Whether you drink coffee in the morning to help you wake up, for a boost in energy during a sluggish afternoon or just enjoy a warm mug to hold on to on the chilliest of mornings (or, of course, a refreshing iced version during these steamy hot summer months), most of us embrace it. But, the coffee industry isn’t all rainbows and unicorns. In fact, the future of coffee is looking bleak.
In this blog post I hope to do one thing: to give you some insight into the future of coffee by sharing how coffee is purchased. I will try to spare you many of the really complicated details of commodity prices, how coffee is traded and how roasters buy coffee (or I may actually be hiding the fact that I really don’t understand the intricacies and nuances of commodity pricing and how coffee is bought and sold). However, in order to understand the general outlook, we will need to touch on them briefly.
When it all comes down to it, the troublesome future has a lot to do with the cost of production versus the commodity price, or C-Price, the price at which coffee is sold on the market. Right now, it actually costs more to produce coffee than it can be sold for on the market. That is not good for the farmers who are losing a lot of money and it is not good for roasters like me, or coffee drinkers like you.
Caravela, a coffee importer/exporter working in Latin America, recently published a report stating the cost of coffee production is between $1.05 - $1.40 per pound. That is very little for the amount of work and resources that go into producing a pound of coffee. Also, according to a recent report from the Specialty Coffee Association (SCA), 70% of the cost of coffee comes from labor and most coffee workers are paid below minimum wage. So, coffee is not the answer to get out of poverty.
But that same poverty is one of the factors that the industry is not reacting quickly to the issue. Unlike some issues of the past, like the issue of leaf rust which impacted the coffee supply, this issue doesn’t threaten the people who drink or buy the coffee. Instead, it threatens and harms the growers. It impacts the lives of millions of farmers who do not have the resources needed to change the policies that threaten them.
So, who controls the market price of coffee? Traders who are trading on the “futures” of coffee. This means that traders are looking at trends that may affect coffee in the future and basing their price on the information they find. From our perspective, it seems odd that a bunch of traders in business suits are so heavily dictating the price of coffee and the lives of the coffee growers when they lead lives that seems so different and distant from those they are so greatly impacting: the farmers.
Nonetheless, these traders are often specifically looking at the trends influencing coffee in Brazil. The country is one of the top producers in the world. In fact, about 30% of the worlds coffee is grown there. Things like the political stability and big weather swings of Brazil can have a large impact on the price of coffee. If Brazil’s coffee is growing well and there is an overproduction it could drive down the market price or if things are looking really grim for Brazil’s production, the market price will likely rise. Simply put, coffee is a very volatile commodity to trade and therefore, it can be volatile to roast and brew too. You can see its volatility further illustrated in the graph from Macrotrends below that shows market prices of coffee over the past 45 years.
There are many other factors that impact the coffee market, including the quality/grade of coffee, growing methods, certifications (e.g. fair-trade), etc. which we hope to touch on in future posts. On top of that, we (Fika) don’t buy our coffee right off the market at the low C-prices mentioned. Instead we purchase our coffee from importers, which further dilutes our understanding of and complicates the path our coffee beans take to get to us.
All of this information makes our heads spin, and we imagine it does yours, too. It also raises questions, doubts and concerns for us here at Fika, especially as we try to figure out our role in being a positive influence both in the larger coffee industry and in our local economy.
We hope you’ll join us in our quest to grow and learn more about these important issues. Further reading can be found at the links below.