Last article we covered my views on opportunities working with taste and processing that developing a clear understanding of the full coffee market can afford you. This time, I want to look at price and the role that plays both good and bad and tie things up with sustainability. It’s easy to overlook the economic and social pillars of sustainability in favour of the purely environmental, but the combination of all three (though some models use Human as a fourth pillar separate to Social) is what gives us a lasting, rewarding result.
Commercial coffee can be cheap. Perhaps this is because of economies of scale. Perhaps there is an oppressive power dynamic. Perhaps the taste is less complex, the defect count is higher, or the ability to stick a pin in the map showing where the source actually is does not exist. Sometimes, movements in exchange rates create opportunities in the market (you can see examples on that here) and other times people are clearing out aged or reclaimed stock.
The causes for cheapness are many and can be complicated. So it’s good to be clear with your understanding of the issues and your reasoning for benefiting. But here’s the kicker; some people do not care. Some people cannot afford to care.
It’s hard to hear on a subject we care so much about, but much like the fight against processed food often demonises those who can’t afford to buy organic, locally grown produce, discrediting the commodity market denies access to many of those that prefer to concentrate their budgets elsewhere.
Consumers’ demands are driven by different behaviours. Those who are looking for the caffeine kick, instant ease, or a dark roast rebellion rather than a gentle tea-like experience are all looking for coffee for their particular needs, and all of these coffees have a place in the market.
Many a roastery over the years has funded its speciality offering against a more bankable commercial offering with a completely different piece of branding and marketing. Having a workhorse coffee that brings in the volume often allows the smaller lots to make more sense. You can use it as a lead to bring people into the world of other coffees, or you can use it as an option for when a business is looking to exit the speciality world. You can use it to provide an option where choices are limited. Volume allows for bulk discounts on packaging and sweats the assets of your business.
Importantly for the farmer, it’s additional earnings. Viewed as an economic activity, you can understand why selling the main part of the crop is more important than a niche part of it. If you can elevate that to command more money, then great. But wherever it stands, it all needs to be sold.
Often producing more than just coffee, farms can use other crops to generate income diversity. Should one crop suffer, revenue stream is protected to a degree. Labour resources can be deployed throughout the year helping to reduce demands on any seasonal harvesting demands. This has an impact too on health of the community in employing residents and providing activity to slow generational migration as well as stem the boom bust cycle of migrant workers only populating an area during the harvest cycle.
If coffee is not your main crop but forms an important part of your diversified offering, then it may not be top of your priorities. Perhaps you care more about the food you are growing rather than the coffee. The focus can then turn to being able to produce in the most economical way, rather than gambling your earnings on producing an 88-point microlot.
Every coffee has a home and brings in an income to maintain one too. If selling the basics allows the next set of bills to be paid, then that’s not a bad thing.
With the rise in the UK of supermarkets like Aldi and Lidl, shops like TKMaxx, B&M, or Poundstretcher over the last 20+ years, there is not only a viable market (predicted to reach 32.5bn in 2022) but a growing demand out there for those that are looking to compete and put the work in. Particularly now where we are facing a huge consumer spending squeeze, this market has never been more vital. You could argue that the commodity market when it comes to it, is just the coffee world equivalent of discount shopping.
The increase in demands on household budgets does not diminish the want for coffee, be that wholebean, ground, or instant, but does decrease the amount of money available for it. If you are facing an increase in travel for work, mortgage payments, and your weekly grocery bill, then being able to find a solution to manage the final price of your coffee is a huge benefit. If you are able to do it better than your nearest rival, so much the better.
We as roasters often segment our customers amongst the price-sensitive or the flavour curious ones, the rare varietal hunters or the comfort lovers of a good house blend and rely on that mix to make a healthy business. Yet the farms are mirroring these needs, providing options right there for us if we cared to look.
Pricing swings however will have a far larger impact on this market, so should be carefully planned for. A good cross-product pricing strategy here is vital. If you are solely dependent on an incredibly tight margin and the prices suddenly shoot up, you may find yourself in trouble, especially if you have locked in your customer on a long-term contract without provision for price rises, but have failed to secure the stock on a forward contract to match.
Understanding the practices and implications of buying forward effectively, or even hedging your position if you are able are all tactics that will help manage the swings a little more. So can timing the delivery of your coffee from origin, helping to reduce warehousing costs. But if we are saying there is real value in taste, quality and pricing to be had, surely that must come at the cost of sustainability?
Sustainability is often associated with the impact on the planet. That’s true, but full sustainability takes into account not only the effect on the planet, but also the community and the financial side too. All legs need to be supportive in order to deliver true sustainability as we understand it.
Looking through the many facets encompassed across processing taste and pricing shows a number of ways we can approach the sustainability of commercial coffee. Returning to the original analogy of the arm, hand and fingers, the truly sustainable approach is one that allows each part to function and provide connection to another.
