This is not the first time we have written about the base coffee price (and probably won’t be the last). Having read the brilliant article by Alejandro from Caravela – A Pivotal Moment for Specialty Coffee, I (Warren Machanik) as a representative of Quaffee, felt the need to put the below on the web.
The complete article from Alejandro is posted below for reference (with his approval),
We recommend you read that article, it is a far better take on the coffee market, but as a response…
What is the C-Market
We have posted about this before, but just in case you are unsure, the C-market is the traded commodity price of not just coffee but all commodities. In coffee, when we talk about C-market price, we mean the C-market price of coffee. Also called the coffee futures price, or the price of the coffee contracts that are traded on the various stock markets (typically New York for Arabica and London for Robusta).
This price is typically used as a base price to set most other commodity-based prices of coffee. So if the price is $2/lb then the Fairtrade price will have a “levy” of say 20c and perhaps the organic certification will have a levy of 5c, RFA 7c etc. Not all coffee prices are set like that. Most of the real specialty coffee is independent of the C-market price, at least the starting point is. Competition, auction, relationship and direct traded specialty coffee (to name a few) have typically seen the C-market only as a reference to what was happening to the rest of the market.
We at Quaffee have always to be keen to reward quality, regardless of what the c-market price is (as a note we typically pay double or more the c-market price, on average we pay three times more for our 4-star coffees – see our page on transparency or on pricing).
Link to public perception
However, while we have preferred to pay for value when we can, the fact is at least 80% of the market has its retail price linked to the c-market. And we have seen this. In 2011, the c-market price was climbing, and 6 months later coffee on the shelf jumped from R40 / 250g to R55 / 250g (standard commodity). Specialty coffees were also effected, jumping from R80 / 250 to R120 / 250g. Since then, we have seen coffee prices on both sides increase, even though the C-market has returned to madly low levels again. The dollar strength may have helped the producers a little, even though the price per pound has slipped to levels that are some of the lowest ever.
With the commodity price at its low, there is less pressure on the entry level players to change their prices, since their only unique selling preposition (besides branding) is price. A rising tide raises all boats, but a lowering tide lowers all boats too. And that is the rub.
Liveable wage / or is it worth it
What all coffee consumers need to remember is that coffee is a luxury. No one needs coffee. Putting on a T-shirt, or sticking on a bumper sticker says, “Life’s too short to drink bad coffee” and the like, does not change that fact. However, when you are gulping down your next cup, consider those that actually need coffee to eat, to pay bills, to live, the producers.
While specialty has done an impressive job in increasing prices to the producer, the fact that 80% of the coffee world’s livelihood is linked to the whim of a group of day traders, must make a coffee drinker think twice. Coffee production on large scale (think Brazil, Vietnam, and northern Colombia) is the only coffee that can be produced at a decent profit at the low prices that the C-market hovers at. The rest of the coffee producers are small-scale farmers who production, labour and sundry costs are not covered at the average C-market price.
This results in many coffee farmers abandoning their farms. With the C-market at the price of $2 or more, some producers will feel it is worthwhile going back to the land, to produce a coffee for those that think they have the right to enjoy at the current prices.
What to do?
While the effects of the C-market now being over $2/pound for the first time in 10 years, the ripple effects will take 6-8 months to hit the consumer. We at Quaffee would love to see this as the new low. Even though we have been happy to pay over $4/lb for FOB coffee, we have seen that as soon as we spend over $6/lb we struggle to sell the coffee into the South African market.
Coffee consumers need to become more aware about where their money goes when they consume something that is a luxury. If you enjoy a luxury item, then you need to consider the chain of events to get it to your hand, and mouth.
We started posting transparency information about our coffee in 2015, and now all our coffees (besides the blends) have a footer where all the transparency information we can post is there. We need more consumers to be conscious of what they consume, rather just consuming it. Conscious about the product, the packaging and vote with their feet and bucks.
We know there are more important things in life to worry about, but we just ask you to spread the word, and help the industry survive. At the prices we have seen, coffee is not sustainable. Long may we see these prices increase.
Post from Caravela – Reposted in its entirety