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Coffee is cheap, part 2


I would like to follow up on the previous post where I wrote that coffee is too cheap. As stated, I think the reason why people still think coffee is too expensive is because of a lack of knowledge. Therefore I will try to give a small insight to how the trade works for us in Colombia.

The coffee trade is extremely complex, and it is traded in very different models not only from roaster to roaster, but also in the different origin countries. I truly believe that a transparent model is the best solution to making the consumers more aware and conscious of what they are buying and paying for. Lazy solutions like certifications and labeling as a trade model for roasters, is not something we do at Tim Wendelboe. The reason is that I think as long as the product is good, the price is fair and the trade model is transparent, there is no need for selling the product as a “fair trade” or as a “direct trade” product. We are in the coffee business, coffee is something we drink, hence we sell coffee for it’s taste.

Some have commented from the last post that the problem is not the coffee price itself, but the lack of transparency and the “greedy” middle men. To that I have to say that without middle men, we would not be able to sell coffee in Norway or any other non-coffee producing countries.

The coffee price to the farmer is too low; there is absolutely no doubt about that. Yes, there are a lot of companies that pay a very good price for coffee, but not all farmers have regular customers who are willing to pay top dollar for the coffee. The reality is that the majority of farmers don’t.

Loading a ship at the port of Cartagena

To get coffee to Norway we need to pay for a lot of services. These services are in many cases described as the “middle men” but are all a crucial part of getting the coffee to Norway. Let’s take a look at the price we payed for the coffee at Finca Tamana in June:

We payed USD 3.76 per lb of green coffee F.O.B. (Free on board, which means the coffee is delivered to the ship in Colombia for USD 3.76 per lb)

Out of this price, Elias (the farmer) ended up with a total of USD 2.73 per lb.

The $1,03 difference covered the following costs:

  • 45 cents went to the exporter, in this case Mr. Alejandro Renjifo and Fairfield Trading. In Colombia, due to certain problems with other produce in Colombia, the exporter of the coffee needs to have an export license. Farmers do not have this, so they can use any exporter they prefer, but normally it is chosen by the buyer.  Out of the 45 cents, Alejandro has to pay for shipping of samples, export documentation, transport of coffee to the dry mill, transport from the mill to the ship, interest on the pre-financing of the coffee, etc. In addition, Alejandro needs to make a living, pay employees, pay rent on his offices, etc.
  • Coocentral (the cooperative Elias has chosen to work with in Huila) charged 7 cents for pre-financing his coffee (paying Elias the market price for the coffee upon delivery) storage, and quality control. They also provide agronomic assistance, sample preparation, and help Elias with issues he might have.
  • The dry-milling costs 40 cents per lb. The parchment, sticks and stones need to be removed from the coffee. Then, the coffee is sorted on screen size, density and all physical defects are removed by electronic sorting machines. The coffee is then packed in Grain-pro and jute bags to be ready for export.
  • We also had to pay an additional 11 cents for grain-pro bags as this is not standard. Grain-pro bags are an inner plastic bag layer, which further protects the coffee in shipment and storage.

I am not claiming that this is a fantastic price for the coffee. I would like to pay more, but we also need to be able to sell the coffee, and we are already pushing the boundaries of what our customers are willing to pay for coffee. Especially our whole sale clients. Still, it is a much better price compared to the market price which today is about USD 1.70 per. lb. F.O.B. for Colombian coffee. The milling cost and export costs are about the same, so Elias ends up with a lot more money, even if he has to pay more to the pickers, etc.

Coffee prices in Huila

At our end, we need to pay for the shipping of the container, insurance, transport on land to our warehouse, off-loading of the container, rent of warehousing, roasting, testing, rent for our space, salaries for the employees, electricity, gas, packaging, equipment, travel to origin, etc, etc.

TV-roasting-01

I believe everyone in the trade is entitled to a decent pay and, at the very least, covering the costs and making a fair profit. Historically, and also today, most of the companies that handle the coffee after it leaves the hands of the farmer are making money, and I don’t think that there is anything wrong with that. After all that is what business is about.

