April 11, 2022, Jos Algra
Since 2018, the Specialty Coffee Transaction Guide has been published every year, under the coordination of researchers from Emory University in the United States. It started with 21 producers, cooperatives, exporters, importers and roasters, reporting for the 2016/17 and 2017/18 harvests, 5–6 thousand contracts with more than 70 million pounds (550 thousand bags of 60 kg), 170 million dollars and an average price of 2.34 per season, when the New York price averaged 1.29 USD/lb.
Three years later, the number of donors has grown to more than 100, who have reported for the last 3 cycles an average of 19 thousand contracts, 395 million pounds (2.9 million bags) and a value of almost 800 million dollars per harvest.
It represents less than 2% of world production, 7% of the Washed Arabica output and there are many specialty coffee buyers missing, including several multinationals, but it is very useful as a reference for those who operate in the specialty coffee market when they are negotiating the price. The initiators of this initiative hope in this way to contribute to greater equity and economic sustainability in the supply chain of differentiated coffees. We saw in the blog of March 28 (The waves — Part 3) that there is a lot of inequality in the negotiation of the price and the distribution of the added value of specialty coffees.
Apart from the 4 annual reports, 2 special reports have been published: One on the relationship between the price for specialty coffees and the certification of Fairtrade and organic certified coffee — published in August 2020 — and another on the impact of COVID-19 on training of the price of specialty coffees — published in March 2021.
Prices are at FOB origin level in dollars, the impact of fluctuations in the exchange rate on the price to the producer are not considered. The harvest goes from October to September. All coffees are washed Arabica.
Coffee price and cup quality
One of the most interesting information in the guide is the relationship between quality and price. For this, the cup score is graded in 6 categories, ranging from cup 80–82 to 88 and better, plus a group with no cup score. By cup category, the median price (the value in the middle of the 2 extremes) and the range are determined, eliminating the 25% of the lowest prices and the 25% of the highest prices.
The first table presents a summary of the average prices by cup score range during the 5 cycles covered by the reports (the reports themselves present data of the last 3 seasons). Most of the contracts are at a fixed price, but we also calculate what quality differential results when compared to the average price on the New York futures market, which ranged from 1.01 to 1.42 USD/lb, with an average of 1.23 USD/lb in the 5 years.
To be economically sustainable for a grower, let’s say you need a price of at least USD 2/lb or a quality differential of +50 or better. Values that met those criteria were marked with dark green, those that came close with light green. The starting point is that the quality of all coffees can be improved, from the selection of varieties, growing techniques and post-harvest handling, to obtain a better price with a higher cup score.
It is clear how the price rises according to the cup quality, from a median price of 1.57 for cup 80–82, up to 5.11 USD/lb for cup 88 or better, with a minimum of 1.34 to a maximum of 8.16 USD/lb. The median differential increases from +34 to +388.
The table also shows that there is a wide range between the lower and higher prices and that even with a cup of 80–82 you can get close to the goals of 2 USD/lb or +50. A better cup on itself does not guarantee the best price, the higher end prices for a cupping score are above the lower end prices for coffee with a better cup.
This means that quality is important, but not enough to get the best price. You also have to know how to sell — marketing, relationships with buyers, traceability and other factors are important to achieve a price that allows economic sustainability. This aspect is not highlighted in the guide. The cup score seems to be a more objective criterion, although defining quality is also somewhat arbitrary as we saw in the March 28 blog. A rating of the relationship between producer / seller and buyer could be included in the data or a separate survey could be undertaken.
Coffee price and microlots
The guide also presents data on the relation between the lot size of a contract and the price. As with the cup quality score, a summary table over the last 5 seasons was made of prices by volume range, ranging from 40,000 pounds (a full container load) to less than 1,000 pounds, with the averages summarized in the table, and applying the same economic sustainability criteria.
It is observed that the smaller the lot size, the better the price. The median price rises from USD 1.82 for a full container to USD 4.06/lb for lots of a thousand pounds or less, with a low of USD 1.45 to a high of USD 5.83/lb on average over the 5 seasons. The median differential increases from +61 to +285.
Crossing the cup score with the lot size, based on the data of the last 3 harvests, it is observed that lots of 40 thousand pounds or more, with cup score 82–84, fetch a price close to the target, with an average of 1.89 USD/lb, but a 84 cup or better is needed to top it (USD 2.20/lb for a 84–85 cup).
Most contracts are for lots of less than a full container. The cost of producing, processing, selecting, marketing and exporting high-quality microlots is high and requires many years of investment. The result is uncertain, the weather conditions can be adverse and, most importantly, it is above all the buyer who decides if he meets the quality and how much to pay. He can reject the coffee or buy it one year and the following year prefer another supplier.
Studies have shown that many producers end up frustrated if their coffee is rejected, after they have made many efforts to produce the best quality coffee*. A programme to produce high-quality microlots can be an incentive to improve the quality of coffee in general and result in better prices for all, but it can also divide the organisation between producers who have the conditions to produce very high-quality coffee and those who do not.
For medium and large organizations with microlot of this type of coffee, they generally represent a small percentage of the coffee that they process and market. Setting aside the best qualities for microlots can be detrimental to the consistency of the quality of the rest of the coffee.
*See for example Michael Sheridan of Catholic Relief Services about a project to produce microlots in Cenfrocafé, Peru: The social impact of microlots. A Counter Culture Coffee case study. April 2012.
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