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By: Holly Kragiopoulos 17 October 2018
In recent weeks, the international coffee market has dropped to levels which fill us with deep concern for producers across the world. On 20th August, it actually dipped to a level below $1/lb – this is the lowest price on record in 12 years and has resulted in 2018 being known as the year of another coffee crisis. Prices have constantly fallen ever since 8th November 2016, incidentally the day Donald Trump was elected as President of the United States. The volatility of the industry we work within is keenly felt and we, alongside many of our peers in the industry, are trying to work out the true meaning of sustainability in a world that is becoming increasingly uncertain.
Global weather patterns, social and political unrest, pests and disease can all have a dramatic effect on the global value of coffee. This year we have seen protests in Nicaragua that have massively impacted both the agricultural and tourist industries there, holding up shipments and causing huge delays. There was the volcanic eruption in Guatemala which affected 1.7million people, many of whom are coffee producers. Roya (also known as Coffee Leaf Rust) continues to affect plants at higher altitudes thanks to the rising temperatures currently being experienced across the Tropics – some farms are losing up to 70 per cent of their crop as a result which directly increases their costs of production. Even if a producer makes it through a harvest having experienced no political or social unrest, no environmental disaster and no impact of climate change – they are still at the peril of the ‘C’ market which can literally change their fate overnight.
The C Market rate constantly fluctuates, usually by a few cents, and the level is determined by the factors listed above but also supply and demand. Much like any other stock market, it is dictated by anything that affects the predicted purchasing demand and is fuelled by investment bankers taking a punt on which way it will go. The human cost of this strategy can be pretty staggering, as was seen in the world coffee crisis of the late 90s which brought about 5 years of unsustainably low prices partly due to Vietnam’s entry into the global coffee market which raised supply far beyond demand. The market fell to $0.40-$0.50c/lb forcing farmers to cut back on farming inputs such as pesticides and labour, followed by education and other family expenses before necessities such as food…Does this seem a fair and ethical method of procuring something most of us consume on a daily basis? Why was a coffee crisis allowed to carry on for 5 years without anyone doing anything? When Roya originally started to have a big impact across Latin America in 2012, the reaction was immediate across the industry with conferences being held and discussions around how we can tackle it due to the immediate and tangible impact on coffee production it had. Sadly, when it comes to the C market, there is not an immediate threat to coffee supply – only to the lives of millions of coffee farmers.
A crucial factor to understand is that coffees traded on the C market are commercial grade and are bought and sold as contracted coffee – i.e. ‘futures’ that are traded before the coffee has even been produced. This is a strategy generally utilised by very large roasters and multinational corporations to guarantee their stock of commercial grade coffees. Arguably in these instances, the costs of producing commercial grade coffees are certainly lower than those involved in specialty grade production, but research shows these costs would still average out at around $1.60/lb across estates in Central America for example. Furthermore, the $1/lb does not all go to the producer, there are the processing and export costs to take into account too. It has been found the 70 per cent of the price paid to the farmer goes towards the farmworkers who provide the labour on larger estates, this wage is often below any sort of living wage. When the market reaches levels below $1/lb farmers and farmworkers are living in poverty and will not get out of it if they continue producing coffee. How are we to guarantee the future of our industry when we are facing such desperate times? It is because of the C market that coffee farmers have remained poor and have become even more vulnerable in increasing market uncertainty, whilst shrewd traders have capitalised on the profits. Governments of producing countries such as Colombia and Honduras are discussing drastic measures to support their farmers and there was even talk of a global strike where producers and exporters would simply withdraw their coffee from the C market in protest. It is incredibly frustrating to see these large MNCs continuing to capitalise on a low market whilst still charging at least £2 for a cup of coffee.
As you will know North Star sits within the specialty grade coffee market, working with importers and producers on an ‘outright’ basis where the prices we pay are divorced from the C market and are based on the cup score and costs of production, ensuring the producer is profitable in their industry and incentivised by quality. The average price we pay for our beans is $3.50/lb – totally disconnected from the irrelevant ‘global price’. However, the specialty sector makes up just 4 per cent of the total global coffee industry, we have to ask ourselves how we are making an impact on the wider issue?
The answer is this blog post, it is the conversations we are creating with our customers both wholesale and retail, it is the industry events that are happening throughout the year creating more and more interest and generating momentum in converting more consumers onto quality rather than price. For many producers, specialty can be the answer if they have the conditions necessary to produce outstanding coffee and the prices they can achieve for their quality lots can often safeguard them against the losses made by selling through the C market. A big part of what we do here at North Star with our sourcing strategy is to identify smallholder producers who cannot necessarily produce more, but can perhaps produce better. The impact this quality improvement can have is tangible and we get such satisfaction from seeing this process take place.
Not all coffee however is grown at high altitudes, not all producers have access to the facilities or labour necessary for the production of high quality coffee. Change on a large scale is needed and needed now. This time of year, particularly in the runup to the Christmas period, tends to see us all thinking a little more about others – this year we really would urge you to keep in mind the plight of the coffee farmer which is a very real and present problem. As consumers, we have the power to harness change by putting pressure on those pulling the strings. The C market does not work for the producer but for those who relish the opportunity to get rich at the detriment of the communities farming. On a larger global scale, we are simply not paying enough for our beans and haven’t been for a long long time. If we want to ensure supply in the years to come, we are really going to have to ‘wake up and smell the coffee’….
Here’s what you can do to ensure you are being responsible in your coffee purchases:
· Educate yourself, ask questions of your supplier and buy from specialty grade coffee roasters who talk about and publicise their sourcing policies. Do not just assume that if the farm name is listed and the branding and packaging is fancy it has been purchased directly or responsibly.
· Avoid ‘single origin’ coffees that use a generic region or grade to market the coffee – for example; Ethiopia Yirgacheffe, Brazil Santos, Colombia Supremo, Kenya AA, Guatemala SHB, Sumatra Aceh etc. It is highly likely that these beans have been purchased using the global price set by the C market.
· Move away from brands that only use terms such as ‘gourmet blend’ on their packaging, if they only list the origins used and not the farms – this coffee has likely been bought on the C market.
· Get used to the idea that you should be paying a minimum of £5/250g for a bag of coffee, no matter how tempting those offers are in the supermarket…
· Tell your friends and family about this blog post!
We would love to hear from you with any questions or comments, if you love your coffee it is vital we love and look after the families growing it – we hope you agree.