Like the turn of every year, 2022 began with a surge of glimmering hope as we collectively wished for a calmer and more certain year free from the very worst aspects of the pandemic. Things certainly seem to be moving in the right direction in many ways but it is also turning out to be the year of increased costs of living and sadly, it is no different for your local coffee shop.
We know you will all be aware of rising energy, transport and labour costs – our own bakery has seen electricity bills rise from £400 to £1500/month. We are encouraged to see the minimum wage rising from £8.91/hour to £9.50/hour in April (totalling an increase of over £1000/year for full time employees) but there is no doubting the challenge this presents for thousands of businesses across the country, some of whom are already battling to recover losses from forced closures throughout the pandemic. I don’t want to spend time dwelling on the impacts of Covid and Brexit, I know you will be familiar with those! What you may be less familiar with is the reasons behind the increases in the cost of coffee which we predict you will soon start seeing across the board, including the larger retailers.
Frosts in Brazil
What you need to know is that the global market (C market) price for coffee is almost entirely determined by the amount produced in Brazil, the world’s largest producer. When supply is high, demand falls as does the price producers across the globe can hope to achieve for their coffee. Equally, when supply falls short of predicted volumes, demand soars resulting in market highs…
On the 20th July 2021, frost arrived in the coffee-producing regions of Brazil. What’s more, the frost was a ‘black’ one coming after months of dry weather and low humidity meaning that instead of causing moisture on/in the coffee plants to freeze, the plant leaves themselves turn black or brown because of the resulting frost ‘burn’ which causes irreversible and permanent damage. Even for young trees that are still being established, frost of this nature will kill the entire plant meaning it will never bear fruit (and therefore coffee). This meant that the 21/22 harvest was impacted but it also does not bode well for future harvests either – initial assessments have estimated that the 22/23 harvest might be down by as many as 10 million bags…
Many farmers have lost their income and will be reliant on government support to help with replanting. The global result of this diminished crop (combined with the ongoing shipping container shortages/shipping delays and increased transport costs thanks to Covid and Brexit) is a lack of overall supply which, coupled with continued demand, has meant the pricing for commercial and specialty grade coffee has become closer in general forcing prices up for everybody regardless of the industry sector they occupy.
There is no doubting that environmental conditions and weather events in one country can have a pretty huge impact on the state of a global industry – it is something we all need to become more familiar with as our supply chain (and that of any other agricultural crop) is increasingly threatened by climate change. This is not a new realisation for those working in coffee, but sadly the systems at play have for too long been structured to favour the buyer rather than considering the necessities to guarantee a certain future for the industry.
For context, in 2018 the C market price was lower than it had been in 1982. There has historically been no adjustment for inflation which is a big part of the reason that the coffee industry as a whole is at risk. When the global market is dependent on supply and demand rather than costs of production and an appropriate profit, those business models are not going to be viable. Over the last decade, the global value of coffee has been between $1-$2/lb and has on occasion dropped below the $1 mark.
Many independent coffee shops and roasteries working with speciality grade coffee have rightly disassociated from the C market paying prices based on quality and charging higher prices to the consumer as a result. This is an approach we can all understand – you get what you pay for right?
The crucial flaw in this way of working is that it fuels an assumption that commercial grade coffee is priced appropriately. And of course it is if you think it is acceptable for producers to be paid less than $1/lb for their coffee whilst the Starbucks CEO was compensated with $20.4million last year…
I don’t know about you but it seems to us that something is amiss when Nestle reports staggering profits year after year yet the industry’s future is at risk with more producers moving out of farming due to historical and ongoing economic and climate related volatility.
The facts are that ever since coffee was commoditised through colonialism, pricing has been based on models of cheap labour. Large corporations have since used their power to keep prices low to fuel their staggering profits and C suite bonuses year after year whilst leaving consumers with misunderstood expectations of what coffee should be worth.
To Wrap Up…
Towards the end of last year, as news started to break about the frosts in Brazil, we started to see coffee hitting the headlines with publications such as the New York Times deploring the incoming hikes to prices. But before you ditch your weekly flat white from your local coffee shop or switch out your speciality coffee subscription in favour of a cheaper supermarket option, we urge you to consider the staggering contrast in approach taken by large multinationals versus small roasteries like North Star and the coffee shops we supply.
Since our establishment, we have actively worked in a way focused on creating a future for the industry, one that simply does not exist if attitudes to pricing and procurement of coffee do not dramatically change. Our own company and the businesses we partner with are not reporting profits to investors, we are not paying executive bonuses and we do pay our taxes. In short, we have always had the courage to operate in a manner designed to regenerate a broken system because we know that if we don’t, we will not have a business (or coffee!) in the years to come. This approach however means that we have nothing left to play with to absorb higher raw material costs and no choice but to pass some of these onto the customer (unlike the MNCs who also ask you to absorb the higher costs rather than just sacrificing some of the astronomical profits they have made through historically atrocious coffee purchase prices).
These challenges are undoubtedly tough and bring another level of uncertainty into the trading climate following two years of constant adaptation to survive. We know many of you reading this will have been furloughed or made redundant losing income yourselves and we really do appreciate the sensitivity of this issue but feel it is really important to give you the facts to ensure our treasured independents are supported through this. Particularly given the role many of them will have played in getting you through at least one lockdown!
So don’t abandon your local gems but do consider the question of who you continue to give your money to. In doing so, you will either be helping to continue lining the pockets of wealthy executives or you will continue to contribute to a supply chain focused on equity and longevity. It is that simple.