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Transparency and coffee prices


Yesterday I got a link sent to me by a good friend and coffee enthusiast in San Francisco. The link is to an Internet forum called Home Barista that is basically a discussion forum for coffee enthusiasts from around the world. I was a bit surprised to read this post on a forum created by and for coffee lovers, so I felt I had to reply in order to educate our customers and also to try to explain that not all coffee companies are the same.

Transparency

A lot of high quality driven roasters, including ourselves, preach that transparency is the most important part of our trade, but rarely do we actually get to see the numbers in the coffee industry. Sustainable Harvest is one of the few companies that are trying to do something about this through their Relationship Information Tracking System.

Cup of Excellence is also a great example of where consumers can get full traceability of the coffee trade.

I have been trying to establish a traceability system of our own and also to develop a contract that shows what the farmer gets when we pay USD 3 pr. lb (453g) FOB for coffee. We do have the contracts in Kenya as this is cooperative coffees created by hundreds of farmers. For all the other coffees we have bought this year we feel we don’t need it as we are communicating directly with the farmers anyway. We are still far away from being 100% transparent but hopefully in the future we will be able to get a system for it that enables our customers to get all the info they need.

As a temporary solution I have started to systemize all the information about our coffee purchases from the end of last year, and to my surprise we are actually paying a higher average price for our coffee than I thought we were.

Coffee prices

For the past months we have read that the C market price for coffee is at it’s highest in over 10 years at about USD 1,6 pr. lb. (453 g) of green coffee.

Although this is not a very high price for coffee it is still very positive that it is going up, as the price has been way too low for the last 10 years, forcing a lot of producers to start growing other cash crops in order to survive.

As you all probably know, we do not trade coffee based on the C market price and we do not sign future contracts based upon today’s prices like most of the bigger roasteries do. We buy the coffee direct from exporters or farmers and negotiate the price based on taste and quality. We negotiate with the farmer and the exporter. Not with a broker. We also have gentlemen’s agreements with farmers that if they continue their work with quality, we will be there to support them by buying their coffees.

Cupping at Carmo Coffees

As promised, I will try to do an effort for transparency, so here are the prices in USD pr. lb that we have payed for our coffees FOB  (free on board) in 2010:

Panama, Hacienda la Esmeralda:______ 26,50 $ + packing

Honduras, Cielito Lindo 2010 COE:_____  8,10 + packing

El Salvador, Las Palmas 2010 COE:_____ 5,31 + packing

Honduras, Naciemento:______________  3,50

Honduras, Finca El Pantanal:___________3,00

Guatemala, Santa Ana:_______________ 3,50

Kenya, Mugaga:_____________________ 4,77

Kenya, Tekangu:____________________  5,23

Of course these lots are not the same size. The Esmeralda was only about 120kg for instance. So the average price per lb. so far this year is actually USD 5,06.

Adding to the cost

As you may know, this is just for the green coffee. We also need to  pay for the shipping and handling of the coffee before it gets to our roastery. Shipping cost can vary greatly depending on the origin of the coffee. The price of the coffee gets about 25 to 30 % higher for the coffee when we include these costs. On average this means the price for the coffee when it has arrived to Norway is about USD 6,58 pr.lb.

We also need to cover our travel expenses that we spend when we travel around the world to find these coffees and visit the producers.

So far this year I have been to Kenya and Honduras, and I am going to Brazil next week, to Colombia in October and visiting Kenya again in November. That adds up to 60 days of traveling and a cost around NOK 120.000,- or about USD 20.200,- only for 2010.

My accountant may think I am crazy spending so much on traveling, but I think it is totally necessary and a good investment for the future. We are building relationships with serious farmers and we are trying to secure a good supply of great coffees in the future. We want to develop long term relationships with the farmers, not have one night stands with them.

After the coffee has arrived to Norway we still need to roast it, so you have to add the  cost of production, rent needs to be payed as well as salaries, delivery truck, electricity, maintenance, etc, etc. Of course the cost of living is higher in Norway than in Colombia and therefore we need to add a bigger margin to the coffee than a farmer in a producing country needs in order to make a living. For example, a beer in Colombia is about 1 USD. In Norway a beer in a bar is about 10 USD.

Is coffee expensive?

