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C is for Commodity, Crisis, and Cost – 25 Magazine: Issue 7

The SCA’s FARMER PROFITABILITY AND PROSPERITY WORKING GROUP, led here in writing by CHAD TREWICK, examines the possible impact persistently low coffee commodity market pricing will have on the specialty coffee supply chain in Issue 07 of 25 Magazine.

Every item in that daily basket has increased in costs (including roasted/ground coffee) while the value of green coffee has stayed flat, or reduced steadily, for the past 40 years. Globally, we do not yet face the supply shortages we know are forthcoming – we have a global surplus of coffee for the foreseeable future, just not the “good stuff” – and this keeps the commodity price for coffee unrealistically low. Coffee, each day, becomes less significant financially to those who grow it, creating a global crisis and generating outcry from coffee-producing countries; meanwhile, we have a booming coffee industry seemingly unaffected. But buyers and consumers will not escape unscathed: the more we learn about the earning disparities in our value chain, the more we have cause for concerns about the industry’s future.

Last year, the SCA’s Sustainability and Research Centers released a report synthesizing the findings of several scholarly studies related to economic profitability and optimization in the supply chain. Among the most compelling components of the synthesis was a concept that articulated how to consider the equivalent daily wage (EDW) that can be expected to be generated from coffee in comparison to other activities – what coffee can be relied upon to generate in the way of income reveals just how uncompetitive coffee is as a livelihood-supporting activity. This, among other key concepts of the report, should be cause for concern in our specialty coffee community.

For at least the last year (many say longer), the commodity price for coffee has hovered at levels well below those noted by the report to be the optimal costs to produce coffee. In August 2018, the commodity price for coffee fell below US$1 per pound for the first time in 12 years and has sustained low levels since, even reaching 13 year lows at the time of writing. Many market technical experts are saying we may see lower levels still.

Something Missing

The Farmer Profitability and Prosperity working group – led by volunteers and supported by the SCA’s Sustainability Center – has continued to gather steam and galvanize our resolve to engage with our coffee community on this issue of our industry’s raw material being critically undervalued by the commodities market, broadly used as a basis value for coffees. Yes, even in the specialty industry, differentiated and quality elevating coffees – expected to achieve the characteristics in the cup that we have promised to consumers – are too often traded against the commodities market. And here is the alarming news: if as an industry we encourage connoisseurship and appreciation of coffees that may be in short supply soon, it is hard to imagine what will be left.

The impacts of the market undervaluing coffee produced to high-quality standards are dire, even for consumers. It leads to the demise of not only the industry’s supply chain, but the people in it. It will have detrimental effects on how coffee will taste, likely making a noticeable impact within our lifetime: just five countries already supply about 75 percent of the world’s coffee, drastically reducing the diversity of our supply.

The coffee farmers among us know first-hand the desperate situation inflicted by the low values placed on green coffee by the market. Coffee farms are in dramatic need of capturing more value from the coffees they produce, access to premium markets, or diversifying income sources to rely less on coffee. In some cases, they may even need to reduce farm sizes and pare down the investment that can be made.

The retail market for coffee is not a sentient being, no matter how much we are told that “the market cares,” i.e. that enough consumers will pay more for ethically traded coffee so as to make a continued positive impact on producer livelihoods. A market cannot “care.” A market responds to the laws of supply and demand: it does not and will not react to the crises in our supply chain with evolved purchasing behaviors that prioritize transparency to ensure farmers are adequately remunerated. Coffee’s low value negatively impacts family livelihood and its food security, leading NGOs and governments to intervene with different support methods. Coffee producers try endlessly to articulate farmers’ challenges with numbers in ways that will be felt, understood, and acted upon by the market, not just heard – and resented – as producer outcry.

As a trade association, SCA encourages our work urgently because the unchecked and free-market-driven loss of so much of our supply chain jeopardizes our industry’s ability to elevate the consumption of high-quality coffee. Specialty coffee, while representing an estimated 50 percent of the global value of coffee traded, is not the majority of coffee being produced in the world – just 20 percent of coffee globally trades as specialty. The remaining 80 percent, commercially traded coffees, provide the volumes leveraged for efficient supply chains.[1] In countries where it is not possible to survive the low market value of coffee without producing it as efficiently or cheaply as necessary (e.g. due to natural topography), coffee production will fall away, forcing us to consolidate our supply chain further: it is unclear how many farmers will stay in coffee. Even in countries where quality is prized and revered, we cannot say how much coffee will remain available as volume decreases weaken the processing, transit, and exporting infrastructures of the producing sector over time.

Our cry is this: coffee, a product widely enjoyed globally (and some even say depended on!), should not have a supply chain in peril. It is increasingly recognized, and has been recently reported in Hivos Coffee Barometer, that only 10 percent (US$20 billion coffee exports) of the coffee market’s massive value (US$200 billion annually) stays in countries where it is produced. The rest – a whopping US$180 billion – goes to companies selling roasted coffee to consumers or other value-chain actors. It bears mentioning that according to the report, just barely 0.2 percent – US$40 million – of this massive global coffee market value is invested in sustainability programming to strengthen supply chains.

It is time for industry stakeholders to step up and pay attention to the crises that threaten our coffee-producing partners one after the other – we are all going to need to work together to find a more balanced distribution of the value generated by our great industry. If not, this commodity industry will face a real crisis; the cost will be sipping less coffee. ◊

The Farmer Profitability and Prosperity working group members are: AMANDA EASTWOOD, ASHLEY PRENTICE, ALEX KELLER, JANICE NADWORNY, JUAN LUIS BARRIOS, RONDA MELENDEZ, VERA ESPINDOLA RAFAEL, and CHAD TREWICK, the founder of Reciprocafé, LLC, Chair of the SCA’s Sustainability Advisory Council, and lead author of this feature.

[1] As the vast majority of specialty sales occur with a fully value added product, i.e. the bulk of sales are of coffee beverages, it contributes on an outsize basis to the global value of coffee traded. According to the ICO, less than 20 percent of green coffee is traded as differentiated or certified coffee. Within larger consumer markets like the US, however, the NCA/SCA economic impact study shows that specialty coffee beverages, in particular those sold in coffee shops, accounts for over 50 percent of coffee drinking occasions. The total retail value of coffee in the US is roughly US$75 billion, with approximately US$35–40 billion coming from specialty coffee. These numbers can reasonably be extended to Western Europe, Japan, and Korea; when placed in context against the total world market for coffee at retail (US$240 billion; ICO), it accounts for 50 percent of the global value of coffee traded at retail.

What Can I Do?

The Farmer Profitability and Prosperity working group, made up of passionate and informed participants across the value chain, has developed a series of webinars that aim to raise awareness among industry stakeholders (primarily on the consuming side, i.e. not producers and other actors at origin) about the economic hardship low market values have inflicted on our supply chain and the risks these hardships impose on our industry.

The series of webinars, exploring industry reaction and innovation resulting from the crisis we face together, began earlier this year with an inaugural webinar that was so broadly attended, we ran short of capacity – many who signed up could not be accommodated. All webinars from this series will be recorded and made available for online viewing at scanews.coffee.

In addition to the webinar series, the working group is developing content that will be available to present at various industry events – both within and beyond those hosted by the SCA. The stakeholders feeling the most effects of the current situation are in countries where coffee is produced, but this crisis is industry-wide. It requires collaboration from all of us within our sector.

Are you an SCA Member? Claim your complimentary subscription to the print version of 25 Magazine in English at sca.coffee/signmeup.

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The post C is for Commodity, Crisis, and Cost – 25 Magazine: Issue 7 appeared first on Specialty Coffee Association News.

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