has an overproduction.  And Vietnam which is historically a rather new country in coffee has reached the 2nd place on the world production.

Next to the growing global production there is the weak Brazilian currency, the Real. Due to this, the $ value of the exported coffee is lower and the coffee reaches the international market at a lower $ price. Because Brazil is so dominant, with almost 40% of the world’s coffee production, the situation of this country can really influence the entire coffee production world and influence the prices of other countries.

All of the above is the case for conventional coffee, traded through the stock market. If you are reading this you are probably with the 5 % of specialty coffee. So let’s explain green coffee buying in specialty coffee. 

We, as Cup-A-Lot, buy green coffee based on what is in the cup. So pricing is mostly related to a cupping score. Also specialty roasters will decide to buy a certain coffee based on the cup profile, the score and of course at the correct price level. 

This makes that if we compare price per pound for conventional coffee (traded via stock market) and price per pound for specialty coffee, there is a huge gap. In the slide above you can see the FOB prices that Cup-A-Lot payed in 2018/2019 per origin (the minimum and maximum). 

This clarifies why today a lot of farmers, mostly small farmers are interested in the specialty coffee development. It’s very attractive as you can see that prices can be times 3, 4  or even our Costa Rica’s 7 times higher than the current stock market prices.

However just like starting up a coffee shop or opening a roastery, you can’t start producing specialty coffee in a heartbeat. You need much more than a space and some infrastructure. You need determination, a longterm vision, parameters such as altitude, soil, weather and of course the right contacts.

However: figures can show what you want them to show and this brings us to the price behind your kilo of specialty coffee.

We’ll show you in a couple of steps the cost of green coffee and compare the price at origin paid to the picker to the price you pay as a roaster or even consumer.
Often we hear people telling us it’s crazy or even unfair that a picker is only paid 0,50€/kg and roasted specialty coffee is sold up to 30€/kg. Well this is something we’d like to explain and nuance a little bit. 

Let’s try to show you an example of a good, decent washed specialty coffee scoring +/- 84 points, produced in Africa where pickers are mostly just picking the coffee and selling it to the local washing station.

Let’s start with the picker. These people get paid, depending on the country, around 0,50$ per kg. These salaries are often fixed by the government. So often salaries are limited by the government. However sometimes bonuses/premiums apply depending on the final quality.
But and this is a big but, these prices are prices per kilo of picked cherries. 

After the cherries are picked they bring them to the closest washing station. Here the cherry needs to be selected, processed, dried and again selected. To obtain 1 kg of green coffee (unroasted) you need +/- 6 kg of cherries. So this makes that already just by picking and depulping at the washing station the cost of your coffee at the very beginning will be already around 3$. 

 After the washing station the coffee goes to the dry mill & exporter. This is often the same company. Here the prices gets determined by how picky the importer/customer is. For example if you want a special grade or a certain screen size they will have more work. Also if you want micro lots kept separately from other lots, this will take more effort.

Here is also where the F.O.B. prices are used. F.O.B. stands for ‘Free On Board’ and means the cost of the produced green coffee until the closest harbour in the producing country. This included the pickers salary, the washing stations work, the selection and deparching in the dry mill + the transport cost overland to get to the closest harbour. For example in Congo this will take much more time & money than in Kenya.
When you are buying green specialty coffee, there is no shame in asking these F.O.B. prices. The opposite, asking for the FOB prices as a roaster will result in more transparency & you will know what you are paying for.

Before the coffee arrives at the importers warehouse we need to add the oversees transport cost. This obviously depends from country to country but the cost is always there. Afterwards the importer needs to add his margin. They need to source the coffee, send out samples, do quality controls, build up a network etc. But most importantly, they need to finance it. This means the importer will pay the coffee on FOB base in the harbour. However he will invoice this coffee to his customers, roasters only 2 / 3 /4 months later.

After all these steps we have the roaster that buys the green coffee. After he cups and finds the perfect coffee he also needs to finance this. Also the roaster will lose up to 15% of his coffee weight when it’s roasted. Besides this they also need to add their costs of labour, packaging, machinery, warehousing, way to the market, etc. which depending on the size of the roaster will add another +/-4$.

So if we summarise from the picker that picks the red cherries to the roaster, only the cost of production brings us already between 12 to 14$/kilo for a decent washed specialty coffee. Now if you compare this to a bag of coffee in the supermarket we can all agree that there is indeed a pricing problem. And unfortunately, if you remind our first park, this goes for the 95% of the coffee market.

It is clear that paying the current low prices is not sustainable for the farmers and the entire production. On the other hand it doesn’t mean when you are paying a high price to your importer that you are guaranteed that this coffee has been traded in a correct and ethical way neither. For that you should have more insight information in the price structure. And that is why you, as a buyer, should ask your importer for more information. This is our goal at Cup-A-Lot: make the whole chain fully transparent. 

So, know what you pay for!

 

Thank you for reading and if you have any questions, let us know!

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