Some people think our coffees are expensive, and I understand that they believe so, especially if they compare us to a coffee sold in a supermarket. But if you taste the difference and understand how much work and effort is behind these coffees, I still believe that our coffees are cheap. It all boils down to about NOK 5,- or about USD 0,9 pr. cup. Compare that to what you pay for a bottle of water here in Norway (USD 5) where we have plenty of super clean water free from the tap, I think there is no need to discuss whether coffee is expensive or not.

Why is some coffees worth more than others?

Because quality of the coffee varies. Not only from farm to farm but within the same farm we can sometimes find a huge range of different qualities and varietals.

Jobneel, Tim & Extreberto

Take Cielito Lindo and Naciemento for instance. These 2 farms are neighbouring farms run by father and son. They grow coffee from 1500 to 1800 masl. in 2 very different types of soil. They grow 5 different Arabica varietals (Pacas, Catuai, Catimor, Geisha and Bourbon) These trees produce (like all other fruit trees) both very mature coffee cherries and also unripe and cherries that fall to the ground and get mouldy and rotten. Of course this will produce coffee of different quality.

Next year we will be there during their harvest in order to help them separate the different varietals. We are going to taste the coffees blind and  score them according to the COE cupping form. We will pay more for the better tasting lots and less for the lots that get lower scores. Would we do this if there wasn’t a difference? I think not. So, why do we do this? Because we want to encourage the farmers (above: Jobneel and Extreberto) to grow more of the qualities we like so that we can get more of this coffee in future years.

Simple and easy.

Why pay more for coffee?

Well, I see it as an investment. The farmers are able to invest in necessary equipment in order to raise the quality and they are able to save a little money and make a decent living. If we treat them well today, they will treat us well tomorrow.

I  believe that we cannot continue to exploit the coffee producers. Sooner or later they will stop producing coffee and that is a scenario I would not like to see. So, if you love coffee and would like to continue to be able to appreciate its wonderful flavours and diversity, then choose quality coffee before cheap quantity coffee.

I also think all roasters need to practice transparency in a greater way. It is time we practice what we preach so that more people understand what we are all about.

Hopefully this post was of some help to clarify what we are doing and trying to do in the coffee world. I could go on and on writing about this, but instead I encourage you to leave comments in our comments section and I will make sure I reply as soon as I can.

Great philosophy

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27 Responses to “Transparency and coffee prices”

  1. Harrie Says:

    Excellent post! I hope more high quality roasters will follow suit with your example on transparency. Since I’m new in the coffee world I hope you don’t mind me asking 2 perhaps ignorant questions. If you are directly dealing with an exporter how can you guarantee that the farmer actually gets a better price?
    When negotiating with the farmer directly do you require the farmer to invest, the premium you pay for their coffee, in a certain way? Or is the farmer free to invest (part or all of) the premium in their own interest (which could be the same as your interest of course, higher more consistent quality, etc)

  2. Tim Wendelboe Says:

    Hello Harrie.
    Those are 2 very good questions.
    1. I have no guarantee. But I do skype and e-mail with the farmers. I also visit the farmers and talk with them, so if they didn’t get the money they would tell me. Finding good exporters is not very difficult these days due to a great network in the specialty coffee industry. If their reputation gets compromized by bad practices, they are out of business.

    2. I don’t tell the farmer how to use his money and he doesn’t tell me how to use mine. I do however encourage them to invest some in their production line and explain that if they invest in quality, I will buy coffee for a good price also in the future. Serious farmers are more than willing to do this. If they are not serious, we don’t want to proceed working with them long term.

    Hope this clarified a bit.

  3. Mike Says:

    I really enjoyed this clear and informative information about the not-so-simple issues surrounding the entire coffee chain. With many roasters sensing a consumer appetite in fairer trade practices, there is constanti messageing in this area. As was witnessed on that mentioned thread, consumer skepticism sometimes runs very high causing confrontational discussions. I much more enjoyed this very informative post. I think more consumers should spend more time trying to understand more before coming to judgements.

    One of the questions that I had was regarding coffee estates and large coffee growing enterprises (Daterra comes to mind) and large coops. I’ve heard consumer concerns over distribution of wealth. What level of transparency is possible and what are the realities? I am not too judgemental in this area as well, as we certainly have great disparities with enterprises that we interact with constantly in the developed world. You only have to think about a CEO at Nike, compared to a marketing person in the organzation, compared to someone in a plant offshore making the shoe.

