We Have Been Asking the Same Question For 30 Years
What is a fair price to pay for green coffee? This was one of the questions asked by roasters at the panel discussion “Ask Your Green Coffee Trader Anything”. The conference was part of Caffe Culture in London this September. I first wrote about it here.
I’ll start by saying that, as it’s currently formulated, this question doesn’t have an answer. At least a straightforward one. And, honestly, we have been asking ourselves that for decades…
Think about it: Fairtrade was established in 1992! So this question is at least as old. Have we answered it? No.
On the panel (and in articles that you can read online), traders talked about context. If you know what is the context of a coffee-producing country, you’ll know where the price sits.
All the Coffee Data We Need, But That We Don't Have
But if we wanted to have the necessary context, we would need all this information (if not more):
- Sustainable coffee production costs for commodity and specialty beans
- Cost of a decent living for producers and workers (living income benchmark, profitability levels, etc)
- Cost of green coffee logistics
- Cost of financing (which increases the longer it takes for the producer to get paid)
- The current market price for coffee
- Price differential applied to that country (for example, + US0,80/lb for conventional Costa Rica)
- The exchange rate
We don’t have half of it. Half?
I can’t quantify how much data we lack. It’s a lot.
The best thing the industry has at the moment is Fairtrade’s Living Income Reference Price for Coffee in Colombia and in Aceh, Indonesia.
When conducting studies on Living Income Benchmarks, Fairtrade has to calculate production costs and the cost of a decent living. It’s a compass for the ethical green coffee buyer.
Gain context and understand coffee prices on Algrano's Resources page ->
Producers as Price Makers: the Best Solution in the Meantime?
With non-existing data beyond this, it’s no wonder that conscious roasters are choosing to be price takers (paying the price asked by the producer). “If the producer set the price then it must be fair” is the logic. As Algrano, that’s where we stand too.
This is much better than paying the C-price but it’s not perfect logic. Many farms on Algrano are what we call small enterprises (small companies with less than 19 employees) and have the resources to set their own prices.
Read about the coffee price crisis and SCA's work on the economics of the coffee supply chain here ->
Smallholders (technically farms reliant on exclusively family labour), on the other hand, rely on prices set by cooperatives and exporters.
To add to the conversation, I asked five coffee producers some of the same questions asked to traders at Caffe Culture.
From Coffee Production Costs to Profitability & Living Income
Last week, I posted their thoughts on ethical coffee sourcing. Today, I’ll bring you their ideas on fair coffee prices and ethical coffee brands. They are:
Heron Reger de Carvalho Junior of Canta Galo Coffee in Brazil ➡️
Gaizka Pujana of Asiste Campo in Colombia ➡️
Sunghee Tark of Bean Voyage in Costa Rica ➡️
Karla Boza of Finca San Antonio Amatepec in El Salvador ➡️
Troy Kiper of Bright Java Coffee in Indonesia ➡️
Their answers combine a wide range of viewpoints and opinions that touch upon themes such as business ownership, balancing sales of commodity and specialty coffee beans, extractivist relationships and certifications.
All answers are unedited, safe on the length of sentences and paragraphs for readability. Heron’s answers were also translated from Portuguese.
I’ll summarise below the responses to the main question on fair prices. The producers interviewed here believe that fair coffee prices are those that:
- Cover all production costs, including outside of the harvest period
- Allow for profitability and a decent standard of living
- Act as an incentive to keep producing coffee
- Create conditions for autonomy (ie. in the form of investment)
- Are incremental, going up as quality investments yield good results
- Are set by the producer or have the producer involved in the decision making
- Are transparent up to the farmgate price (though this was mentioned more as a way to verify fairness)
- Reward the quality potential for specialty coffee
- Balance potential losses a producer might have selling lower screen sizes or residue after exporting
- Have protection mechanisms, like a price floor
- You would want to receive yourself if you were a coffee farmer
Keep reading below and have your say: leave a comment with your thoughts on how you think the coffee industry can achieve consensus around fair coffee prices and sustainability in the supply chain!
Question 1
“How do you define on your day-to-day what a fair price for a coffee is? Given that there is no industry consensus or benchmark, how do you ensure you are asking a fair price?”
