First published November 2019
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 the risk of under or over supply. The market is largely driven by what happens in Brazil – there's a saying that if Brazil sneezes, the coffee world catches a cold – and at the time of writing, frost damage in Brazil had seen the C market price jump overnight, before dropping back as the situation became clearer.
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 two harvests prior to publication, Brazil had exceeded its expected outturn, which pushed the already volatile C price further down.
Because of the scale of automation in Brazil – driven largely by the commodity market – the cost of production stays low. Big farms often outproduce entire countries, with machinery strip-picking flat terrain with very little human involvement. Coffee can still be profitable there, even at low C prices.
Somewhere like Ethiopia sits at the other end of the spectrum. Little to no automation, smallholders picking their own harvest on hilly terrain, with lots of hands involved between picking and roasting.
At the time of writing, the C market price was below most coffee producers' cost of production – and had been for a number of years.
Some people will say this has nothing to do with specialty coffee, since specialty roasters pay above the C price. Whilst that's often true, every farm will produce some commodity-grade coffee sold at the C price, which has a real impact on overall profitability – even for farms primarily selling to specialty buyers. More importantly, many specialty roasters tie their contracted prices to the C market as a reference point (C price + 80c, for example), which means when the C price falls, so do the prices paid in those contracts.
What we see here is consuming countries holding all the cards whilst producing countries have little to no control. Coming from a country with a colonial past, it's hard not to see uncomfortable parallels.
So what can be done?
The SCA (Specialty Coffee Association) put together a task force to investigate how producers can be better empowered. You can read their findings on the SCA website.
That's a meaningful step, but as an individual roaster, we wanted to think about what more we could do. Researchers at Emory University in the United States began collecting data from roasters and importers, gathering information about annual green coffee transactions.
Data donors provide detailed contract data from recent harvests. The researchers anonymise it and use it to produce annual Transaction Guides – reports on the distribution of recent free-on-board prices for green specialty coffees.
This gives producers another source of information, separate from the C market, so they can see what buyers are actually willing to pay for coffee from their country and approach negotiations with more to go on. Knowledge is power.
It also puts pressure on importers and roasters to pay fairly, by providing a clear benchmark that isn't the C price. Eventually, documented prices from this data could replace the C market as the reference point altogether – removing a number of the risks producers currently face from market volatility.
The dataset covers contracts totalling 287 million lbs of shipped coffee, including average pricing and clarity on price variation based on factors like cup scores and purchase volume. We're proud that the version current at time of publication included all the numbers from our direct purchases over the previous two years, alongside data from partners we'd worked with for years – 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. A tool that roasters and producers alike can use as a check and balance – and as a platform to do more.