In the last year there has been a bit of talk about the cost of coffee in the Capital and the naive assumption that because of the falling bean prices, our long black prices should be falling with it. It’s a touchy subject I suppose, us Wellingtonians we know a lot about coffee. But how much do we really know about the commodity market that green beans are traded on and what determines the price of a pound? It is a bit like feeling you can discuss the intricacies of American Politics just because you watched the first season of The West Wing. I asked Rene to shed a bit of light on the cost of green beans and how that translates to the cost of our coffee – Beth.
Over the last four years green coffee has gone through some huge price changes. At one stage it seemed like the market finally realised it needed to pay more for coffee, but now with most of the 2013 harvest sold, the market has returned to low 2009 prices.
Like all international commodities, coffee prices are set via trading on a stock market: supply and demand, and stock speculation of coffee, amongst other factors, are responsible for fluctuating prices. 2009 prices were around $US1.30 per pound but rose fast through 2011 to around $US3 per pound.
There was a lot of discussion among people in the coffee industry about the sustainability of coffee. Specifically we were talking about how much farmers are paid, and around the wider issues which affect price, but which the farmer has no control over — like global warming. There was a feeling with some regarding the rising price, that the market was finally maturing to acknowledge and meet the tough realities of production.
None of us want to pay more for stuff, right? But many of us in the industry believe it’s hugely important for quality coffee to continue to be produced. This means the price of green coffee needs to increase and the work of coffee producers needs to be better rewarded.
During times of high prices, roasteries are challenged to tighten their belts and smarten up, or source poor quality coffee at cheaper rates.
As I said before, over the last 2 years the price has fallen back to 2009 prices of around $US1.13. The International Coffee Organization states this price is actually below the cost of production.
We’re talking about farmers who have very little to spend on living. They often grow their own food and live in low cost accommodation — a wooden shack with dirt floor.
For farms with good trees growing already, farmers may not have to spend much actual cash through the year, payment for transportation and pickers at harvest time might actually make up a significant part of the cash payments.
This triggers a decision for coffee buyers: make more money sourcing coffee at basement prices or recognise the market is mad and not follow it to its extreme lows.
Peoples Coffee buys certified fair trade organic coffee. This has a minimum price of $US1.65 per pound. This minimum ensures we cover costs of production for coffee growers. However, Peoples has always paid more, an average of around 50% more per pound, with some coffees going for well over twice the minimum price per pound. This way we ensure decent quality coffee at a price that the co-op is happy with, helping to ensure we can buy the same coffee coffee again in years to come.
The challenge for green bean buyers is to keep up with the market changes, but also ensure growers’ wellbeing is taken into account with the price payed. Sometimes this means accepting less profit.
When visiting growers, we always have a good discussion about prices and the cost of production. We hoped the higher prices during 2010–11 signaled a sea change in the industry, not a price spike which would create more insecurity in the market for producers.
But sadly it seems like the mad international commodity pricing mechanism wins out again.
Each year there are developments in the industry which continue to capture my interest – micro lots becoming more available, environmental issues having negative impacts on quality, computer monitored roasting and new brewing methods. But the pricing of green beans has always had a curious disconnect from reality. We should be trying to think of a way roasters, like myself, can have more ownership over the trade relationship we have with growers.
Interestingly Trade Aid Importers have recently started a new “sustainability fund”. We now have an opportunity with specific co-ops, to pay extra with each trade on top of the standard market price Trade Aid set. This is quite a revolutionary idea and one we are very keen to get behind. It’s a bold step by Trade Aid and allows the roaster to better support producers as they see fit.
For Peoples Coffee this is very inspiring and another initiative from Trade Aid Importers’ long list of innovative funding programs. Respect!
So while the green bean price is falling, we forget who is out of pocket. It has enormous repercussions for the farmers. Is that really worth the 20c saving you would make on your cup of coffee?
What do you think? Should the price of a long black be falling and following suit with the green bean prices?
René
