Transaction Guide

For many years commercial coffee has been traded on something called the “c market”. This commodity coffee is often sealed by a paper transaction between traders to offset risk of under or over supply. This market is often driven by what happens in Brazil (there’s a saying that if Brazil sneezes the coffee world catches a cold) and earlier this year there was some frost damage in Brazil that saw that “c market” price jump overnight. As soon as this was assessed and it was clear that not too much damage was done it then dropped again to its current low level. 

Brazil supplies around 33% of the world’s coffee providing somewhere between 45 and 70 million bags depending on the yield from a harvest. Over the past two harvests Brazil has exceeded its expected outturn of harvests which has forced the already volatile and low “C” price down. 

Because of the huge automation (mainly due to the commodity market) in Brazil, the cost of coffee production is kept low. Big scale farms often exceed other entire countries production, with tractors that strip pick flat, easy to harvest farms with very little human interaction, meaning that coffee can still be profitable even during low C Prices. 

But take a look at somewhere like Ethiopia that’s at the other end of the spectrum. They have little to no automation, with small-holders picking their own harvest themselves on hilly terrain, with lots of hands between picking the coffee and roasting it. 

The current market price is below most coffee producers’ cost of production and has been for a number of years. 

Some people will say that this has nothing to do with specialty coffee as “specialty roasters like us pay more than the C price”. Whilst this is often true, every farm will produce some commodity grade coffee sold at the C Price, and this will have an impact on their overall profitability, even if they are primarily selling to specialty coffee buyers. More importantly, many specialty roasters connect their contracted prices to the C-market as a reference point, ie C-price +80c, which means that when the c-price goes down, so do the prices being paid in these contracts.

What we see here is the consuming countries holding all the cards whilst producing countries have little to no control. Coming from a country that has a colonial past, I can’t help but see similarities in this unfair and unjust time. 

So what can be done? 

The SCA (Speciality Coffee Association) has created a task force to investigate how we can help producers to become empowered and there are some great resources here which show their findings:

This is definitely a step in the right direction, but as an individual roaster, I began to think about how we could do more. Researchers at the university of Emory in the United States have begun collecting data from Roasters like us, as well as coffee importers, to gather and collate information around our annual green coffee transactions. 

Data donors provide detailed contract data covering their specialty coffee transactions from recent harvests. The researchers then use this data in an anonymised format to create annual Transaction Guides that report on the distributions of recent free on board prices for green specialty coffees.

What this does is provide another source of information, separate from the “c-market” price, to coffee producers so they can see what the market is willing to pay for coffee from their country’s coffee, and allow them to approach negotiations with more information. Knowledge is power. 

This also puts pressure on importers and roasters to pay more for the coffee they are buying by providing a clear benchmark other than the C price, encouraging them to pay more, and stay in line with their competitors. Eventually documented prices from this data could be used as the reference point rather than the C-market, removing a number of the risks to producers from the vagaries of markets.

The data covers contracts totalling 287 million lbs of shipped coffee. It includes average pricing as well as clarity on price variation based on factors such as cup scores and purchase volume. We’re super proud that the newly revised version contains all the numbers from our direct purchases over the last two years, as well as the broader data from partners we’ve worked with for years such as Caravela, Cafe imports, Mercanta, Nordic Approach and more. 

This is just one part of a solution to a huge problem, a baby step, a start. It’s a tool that can be used by roasters and coffee producers alike, as a check and balance and as a platform to do more. I’m incredibly proud to be part of this project and see where it leads.

You can view the transaction guide here.