What I do have a problem with is that the most important part of the chain, the farmer, has the highest risk (no control over coffee prices, exchange rates and the weather) and is the only one who is not making a healthy profit.

We need to change that!

We believe the best way to do so, is to demand transparency and pay more for quality coffee!

37 Responses to “Coffee is cheap, part 2”

  1. Josef Says:

    Good writing. This text I think can put new perspectives to the coffee business for many people. Thank you!

  2. Michael Butterworth Says:

    Incredible post! This is a very timely word and one that should read by more consumers and people in the coffee industry. It’s only fair that the farmers, who work the hardest and take on the greatest risk, should make a profit!

  3. Aklesha Says:

    Awesome Tim! Other roasters should follow your example of being transparent and honest. Kudos to you!

  4. Johanna Wechselberger Says:

    Good words! I try to teach this in my school and to all my customers. Next step – trying to get public with this in gastronomy-magazines …. the arrogant shopowners who choose coffee by price and free equipment have to read this. We won’t change all of them but I hope as many as possible. Luckily more young enterpreneurs open speciality coffeeshops and choose high quality coffees…. I’m proud to be one of your customers! Your coffees are great. Thanks, Joey

  5. Scott Says:

    Does anyone have suggestions on *how* to change things so the farmers benefit? I’d love to hear suggestions!

  6. Andrew Timko Says:

    “What I do have a problem with is that the most important part of the chain, the farmer, has the highest risk (no control over coffee prices, exchange rates and the weather) and is the only one who is not making a healthy profit.”

    I think this is a VERY important point. The risk and stress a farmer takes on every year by putting his or her livelihood on the line by selling coffee and other produce is huge for two reasons: the value of the produce and the unpredictable nature of agriculture. I think most people buying coffee in the US and Europe under appreciate both. American and European farmers are frequently subsidized and / or covered by insurance, so even when values drop or the season is difficult their risk is covered, albeit not pretty. As for the unpredictability of agriculture, and the difficulty of work that is necessary for success, has become very clear to me over the course of the past three years. I lead and help maintain a community garden that shares the work for 25 vegetable beds and Thank God my livelihood is NOT dependent upon that garden. We get a lot of produce and nourishment from it, but with our experience of weather difficulties in conjunction with the work that goes into maintaining a high-yeilding garden, i would never want to accept the risk of depending on the garden for my sole source of nourishment or livelihood. If tomatoes get stunted by heat, i can go to the store or do without. If infestation sets in i can pull out the plants and replace them, or again do without. A coffee farmer does not have that luxury that risk need to be fairly rewarded.

    This is a great post. Thank you for the transparency of the info and insight into the process.

  7. Tim Wendelboe Says:

    Thanks for a great comment.
    I totally agree, and I can only imagine how hard it would be to depend 100% on a crop. In most producing countries they only have one harvest. In Colombia at least they have two harvests, although one is very small.

  8. Mikhail Says:

    Thanks for this wonderful post. It is time for roasters to pay close attention to the work and efforts farmers put to deliver us their best quality coffee and we have to reward them by paying at least a little bit more. Because we rely on them, we need them and without them we won’t be able to run our coffee shops at all, and taking into consideration global warming and climate change and the fear of loosing Arabica in about 70 years, that should ring an alarm from our side to treat those farmers with much more appreciation.

  9. Raymond Sander-Regier Says:

    Thanks for this. Much appreciated.

  10. Simon James Says:

    Coffee IS cheap, but consumers are cheaper.
    Based on some rough calculations, it would only take a 50 cent (AUD/USD)/40 Euro Cent/30 Pence increase per espresso to DOUBLE the income to farmers.
    It’s pretty sad if we can’t convince consumers to part with an extra few cents.