The environment does not have to be sacrificed in order to provide commodity coffee. Lower grade coffee is produced by farms with the highest environmental standards and is as much a part of life as anything.
Lallemand, in their talk about yeast in our Full Circle event back in 2019 spoke to utilizing the right yeasts and an understanding of fermentation to improve the processing times for those farms that were more diversified. Improving the score of those coffees, and the price that they commanded, reduces pressures on the land. Speeding up the time and reducing resources, also means the coffee is cheaper to produce.
Worm composting projects, used to recycle the waste coffee cherry into fertilizer, are used to fertilize trees that produce all grades of coffee. In fact, if they reduce the cost needed to fertilize a farm then there is a stronger monetary pressure to work in step with nature rather than to try to force it. Perhaps given the situation currently between Russia and Ukraine there is even more benefit to doing this, particularly given that the ICO stated in 2005 that a fifth of the nutrient content taken form the soil is contained within it.
That same paper (as pdf here) suggests more uses for by-products of processing and low grade coffee, with more recent studies quoting a 45%-50% wastage (utilising the full chain at higher figures, pulp alone is closer to 30%) and proffering a multitude of technical innovations that can be applied to extract value. Viewing coffee then as a commodity causes these wastages to become unacceptable in a way that any streamlined production analysis does, throwing into clear contrast the need to do something about all stages rather than just looking at the premiumization of one element.
Plastic too is present in coffee. It was a bold move (in my opinion) by one UK roastery to drop the use of grain pro as a way of reducing plastic consumption overall. A challenge to maintain freshness and quality without it for sure, but is this a suggestion that the unlined jute bag so associated with commodity still has a place? The awkwardness in recycling them aside and the simple reduction in use of plastic is for sure going to appeal to a set of consumers that are ecologically minded.
And what of the social side? Let’s consider the rise of direct trade. Many of the larger companies of this world that are is easier to scapegoat have long held direct relationships. We see this when we visit farms and cooperatives. The intimacy of a relationship is not the defining indicator to the behaviour in or health of that relationship, but better defined by the work that goes into it from both sides. Bigger companies’ reach affords them the luxury of having a dedicated green buyer or trader as part of their staff, so is (super)market dominance the ultimate goal of smaller direct trade proponents?
It’s all too easy to pull a lone farmer out of their support network with lucrative promises only for them to be dropped a year or two later as the next trend comes along or they have a difficult year with the harvest. Buying through a cooperative may been seen as a step towards agglomeration perhaps, but it allows the individual members the freedom to have bad years whilst being supported by fellow members, or to support fellow members in need.
One of our 121 projects in Peru is a great example of how this provides a vital link. We had identified an opportunity with the cooperative (Sol&Café) to link unique farmers with individual roasters, as we do in Honduras and Colombia. However, the breaking down of the co-operative lot we would normally buy (we continue to buy premium and larger commodity lots form the cooperatives in parallel with 121) led to a collapse in quality of those coffees, as well as delays in shipping. We tried to work through these with both sides until the cooperative asked us if they could stop.
The milling facilities were not set up for microlot processing, so their lots were continually bumped for the more commercial, larger lots. The clean down and reduction in capacity of the mill this caused was disruptive. It incurred extra costs. The farmers were unhappy with the lower quality we were receiving and so asked if we could revert to the larger lots instead. We did. It still sits within our line-up, but as an oft requested premium commercial offering rather than outright speciality.
One approach I have come to really appreciate is the value of buying many grades from the same farm. Why not buy the blend and speciality element from the same farm? This gives maximum value back to the farm of your choice, but also allows you maximum marketing value by having the same source for multiple offerings. Producers split their crops between the top offerings from the farm and the commercial too, so switching your commercial business to a farm you already buy from can mean a lot to them.
The Takeaway for Commercial Coffee
Paying the right amount for the right coffee becomes easier to do with a clear understanding of where the market is for you and exactly what you need to fulfil that demand. One of the benefits of working with an importer (like us!) is that if you don’t have the ability to utilize the full length of the chain, we do.
Failure to utilize the entire output of the tree, can be seen as wasteful, extravagant, and unfair. In order to do so though, the onus is on us to understand the nature of everything it produces and use that as best we can. The ‘us’ may be as individual roasters, or as an industry that we play a part in, and the use may not be immediately obvious, but in order to be truly sustainable we need to understand the real value of coffee.
Specialization and diversification are both required to create a healthy balance, and the tension between the two is also healthy. Luxuries are there to take advantage of but need to be understood as an advantage we are taking. Once they become mainstream, they cease, too, to be a luxury, and run the risk of stagnating.
Refreshing our look at the industry and understanding all elements of it from the behavioural drivers behind our customers’ purchases to those same behavioural drivers behind the producer’s coffee we are buying, and indeed our own political viewpoints, is what will ultimately allow us to find the real value in commercial coffee.