  4. John Piquet Says:

    Tim,

    Probably the best piece of writing on the subject I have had the pleasure of reading. I can’t imagine that someone could read what you have written and still not get it, at least not entirely.

    For anyone who has read Tim’s entry and still doesn’t get it, read it again, s-l-o-w-l-y, I’m sure your tiny brain will soon understand.

  5. Mike Says:

    I apologize if my comments were interpreted as being ignorant or too questioning. I certainly respect the transparency that is being explained here. I understand the great efforts to encourage production of the highest quality coffees by forming direct relationships that are built on trust and mutual respect. I see that it is truly a relationship where both parties share the same goals, both in coffee as well as in their effects on the communities that they live in. I certainly admire this model, the efforts and the results that it is producing. My curiosity had more to do on other models that other roasters and coffee growers engage in within the speciality coffee industry. My knowledge as a consumer is quite limited in these areas, and I have found quite interesting the information that has been coming up on this hot topic. I certainly don’t mean any disrespect to some of the leaders in the coffee industry. I apologize if it came out that way.

  6. Tim Wendelboe Says:

    Thank you for the feedback John. I am glad you liked it!

  7. Tim Wendelboe Says:

    Hello Mike.
    No need to apologize. I think it is good that you are raising questions because it clearly shows us that we have a long way to go when it comes to communicating what we do and what quality trade and quality coffee is all about.
    I am also a person that is concerned about what bigger companies do and pay for their coffee. I am also concerned about transparency and how people are treated at the farms.

    A lot of small producers rely on labour from friends, family and neighbours. They are normally treated as good as possible, but due to the underpricing of commodity coffee this is very difficult for the farmers. I therefore think that Fair Trade Certifications still are playing an important role in improving the lives of the workers on the farm, but I also believe that if consumers start appreciating better quality, and buy more and pay better prices for better qualities the problems will be easier to resolve.
    UTZ is another organization that is focusing on price, quality and transparency and that are focusing more on bigger farms and cooperatives.

    So, keep on asking and don’t be afraid to step on toes. We are all adults and appreciate a fired up discussion from time to time.

  8. Anna Says:

    Thank you for sharing. This was an great article that should be required reading for all baristas around the world. Unfortunately it perhaps is too little knowledge and interest for these issues in large parts of the industry itself. It`s not lack of requests from costumers, usually about the prices, but the answers “we” give are often characterized by not understanding the importancy of spreading this knowledge along with the cups. Although I have a suspicion that the transparency issues are quite controversial in some parts of the world and/or industry, and maybe thats why it`s not being discussed too much?

    Doug Zell wrote an interesting blogarticle awhile ago that illustrated what the coffee industry can be able to achieve when it comes to all conditions we put our eyes on.
    I remember him discussing the question of «free refill», and What Is That? I know that your store doesen`t operate with refill at all. But most places do. And off course noone gives it for free anymore, but it sure is cheaper! The problem is not that we are charging or charging lower for the refill. The problem is the refill itself. It creates an understanding out there that we on one hand try to counteract and on the other hand try to encourage. Offcourse we want people to drink a lot of good coffee, but we also want to make them understand the knowledge we now have in every part of the prossess – compared to earlier, and that great coffee is worth paying for. Do we demand refill on a glass of wine when we travel around the world or travel around at aker brygge or something? No we don`t, because its unthinkable!

    My question, or my request for you to resonate around, is therefore : is it possible, or how is it possible, that the norwegian industry can be suppliers of terms when it comes to create a common understanding out there – not only among coffee-costumers, but among the norwegian industry itself ? Is the norwegian industry transparent? Is the norwegian industry willing to or able to make norwegian costumers to pay the price and to appreciate great coffee as we appreaciate great wine for example? (or, as a matter of fact, the wine doesen`t even have to be great before we pay for it )
    Is special coffee, in your opinion, too cheap in Norway?

    And, finally, do you find these subjects controversial?

  9. Stine Says:

    Wonderful article! It made me understand a great deal more. Thank you!

    And to Anna, regarding the free refill-question, I´ve never thought about it like that before (or maybe not even at all), but that is a very good point I think. For me, it´s all about respecting the product.

