Have you wondered why coffee can be so expensive? When you take a closer look at the economics of coffee production, it starts to make more sense. For us to learn, let’s take a quick trip to the origin where coffee is grown. Let's look at the three major facets of coffee production that impact the price and product.
Have you ever heard of the coffee commodity market? What about Specialty Coffee? Auction Coffee? In Matt's latest YouTube Video / Blog Post he describes all 3 of these and helps us understand why we're actually cheering for more expensive coffee.
Watch the video or keep reading
We all know that commodities are things that are sold and traded. Hard commodities are things like grain and power, things needed for life. While we wouldn't think of starting our day without an essential cup of coffee, coffee is not a hard commodity but is known as a soft commodity. It is traded on a global scale. The Commodity Market is also known as the C Market, and here is where producers trade the largest amounts of coffee. Characteristics of the C Market are:
- Lack of differentiation of goods
- Require trading in large quantities
- Reduced quality control measures
- Negatively impact producers
- Currently trading around $1.30/lb
The lack of differentiation of goods is defined as products that don't have specific branding or anything that sets them apart. An example is meat. A company has to come and provide branding for the consumer to know about the product. Since coffee works the same way, producers have a harder time differentiating their product from other coffee farmers. For the producer to participate in the trading of coffee, C Market coffee must be traded in large quantities of around 20 tons of coffee. With such large quantities, quality control measures are more relaxed, resulting in the lowest possible coffee quality.
How are producers negatively impacted?
Producers are impacted negatively because the cost of producing coffee is currently around $1.40 per pound. Every pound sold; the producer is currently losing .10 cents per pound. How does a producer stay in business if they are losing money trading C Market coffee? C Market coffee creates a problem with a great-tasting solution. The solution is Specialty Coffee.
Producers open their door to profits when they can separate their C Market quality coffee from their specialty coffee. Once they can separate their higher quality coffee, producers can now see if their coffee meets the specialty criteria. It still takes a Herculean effort to make this happen because over 90% of all coffee is C Market coffee. Specialty coffee falls in such a large range, that it is a step towards the solution, but not the total solution. For instance, not all specialty coffee is branded coffee. However, the specialty coffee criteria that can be met can separate one producer from another. Once this differentiation is made, they can ask for a higher price. There is a whole spectrum of criteria for specialty.
The Specialty Spectrum
The spectrum for specialty coffee is huge. It can start as low as a cupping score of 75 or better to premium coffee sold to small 3rd wave roasters. If you know your cupping scores, you know that 75 is not good. This is your run-of-the-mill grocery store coffee that a little better than the stuff in a can. But as a producer, once you can get into even the bottom of the spectrum for specialty, your coffee is on its way to better quality.
Helping Producers Grow Better Coffee
When producers make a profit and invest back into their farms, we all benefit. Specialty coffee is often sold at three times the prices of C Market coffee. Even with this markup, producers may still not be profitable. The goal of the producer is to provide as much specialty coffee as possible. How can roasters help?
- Feedback loop
- Make it worth it to the producer
Roasters can also help when they create an effective feedback loop since most producers may not roast their own coffee. Feedback from roasters becomes very important to validate the quality of the coffee. That's why having a direct connection to producers is so important.
We've considered the cost of trading coffee, but what about the cost of shipping and shipping internationally. The job isn't done when a producer can finally get to the specialty market; now they have to get the coffee to the roasters. The cost of shipping alone is often the same or more than coffee production itself. As a roaster, we at Sagebrush Coffee want to make it worth it to producers to produce small quantities of coffee, make a profit, and ship it. Little by little, the cost of that great cup of coffee has sky-rocketed. At this point, the coffee producer may still be struggling to make a profit. But there is an even better tasting solution to this problem, and it's called Auction Pricing.
Auction pricing is the best of the best and the goal for coffee producers as well as roasters. Producers enter their highest quality coffee into, for example, the Best of Panama Coffee Competition. The goal is to enter and win. Once a coffee wins, it elevates the producer's reputation making that coffee highly sought after fetching the highest price possible. If you see Sagebrush Coffee with the label of Limited Editions, it likely has come from a coffee auction.
Where does Sagebrush fit in?
Our goal is to have the best coffee possible and help producers improve their product, so we are working on our feedback loop. We all benefit when producers provide better coffee. We stay away from C Market coffee even though it helps set our prices. Our goal is to buy the best specialty coffee as possible and provide feedback to the origin to help improve that coffee year over year. We also do not negotiate producers' prices. We want producers to be profitable, so they have the means to provide coffee with ever-improving quality. We’ll work with every step of the supply chain and the business to get the best prices we can (carrier shipping costs, packaging costs, etc), but when it comes to the producer, we’re aiming for the best coffee we can get our hands on and are willing to support the producers’ efforts to create that for us. When producers improve their product, the coffee we provide to our customers also gets better.