The Cost of Coffee
Imagine never knowing what your day’s work is worth from one day to the next. What if the minimum wage slid up and down irrationally and unpredictably? Would you be able to plan a budget for your food, your housing, your family if you couldn’t count on a certain level of income each year? So how is it that millions and millions of coffee farmers face and live in this reality every day?
Welcome to world of commodity trading where farmers of coffee, sugar, bananas, and other cash crops in developing countries, are paid according to a market they have little to no control over and to a price that changes constantly - in many cases, dramatically. As a result, farming families who are already living in or on the brink of deep poverty are forced into a scary limbo, never knowing if things will get better or worse; if the fruit of their labour will be valued more or less the next harvest season.
As roasters (buyers) of green coffee, we don't have much control either. From one purchase to another, our cost can and does vary drastically. Like the farmers, we have to plan our budgets and the non-coffee costs of production with a baseline that is always changing. Because of the way the industry works, coffee consumers are conditioned to expect consistent and unchanging prices. So our prices to the consumer have to account for and absorb the market's volatility in the cost of the coffee.
Unlike the farmer, however, most of us roasters are not struggling with abject poverty. So the stakes aren't nearly as high as in producer countries. But the strain the volatility of the market puts on the business of roasting and selling coffee is very real and has big impact on the way we structure our pricing for consumers.
So if neither the buyer nor the seller can determine the exact price paid for a pound of green coffee, what/who the heck does? Well...it's complicated. And for a full explanation, we'll post another article. For now, suffice to say that coffee is one of the most traded goods in the world and on the stock market and like oil, a market beyond the simple transaction between a seller and a buyer, guides and controls the price. In a complex system of speculation and trading, Wall Street has way more power over coffee's commerce than we as roaster/buyers do and the producer/sellers of the coffee does. Fair trade, organic, and any other certification system provides some type buffer or protection from the market but they're all based on the New York "C" (the international price of green coffee). When speculators in New York determines coffee is higher valued, the NY"C" goes up and the coffee producer gets paid more. When they determine it's worth less, the "C" goes down, and the farmer gets paid less though his costs of production and living have remained the same or, in most cases, gone up. The coffee farmer and the coffee roaster are at the mercy of a market they/we don't control but completely depend on. This is not a sustainable or fair model of "trade".
Like so much commodity trading out there, this industry is in need of major change if we ever hope to improve conditions for the millions of farmers growing the coffee. First step? Educating the public - the coffee consumers - that the cup of coffee they enjoy or the bag of beans they grab off the shelf may seem steady and constant and usually, for them, it is. But the prices they pay are artificially consistent - they don't reflect the way the farmer is paid or the way the roaster purchases. At the very least, we should aim to adjust the pricing structure so that it more accurately reflects reality, from producer to consumer. But ideally, the coffee leaders should take steps to disentangle the value of coffee from Wall Street. This would set the coffee farmer free from the volatility that keeps wealthy stockbrokers rich and poor farmers vulnerable.
Makes you wonder: what is the true cost of coffee?