The Price of Coffee.

I often have chats with my friends about coffee (shocking, I know).

In seemingly every one they lament about how “coffee has gotten so expensive these days” or how they would love to purchase better coffee, but “fancy coffee is just so pricey”.

Is this true? Has coffee gotten so expensive? Why? If so, who benefits from a price increase?

Now, this is an incredibly complex topic, one whose details teeter on matters out of my personal wheelhouse; and on top of all that, I’m trying to explain it in a self-imposed limit of a few paragraphs (starting now) so as to not bore you all out of your skulls (however, If you are interested in a more thorough look at coffee pricing, I highly recommend the book, Cheap Coffee by Karl Weingold).

Now, Has coffee gotten more expensive?

No. Next question.

Okay, I’ll go a little more in depth. According to the US Bureau of Labor Statistics, the price of a pound of roasted coffee when adjusted for inflation has gone down by almost 9% since 1980.

Why?

This is because on a large scale, what drives the average price of coffee is the commodities market. This is the same as oil or corn, etc. Shortages or worries of a deficit in product drives the price of the product up. Conversely, surpluses will create-price drops.

Much of this play in the market originates with Brazil.

Brazil exports more than twice as much coffee as any other country (“they grow an awful lot of coffee in Brazil”) and thus can make the market move considerably on its own- much like Saudi Arabia or the US with oil. This means that the price paid to a farmer in Burundi is inextricably tied to crop levels in Brazil.

The primary exceptions to this are third-party certifications and the specialty market. In the specialty market farmers, in theory, are paid a premium by co-ops/exporters/buyers for a higher quality product. With certifications farmers are, in theory, similarly paid a premium for meeting a set of standards – environmental and/or humanitarian. But a premium based on what?

For both, the baseline price over which a premium is paid is… drumroll …. The C-market.

So, for example, with a Fair-Trade (USA) Certification, farmers are paid a $0.20 premium on the C-market price. With an Organic certification, you can add another $0.30 for a total of a $0.50 premium for an FTO/Fair trade Organic coffee. There is also a price minimum associated with the certification, currently set at $1.40 (not including premiums) per lb. Meaning that should the C-market price fall below $1.40, farmers can be guaranteed at least $1.60 per pound.

However, this presupposes that there is a buyer for the FT(O) product. A 2019 article in the Guardian showed that this is a substantial issue with the Fair-Trade model.

“In 2016, of all the coffee grown as Fairtrade, only 34% of it could be sold at the minimum price. There were no takers for the rest; farmers had to unload the surplus into the standard “unfair” market.”

This same model applies to the Specialty industry. Companies and buyers will pay a premium based on cup quality, often establishing benchmarks for specific cupping scores (for example +$0.20 over C-market per point). These coffees do not have minimum pricing unless established by the individual companies.

However, this model also falls into the “only if there is a buyer” issue. With a substantial amount of coffee scored as “specialty” ending up in the commodities market.

All this is to say that coffee prices to the consumer in the US haven’t risen since 1980 because the commodities market hasn’t risen.

Conversely, for farmers the average price received for their coffee has decreased over the same period.

Here is a chart that I compiled to illustrate the average prices for coffee from 1974-present:

So, what am I getting at (in this much longer than expected explainer)?

Economies of scale work extremely well for large companies. They can lower costs for these industry leaders because they are buying literal tons of coffee from a trader or exporter who, in turn, gives them a steep bulk discount.

But it important to consider that the average coffee farmer, who owns less than 1 hectare, or 2.47 acres, does not benefit from this scheme. In fact, these arrangements often mean that the farmer makes less than market price. This is because often times the trader paints this as their “only option” or rather a “guaranteed price” in an uncertain market (for an interesting look at some issues facing coffee farmers, check out this article written by one).

In short, cheap coffee is cheap for a reason; and that reason is likely never to include everyone being paid fairly.

So, now that I’m thoroughly depressed, what can I do?

I very much wish I could simply say, “all you have to do is buy X product and you will save the world!” But as is so often the case, the truth lives more in the grey than we would like. It requires some diligence and trust to help farmers out of this situation.

However, as a baseline effort, one could try to purchase high-quality coffees that are traceable to at least the co-op level, though ideally to the farmer level.

These coffees are much more often (though not guaranteed to be) part of a supply chain that has at the very least, paid a quality premium above the C-market.

Similarly, if the coffee is certified FT(O), you can be assured that the farmer was paid at least $1.90 per pound (Fair Trade USA temporarily announced that their minimums would rise, only to rescind the change a month later at the behest of coffee buyers. It is likely that the issue will be revisited in the near future).

There is no way around it, these coffees will be more expensive than their “conventional” counterparts.

It seems to me that in order for people to justify paying more for a product that they are already getting for a cheaper price requires a seachange in how we look at coffee.

A commodity is by its very nature interchangeable; meaning one unit is the same as any other. But coffee is not this.

Coffee is the seed of a fruit of a shrub; grown by real people that live in the tropics. Real people with families and loved ones, favorite songs and favorite foods. These people and the coffees they produce are not interchangeable. They are unique. And they deserve to be paid fairly for their labor.