By Jeremiah Frazier, Wholesale Account Manager
Before we jump down this rabbit hole, let’s talk about some SHB (Strictly Hard Bean)/Specialty Grade coffee. The production of Arabica Coffee is the staple for the specialty market. Back in the day, the specialty market was defined as any coffee grown above 2500 feet and absent of defects. Nowadays, it’s defined as any coffee that scores above 80 points on a SCA (Specialty Coffee Association) cupping sheet.i
The two terms used most often in this write-up will include C-Market and Specialty Coffee.
- C-Market: commodity trading where coffee, cocoa, and sugar are traded at a price determined by projected supply and demand, influenced only by larger producing nations (Brazil, Vietnam, Colombia). If anyone of these nations experiences a shortage in projections, the C-Market will spike. If any have an overage, the C- Market will tank.ii
- Specialty Coffee: the value of coffee is determined by the quality and negotiated with a fixed price.
The specialty market represents 2% of all the coffee grown. The USA has seen a 20% increase in consumption in the last 25 years. Arabica production worldwide has been static since the early ’80s.iii Climate change is forcing producers to seek out new commodities to export. These producers are participating primarily in the C-market. As prices diminish, all producers are left burdening the cost of a low consumer threshold.
The C-Market has been dismal this last year with prices dropping as low as $0.98 before the cost of logistics (also called “at gate” or “farm gate” pricing). The issue with this pricing structure is the complete lack of economic sustainability. If it costs between $1.25 to $1.50 to produce a pound of coffee, and FOB (Free Off Boat) pricing is +/- $1.25, it’s possible for the producer to be harvesting at a loss. This can lead to:
- No money to pay “pickers” to harvest.
- No security for the next crop, at a loss most producers will not be able to purchase fertilizers, nursery operations, pruning services, and unable to afford to combat leaf rust in the next planting cycle.
- Producers being forced to start looking at “other” exports: bananas, eucalyptus, avocados, corn, etc.
- Next generation farmers (children of coffee producers) being forced to seek other employment, and leaving the family business to pursue more sustainable and lucrative careers.
- Bankruptcy for the farm, resulting in the consolidation of many small independent farms. Most producers will not be able to market their farm for sale, facing foreclosure or abandonment of their farms.iv
So, how will this affect the Specialty Market? I spoke to several Specialty Brokers and Direct Trade Buyers (who wish to remain anonymous) about the short and long-term effects, and most suggested this scenario would not affect direct trade or specialty markets. Such opinions, however, are merely short-term conclusions.
For roasters and brokers, the reality of buying Specialty Coffee involves buying containers full of product with pricing negotiated at harvest based on multiple tiers of quality (with multi-tiered contracts being the norm nowadays), and with volume incentives worked into future sales. Currently, there does not seem to be much concern for the long term. Most are hoping for the C-Market to stabilize, with potential issues fixing themselves with time. This idea, however, is also unsustainable, and I believe it can foster further unsustainable practices in agriculture and trade.
According to SCA spokesman Ric Rhinehart, Specialty Coffee consumption will surpass specialty production by the year 2032, causing C-Market producers to have to support the Specialty Market. These same projections are crippling by 2050, by which time coffee at all levels will be consumed only by those who have the financial means to do so. Drinking a cup of coffee will no longer be a daily habit for all to enjoy; rather, it will be a memory of what used to be.
There is a considerable amount of data that backs this gloomy scenario.v Annual projections for agriculture compared to annual consumption meet between 2020 and 2028. At 1.5% consumption growth with no increase in specialty producers, we can expect to see dramatic changes to our trade by no later than 2030. That’s the very short story for our current situation.
So, what can we do? Stay tuned for Part Two.
Other Sources Include:
- https://www.perfectdailygrind.com/2018/09/a-broken-coffee-market-why-specialty-farmers-are-going- bankrupt/