  10. Tim Wendelboe Says:

    Anna, Thanks for the feedback.
    I have never been a big fan of refills. In fact I always recommend customers not to do it. The reason being that how can we be taken seriously if we sell 1 cup for 40,- and give the next for free.
    We believe in charging what needs to be charged in order fir us to survive and also to cover the costs.
    The fact that people take refills and cheap coffee for granted is a big part of the reasons why coffee farmers are not getting payed enough. Consumers as well as restaurants and bars are normally trying to buy as cheap as they can instead of focusing on quality.

  11. Tim Wendelboe Says:

    Thanks for the feedback Stine.

  12. Daniel McDonnell Says:

    As coffee is following the oil business in profits, consumers demand more volume.

  13. Tim Wendelboe Says:

    Daniel. Can you elaborate a bit more on that comment please?

  14. Daniel McDonnell Says:

    Variety in the market regarding profits, make consumers often demand more coffee than quality in their cup, but informative speeches about quality may also be regarded as snobby, like the “Frasier Crane of Coffee”.

    Coffee drinkers without experience in the quality market, may feel excluded, and the inspirational post from tekomino, give outsiders a feeling of liberation.

    Regarding coffee bought at gas stations, sold not only by the cup, but by the year, this customer isn’t worth mentioning. He is getting exactly what he is looking for, a lot of coffee for a small amount of money. The only reason why gas stations do this, is that they not only sell coffee, but gas, food and entertainment. The cup is just a dirty excuse for a designated driver to pull of the road.

    Good coffee is a bit like good wine, it’s followers are scarce, but hopefully for micro roasters there is a lot of “Frasier Cranes” out there.

  15. Tim Wendelboe Says:

    Thanks Daniel.
    Well, yes there is a lot of people who care about what they eat and drink, but unfortunately the majority still doesn’t care. To pay NOK 100,- for unlimited amounts of coffe for a year is in my opinion madness. I understand the reasons why the gas stations do this, but what does that tell you about the product?

    I still believe that people need to see the cost of production in order to understand that selling coffee for USD 8 per kg in Norway is not a sustainable price for the farmers. Even if this is poor quality, we need to start realizing that since salaries and the standard of living is raising throughout the world, we need to pay more for things like coffee.
    The market price for coffee is about the same as it was 15 years ago. That is not in line with the economy we have today.

    It is good to question these things and we can clearly see that people need to be educated more in these matters.

  16. Mike Says:

    Tim, thank you for your kind words and explanation of the reality about the farms that you work with. I think the more the consumer understands, the less they will be inclined to agree with feelings that this is marketing gimmick for some companies. I certainly believe in the genuineness of efforts in much of the specialty coffee industry. However, for a broad change, I sense there is a long way to go. A substantial shift in broad-based consumer behavoiur to pay more and seek out quality is certainly far away in Canada as commodity coffee is so pre-dominant. Rome wasn’t built in a day, so I think these individual large steps will eventually add up. Supporting this trend through one’s own actions and sharing knowledge with others through education is the way to go.

  17. Alexander K. Says:

    Great job, Tim!

    Your work does good in a number of ways:
    It helps some and hopefully more and more farmers being able to not only survive but reasonably well live with honest work.

    If we remember that coffe really is a luxury from far abroad, it’s certainly not too expensive for working Norwegians. The feeling that coffee is an everyday essential makes us take it for granted, and only focusing on price is not fair to the farmers, to the environment, nor to ourselves as the very critical consumers we have learned to become. (At least when it comes to coffee.)

    We, and our families and friends deserve quality in every aspect, not only when it comes to taste and freshness, but also when it comes to moral and
    human aspects of our habits.

    And yes, the Hacienda La Esmeralda really was great!

    Keep up the good work and remember that you are your customers’ representative at the farms, and we want them and you to do an excellent job for us!

  18. Mike Says:

    Tim,
    Here in the UK there is a massive trend towards ‘Fair Trade’ coffee. Sadly the pricing structure is not anywhere near as transparent as your example. Even more sadly there seems to be very little control over quality. However, this does prove that the consumer will happily pay more for coffee if they believe that it is fairer for the farmer. It is well known that better tasting food and drink will command a premium too. In theory then, all good for small, artisan roasters such as you.
    My question is, how do you communicate this to your everyday man in the street customer? In a world where it seems OK for a commodity coffee company to talk about quality, and they have the cash to announce it on national TV ads, how do you differentiate yourself?