  11. Alejandro Renjifo Says:

    Question “Suggestions on how to change” I say that the most important aspect is to either support directly a farmer / farmer community or endorse the efforts of an importer and or roaster that is doing the job Sadly too many use limited in nature and or esporadic actions to make lots of “sustainable” self benefiting propaganda

    You need to to your homework. And in doing so help to raise the bar. Long term encouragement, local support and steady quality and financial reward are the startling point

  12. Joshua Lindstrom Says:

    What about what the roasters sell the coffee for, being in the U.S., I realize that different parts of the country will have different markets and can sell it for more. But also feel (and it is just a feeling), that consumers think that if the coffee costs more then that might mean that more is going to the farmer. But not true, roaster A will be the same price as roaster B from an Import company for the same coffee and there is dollars of difference in their retail price. Think maybe there should be a way for both of the markets to grow at same time, price to farmer (and everything included) and price to consumer, so as the price to farmer grows the roaster has not maxed out it’s market and is able to raise price when it’s needed. Just some thoughts that are still in process.

  13. Carlos Avendaño Says:

    How nice is to read this post, totally agree with your ideas, finding people that think like you in this days coffee world is truly motivating. Cheers!

  14. Julie Says:

    It is easy to agree with the ideas and points raised. But as has been said the consumers can be lazy, and in these economic times are looking to save a few cents. So they will buy from supermarkets, because it is cheaper and it has the certifications that convince them that they have done the right thing.

    Isn’t it time that coffee organisations started to press the big roasters and supermarkets to do more, and to educate the public on how important it is that the farmers are properly paid, and that quality counts and tastes better.

  15. Yoav Says:

    Thanks for great posts.
    I would be interested to read about the next members in the supply chain – from the Roastry to the client (with the coffee ship in the middle).

    Thanks,

    Yoav

  16. Steve K Says:

    I appreciate the post, and agree with the transparency of coffee. However each region, demographic, city and customer is different, not everyone will appreciate the education Tim puts out, so were at a dead end. Good feedback on this would be greatly appreciated.

    Also…Tim, you disagree with promoting/labeling direct trade, but in its purest form, it does provide the farmer a more reasonable return for he/she’s coffee. At least from our end, we’ve noticed that this is more common. Thoughts?

  17. Jeff Melnyk Says:

    This is a really great article with interesting detail – thank you for posting.

    I work in sustainability communications and have helped many coffee brands and roasters find more powerful ways of engaging their customers on the story of coffee sustainability. I don’t believe that consumers are lazy or ill informed – it would be impossible for everyone to know every supply chain story for every product we ever bought! I do, however, know that consumers are willing to pay more for goods that they value, and so engaging them should start with their love of coffee.

    As you point out, coffee is complicated. It also grows under conditions that require great care and environmental stewardship, in communities that require more support than just a few extra cents per pound to farmers. For that reason, I feel that certification is an important step now in making coffee growing more sustainable, and coffee farming more desirable. Organisations like Rainforest Alliance can be excellent partners for farmers, exporters and roasters. It would be impossible for small roasters to encourage the level of skill, training and community support that coffee farmers require without this partnership approach. Certification is not just about additional revenue to farmers – in many cases, coffee is grown in countries that just aren’t willing to provide a basic level of infrastructure that many of us take for granted. I recently visited coffee farmers in Peru who had to travel hours over dirt roads to sell their crop – the government would not build roads for them. One roaster alone cannot provide the roads, water sanitation and schools for entire coffee villages.

    Consumers are beginning to trust certification and see it as a mark of quality, and as more large roasters adopt certification as a standard (as nearly all of them now are!), this will enable prices to be more reflective of what the markets need them to be. Its not the only answer, but it is part of the solution.

  18. Rich Ottenhof Says:

    Excellent post. Perhaps the most overlooked aspect of coffee prices is the effect currency exchange rates have on the net income resulting from a pound of green. For example, in 1995 one usd was worth approximately 996 Colombian Pesos and arabica prices at $1.17/lb for a net of 1165 Colombian Pesos per pound of green. Today, one usd buys approximately 1800 Colombian pesos and arabica at $1.50/lb for a net of 2700 Colombian Pesos per pound of green coffee. While I don’t have inflation rates at hand, that represents a 231.7% increase in net income (denominated in pesos) to the farmer. