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If You Drink Coffee, You Should Know About The C-Market

By July 2, 2019 Coffee
Honduras Late Harvest Fields. Photo Credit Tuuka Koski (1)

Part 1: Your Relationship with Coffee

How long have you had coffee in your life? Is it a new hobby? Or is it something you’ve loved for a long time? What is the function of coffee in your life? Do you sip on it, savoring every drop, evaluating the flavor as it cools? Or do you need it, can’t live without it, need-it-now kind of relationship? Or is it both? However your relationship with coffee feels to you, I encourage you to reflect on how much you rely on it, and what is it worth to you.

Now, let’s consider the relationships that people behind the scenes in the value chain have with coffee. The most interesting and most important relationship to share is that of the relationship between the coffee farmer and coffee industry the last fifty years. At one time, coffee farming was lucrative. Not unlike the labor-heavy industries like coal mining and manufacturing in the US, there was a time when coffee farming was lucrative and booming.

Coffee farmers come from generations of producers. Their connection to the soil and the product is deep. The rise of specialty was a promise of change for some producers. While that promise has been fulfilled by companies who purchase based on quality or cost of production, the majority of coffee producers in the world have systematically been devalued in the marketplace. Specialty coffee is at a turning point where all of our relationships may fundamentally shift in the next five years. Let’s talk about how we got here, and how you can help.

Part 2: Cost of Production

Without a doubt, the most pressing issue in coffee is price. How much should coffee cost? Like any business, that number should come from an understanding of how much it costs to produce the product, plus a margin to become profitable instead of breaking even.

A great way to contextualize this cost of production issue is looking at a specific farmer’s data. One issue with determining price based on cost of production, is that it’s not common for a farmer to concretely know all of their costs because it requires meticulous record keeping. Maria Bercelia Martinez is a unique producer. She was an entrepreneur before she transitioned to growing coffee, and her daughter graduated from college with an accounting degree. She keeps detailed accounts of her expenses for her farm, Finca Los Angeles, in Acevedo, Huila Colombia.

In the 2017/2018 season, Maria and her partners, Collaborative Coffee Source, conducted a cost of production study. Maria is an extraordinary producer – with 70% of her crop meeting the highest quality standards of the industry. While the other 30% may be below those quality standards, those lots require just as much labor and expenses to produce. Together, they found that it cost $1.71/lb to produce both categories of coffee. Adding margin to make it a profitable business, it would not make sense for Maria to continue producing coffee year to year if she received less than $2.50/lb.

Honduras cherries Santa Barbara. Photo Credit Tuuka Koski (1)

Photo Credit: Tuuka Koski

Part 3: C-Market Volatility

Although there are people in the specialty coffee world calling for a change in buying practices, the majority of coffee purchased in the import and export world is not based on the cost of production. Instead, it’s based on something called the C-Market. The C-Market price is taken from the International Coffee Exchange in New York City. It’s similar to the stock market, where futures are traded and bets are hedged.

As such, the C-Market price is extremely volatile. It relies significantly on speculation and is based on very short-term projections. The price can go up or down based on information of yields and volumes, even jumping based on weather patterns in Brazil, a major producer of commodity grade coffee. The most consistent aspect of the C-Market is that is has been below cost of production for decades, while companies in developed countries who trade on the C-Market reduce their risk and make quick gains.

Since the 1990s the C-market price has dropped under a dollar a few times, the longest for about 200 days. In August of 2018, it dropped below a dollar a pound again, where it still remains today. Generally speaking, the coffee prices have not raised since the 70s, while the cost of production and costs of living have gone up. For example, in both 1976 and 2019, the lowest C-Market price of the year was the same: .87/lb. The value of the 1976 price by today’s standards of inflation would be $3.92/lb.

Coffee Prices Historical Chart Data 2019-07-03 Macrotrends

Source: Macrotrends

So, what does that mean for the majority of the world’s farmers, who don’t have access to high value buyers that work outside of this system? They will not make money on their harvest this year. They may need to sell their farms or go into debt by taking a loan to get through the next year. In short, if the system of coffee trade isn’t fundamentally changed in the next few years, we will see a shift in quality, quantity, and price because farmers will no longer grow coffee the way they do today. Or grow coffee at all.

Part 4: Changing Your Relationship with By Brewing at Home

The word sustainability is thrown around a lot these days. It’s become a blanket term for eco or green, without having verified practices around what that means with direct measurable outcomes. The truth is that paying more for coffee is inevitable. Whether we do it now, or later, it’s going to happen because coffee will eventually be too expensive to produce and farmers will grow other crops. And I don’t blame them. Would you continue running a business model that put you further in debt year to year?

I know this is heavy, but there’s a few things you can do. The first is understanding the supply chain (Check! Look at you reading articles about supply chain!). The second is to understand how much you are able to spend a week without cutting corners, and create a new relationship with coffee.

Going out for coffee every day is expensive! Depending on the city in which you live, it’s very unlikely a coffee purchased over the C-Market price will be below $3 per cup. If you can afford it, make sure you’re going to a place that pays well over the C-Market price. Not sure? Ask! If someone on staff can have a conversation about the C-Market, you’re likely in the right place.

Third is purchasing full bags of coffee directly from roasters and brewing at home. Brewing at home is a great way to spend less than $3 per cup while buying coffee from roasters who source responsibly. How will you know how they source? Just ask if they pay over the C-Market price for their green coffee. Another way to know if the coffee is traceable and was likely sourced responsibly is if the bag includes the farmer’s name. By purchasing directly from roasters, you are allowing their margins to increase and be reinvested in their alternative buying models.

Honduras Drying. Photo Credit Tuuka Koski.jpg (1)

Photo Credit: Tuuka Koski

This month at the Fellow Playground we are proud to feature five roasters who have gone above and beyond in their efforts to support a sustainable and transparent relationship with the producers they buy from. By paying fair prices (i.e., more!) for their coffee, auditing their own systems, publishing their buying records, and educating their customers. 

Come by Fellow all month to learn more about keeping coffee sustainable and try delicious coffees from the roasters who are true champions of the cause!


About The Author: Raised in a predominantly Amish community, Colleen has been intimately connected to food systems from an early age. Currently, she facilitates producer and roaster relationships at Collaborative Coffee Source, a sourcing company based in Olso, Norway. Having worked in the specialty coffee industry for the last ten years, she began behind the bar at Intelligentsia, scaled Heart’s education and wholesale program, and has worked in green coffee sourcing and trade for the last three years. She is also the founder and creative director of the educational podcast series, Sourceress. Her work has been featured in the International Food Studies Journal, Broccoli Magazine, Perfect Daily Grind, Daily Coffee News, and Life & Thyme Magazine.

 

Colleen King

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