Question 2
“Considering that virtually every roaster and producer makes claims on sustainability and ethical sourcing/production, how can consumers know that a brand is really ethical?”
Heron Reger de Caravalho Junior on fair coffee prices: “I believe that a fair price for coffee is based firstly on the production cost plus the potential of that coffee in terms of cup quality.
In Brazil, there are several coffee quality competitions. In these competitions, producers can get very interesting prices for their lots. I see that many producers base themselves on this possibility to price their micro-lots.
As for big-volume coffees, producers have to put the costs on paper. Today, if we compare the value of bica corrida [unsorted green coffee with all sorts of defects] sold in Brazil as a commodity and the value of exported coffee, it may not be interesting to export because of export costs.
Producers export coffee with a screen size of 15+ or 16+ for a considerable value. But the moca [peaberry], the screens 14/15 and the residue remain in the hands of the producer. In some cases, the producer is losing money with this transaction.
There is also the issue of payment terms. When you sell locally, the maximum waiting time for payment is usually seven days.”
Heron Reger de Caravalho Junior on ethical coffee brands: “Yes! In the case of producers, we have certifications today that guarantee the ethics of the coffee offered. I believe this is the best way for consumers to access this information.
I tried to register as Fairtrade but I was not accepted because I have three fixed employees. So I can’t comment on that. If I were to name a few I would mention Rainforest Alliance, 4C, and GlobalG.A.P.
I disagree with them on some points because some of their demands escape the reality of the field. But, on the other hand, this is a way to put parameters for production chains.
I also have a suggestion for roasters: perhaps brands could launch QR codes on the packaging with the website or Instagram of the farm so that the consumer could also follow the producer’s daily routine and see if he/she really meets the market’s ethical demands.”
Gaizka Pujana on fair coffee prices: “This is a very difficult question to answer. There are many variables that come into play such as coffee quality, production costs, transportation, supply and demand. But what is very clear to me is that the price of coffee up to now has never been fair.
For the price of coffee to be fair, it must be able to generate enough profit so all people involved in production can afford to have a decent life.
Whenever I see a coffee picker carrying coffee on his shoulders in the middle of a mountain I ask myself this:
‘If coffee wasn’t grown in developing countries but instead in the European mountains and this work had to be done by a European person, how much would that person charge for an hour of work?’
I am sure that coffee prices would be very high and coffee would be a luxury.
Many of the small coffee growers and 100% of the pickers in Colombia live in absolute poverty. Today, they earn about US$ 8.00 a day for their work. This does not allow them to have access to practically anything.
For this reason, I believe there should be a minimum price that allows the lives of people who work in the fields to be prosperous. That their children can have access to basic things such as education, health, clothing and a home.”
Gaizka Pujana on ethical coffee brands: “There are certifications like Rainforest Alliance which help farmers demonstrate that they produce or that at least they try to produce sustainable coffee. The problem is that importers and roasters do not pay a fair price for certified coffee.
In our farm, we implement techniques that are required by Rainforest Alliance. But we do not apply to obtain the certification because it has a cost that will not bring any [financial] benefit.
Things could change if consumers only bought coffee from companies that work with producers who have such certifications and who also show the price they pay for coffee.
Another important point: the governments of consuming countries could force companies to only buy coffee that meets minimum sustainability and price requirements if they wanted.
If I'm not mistaken, the EU is looking to implement something like this [He is referring to the European Climate Law, which aims to make Europe’s economy climate neutral by 2050].
But consumers should put pressure [on governments] because politicians always go hand in hand with businessmen and they watch each other's backs.”
Sunghee Tark on fair coffee prices: “We never ask for a price from the producers. In setting the prices, producers determine what is a fair price for them based on the costs of production, and their business type, and let us know.
Our job has been to share with our roaster partners transparently what is the breakdown of each price for FOB (Free on Board). What gets added to the farm gate price, and so on and so forth?
I think the concept of fairness in setting a price for coffee is quite interesting. We would never walk into a coffee shop and say ‘Your espresso is priced higher than the one across the street’. There is no standard for a ‘fair price’ for a cup of coffee either.
