Introducing Return To Origin: A Step Towards a More Transparent Future

 

WHAT IS GREEN COFFEE FOB PRICE AND HOW IS IT CALCULATED?

We have chosen FOB (“Free on Board”) pricing for two main reasons:

1. FOB pricing is the international standard of coffee pricing and is universally used in the commodity market (International Coffee Exchange).

2. FOB pricing represents the producer as well as the entire supply chain before roasting.

It should be noted that many different parties are included in FOB price, not only the farmer/producer. How FOB price is split between those parties varies greatly depending on how the FOB price came to be. All parties need to contribute accurate numbers in order to have a traceable, transparent FOB price. Some key areas that are included in FOB price are:

1. Import Costs (~$0.35/lb)

2. Export Costs (~$0.25/lb)

3. Transportation Costs (~$0.05/lb)

4. Dry milling and green coffee cleaning/preparation (~$0.10/lb)

5. Green Coffee Cost paid to producer (varies)

In today’s world of coffee, there are essentially two ways to “create” an FOB price for coffee:

1. Directly. Each service or product is negotiated directly with each individual party involved.

2. Through an exporter or importer. Export and import logistics can be handled by the same company. The exporter or importer can also be the producer or grower. This is a rare occurrence, however it is becoming more common in individual countries where regulations allow it. In most cases the exporter, importer, and producer are separate entities.

Historically, coffee is purchased or traded through an exporter or importer. The selling entity creates either a fixed FOB price or an FOB price based on a differential. This is represented as a number relative to the current C-Market price. For example, a current coffee may have a differential price of +240 or $2.40 per pound over current C-Market price.

Option two has typically left the grower and producer with the short end of the stick since it is not required for an exporter or importer to be transparent in their pricing. In the contemporary specialty coffee trading world, many exporters and importers are willing to share their fees, their relationship, and all information about the producer they may have with the buyer. With this in mind, just because a coffee is purchased from an importer/exporter does not make that particular transaction any more or less valid in the world of transparency, traceability, or sustainability so long as this information is shared and accurate.

It is also worth mentioning that direct negotiations, no matter how good their intentions, have also led to some growers and producers coming out on the bottom. It is the same with any transaction, coffee or otherwise. There are always misunderstandings and different expectations from all parties involved, and when these things happen, it is typically the less fortunate of the parties involved who are left high and dry.

Temple-Coffee-Cupping-Origin-RTO

WHAT IS TEMPLE’S CUPPING SCORE?

The cupping score is a number that has been assigned to the coffee during the purchasing process according to Specialty Coffee Association of America (SCAA) standards. The process and scoring system is standardized world-wide for grading coffees. Specialty grade coffee (the highest grade) is allowed points from 80-100. Below 80 is not considered specialty grade coffee.

It is important to note that true specialty grade coffee represents less than 1% of the coffee produced world-wide. In other words, even an 80 point coffee is exceptional coffee when compared to the vast majority of coffee produced.

Lastly, one should always keep in mind that we are scoring the coffees in order to make informed, consistent purchasing decisions. The cupping score and protocol are such to ensure blind evaluation of general attributes, and should not be used to say that one will like a certain coffee more than another.

A cupping score is meant to be an unbiased evaluation of the grade of the coffee, not actually rate the coffee.

HOW ARE THE LISTED C-MARKET & FAIR-TRADE ORGANIC (FTO) FOB CONVERTED TO RTO%?

Coffee is the world’s most traded commodity in terms of volume of transactions. The Arabica C-Market price listed is taken from the International Coffee Exchange (ICE), essentially a stock market exchange for coffee, at the time of purchase and is how the majority of the world’s coffee is purchased.

The FTO prices listed assume that the coffee was certified FairTrade Organic. In most cases, the coffees listed in our RTO report are not FTO certified. Pricing for FTO is based on what the organization has set:

1. FairTrade minimum price is $1.40/lb for washed Arabica, $1.35/lb for unwashed (naturally processed) Arabica, or the C-Market price, whichever is greater.
2. Organic premium is a minimum of $0.30/lb
3. FairTrade Premium is $0.20/lb

On our report, the Fair Trade Organic (FTO) FOB price is calculated by adding sections above together: 1+2+3 = FTO FOB/lb

After calculating the green coffee FOB price, we can then use the same RTO formula to determine the percentage of the purchase price is returned to origin and compare with the percentages returned by Temple.

Click here to view Temple Coffee RTO Report.

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