  19. Tim Wendelboe Says:

    I think it is all about education.
    We talk about the issues a lot, we blog about it a lot and that pretty much does the job over time. But it takes a lot of time…

  20. Shin Says:

    Hi Tim,

    Big thanks for this impressive article! I hope to share this informative article with my Korean coffee friends. Would you mind if I translated this article in Korean and posted it on my blog? I’m sure my Korean friends will be excited to learn from your article (many of them only speak Korean). I’ll make sure to put a reference & link to your original article. Thanks again!

  21. Tim Wendelboe Says:

    No problem, as long as you tell them where it came from.

  22. Justin Archer Says:

    Dear Tim,

    I am a Kenyan coffee exporter. My colleague TM met you recently – by pure chance – in Kenya. I decided to follow up and check out your website. Your article is VERY clear, especially when you point out that we pay more for water than coffee (incidentally each cup of coffee requires something like 140 litres of water to produce – how many NOKS is that??!!!).

    More and more people, even some traders believe it or not (!), are recognising that the welfare of the producer is at least as important as the needs of the consumer. As a Kenyan exporter, I can however say that there are sometimes obstacles to trying to help producers. In Kenya for instance, exporters are not allowed to buy coffee directly from producers. Since all the coffee has to be purchased via an auction system, exporters and traders are actually encouraged NOT TO CARE about the people who produce the coffee. Some exporters have decided to go ahead and set up separate companies that provide technical support to cooperative farmers as a way of ensuring the preservation of Kenya’s fine cupping coffees. Companies like CMS – our own SMS – and one or two others in Kenya are basically operating a ‘not for profit’ model when it comes to supporting farmers, just so that we can have coffee to trade, ie if we don’t “care” about the farmer, we won’t have any business.

    As traders, we are now also project managers, certification experts, agronomists, and we spend as much time chatting up donors to support our farmer training programs as we do talking to buyers! The level of reinvestment in the supply chain is pretty significant if you want to be a reputable exporter these days. This is all pretty revolutionary if you compare the way coffee was traded 15, or even 10 years ago. If it wasn’t for the specialty coffee movement and the consumer interest that has been created around this, things probably wouldn’t have changed much, so keep promoting those good coffees!

    Anybody in the coffee supply chain who still wants to be in business in the next 10 years, needs to treat producers as equals to consumers.

    Best regards
    Justin

  23. Tim Wendelboe Says:

    Thanks for your great comment, Justin.
    I know traders are not allowed to buy direct from farmers, but in our case we have been buying direct from Co-ops in Kenya for 2 years in a row now. I believe this benefits the farmers more and also we are able to get the best coffees this way.

    Looking forward to visiting Kenya again in February. Maybe we could do a cupping together then?

  24. Justin Archer Says:

    Dear Tim,

    We do a lot of direct trading with Coops in Kenya as well. It is clearly the best way to reward, and preserve those supply chains that produce the best coffee.

    Our cupping room is always open, so please drop by next time you are in Kenya – KARIBU!

    Brgds
    Justin

  25. TIMOTHY NJERU Says:

    what an encouraging post…am a young kenyan man who actually is preparing to start up a organic coffee productioin farm in Embu Kenya.My parent used to pay my brothers school fees using money from coffee but the trend changed afterwards this was because of poor marketing systems by the cooperatives in kenya caused by lack of knowledge and also corruption in the systen.Imagine 1Kilogram of coffee costing 0.001 of a dollar?.Most of the farmers decided to cut down the coffee trees and plant other more beneficial crops.
    Am really happy to see that you want to change this trend and you will be helping alot of households increase there household incomes.
    Am a trained organic agriculturist and i want to start up my own organic coffee farm.

    Tim,i also thank you for taking care of the small holder farmer through your technical trainings.by the way do you support contract group certification of farmers?
    i believe in your efforts.Thanks.

    Best Regards,

    Timothy Njeru

  26. Tim Wendelboe » Blog Archive » A very nice piece on buying a grinder Says:

    [...] course, we disagree that our coffee is expensive. Read this previous post if you wonder [...]

  27. Where Coffee is not Food and Transparency is not Quality | Espresso News and Reviews - TheShot.coffeeratings.com Says:

    […] So much so that international coffee guru, roaster, and former barista champion, Tim Wendelboe, had this to say about transparency some three years […]

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