As business owners, producers should have the equal right to set their own prices, rather than remaining as price takers. In the most practical term, I know it’s not always possible due to the long history of how coffee prices have been set and how long producers have remained price takers.
Nonetheless, more transparent conversations across the value chain, radical transparency that goes beyond FOB prices and buyers’ willingness to ask for prices, rather than coming with their own terms, would help shift the dynamic.”
Sunghee Tark on ethical coffee brands: “This is a very difficult question because I think it will look virtually different for each context, origin, and relationship.
I don’t think there is a simple answer to what ethical or sustainable sourcing looks like, and should look like, as they can vary by context. What may be a common and acclaimed practice in one country/context, can be so differently received in other contexts.
However, there are red flags that you can more visibly catch (and ways things shouldn’t be done), like extractive partnerships. Are the relationships built on a mutual understanding and benefit, or do they feel extractive and murky?
How are they [buyers] communicating the stories of the producers? How are the pictures and stories of the farms shared/taken (Are they of children? Even if it’s not of children, can you verify if the pictured people have been informed about the usage of the photo?)? Who’s telling what kind of story
Sustainability and transparency reports are good places to start AND dig deeper to see what tangible things they [buyers] are doing with their power within the supply chain.
Are they just using the stories, photos and relationships to sell more or are they actually paying the producers better, and committed to long-term relationships?”
Karla Boza on fair coffee prices: “A fair price is something that allows everyone at the farm to be paid a decent wage. And that allows for the farm's financial stability. People underestimate how expensive coffee farming is (regardless of quality).
Something (surprisingly) surprising for roasters is that work happens on a farm 365 days a year! It's not only the cost of the harvest that we need to cover. I always point out our least exciting, but most constant job/cost on the farm: road maintenance.
All year, we have someone responsible for keeping our roads in decent condition. During the rainy season, they're restructuring them to decrease water damage and clearing them of small landslides.
[Over] half of the dry season they're fixing the damage of the rain and preparing them for the harvest. And the other half they're preparing them again for the upcoming rain.
This less than exciting, yet incredibly necessary job when you're farming on steep terrain throughout the year. Like road maintenance, there are so many jobs that are equally important on a farm… They should all be compensated accordingly.
Karla Boza on ethical coffee brands: “I think the best way this can be ‘resolved’ is by simply asking questions. Sustainability is complex and broad. We all have different values and priorities. And that's perfectly normal. Whatever topic or area of concern speaks to you the most, ask about that!
Transparency reports are a great place to start when available. Oftentimes, many of us either don't have the time, resources, or knowledge to produce one. The way we manage interest in these topics is by being transparent ourselves, regardless of what we're doing well or could improve.
We've had roasters who are interested in our costs but don't care about our agricultural practices. Others are only interested in quality. Some want to know a little bit about everything. We welcome all questions. Therefore, whenever someone is hesitant in answering ours, it usually raises doubts.”
Troy Kiper on fair coffee prices: “A fair price for coffee is the price that incentivises a grower, producer, miller or exporter to continue in the value chain.
Here's an example of what we do and of what I would call a fair price. We have one farmers’ group that we have worked with in a very underdeveloped village for almost five years.
When we started working with them, they sold their parchment and dried cherries on the local market for a very low price. Coffee to them was not given so much as a second thought compared to other crops they grew.
We now work with them during the harvest, sometimes up to 20 hours a week, to help them produce dried cherries for a Natural processed coffee. We actually pay them a little bit less than the national cherry price. But the reason we pay them a little less is that we put so much work in manpower into the coffee ourselves.
I call this fair because they're still getting a better price for their coffee than they were getting at the local market. And they are incentivised to continue to make that coffee because every year we are able to pay them a little bit more.
We’ve seen the villagers replant, fertilise, and treat pests in our time working with them. These were things they hadn’t bothered to do before we arrived.
As we continue to work with them every year to improve their processes, we will pay more until their coffee reaches the standard market price for high-quality cherry. That’s what I call fair and building a sustainable supply chain at the same.”
Troy on ethical coffee brands: “Thought long and hard and could not come up with an answer for that one.”
Don't forget to have your say. Leave a comment below so we can keep the discussion going!
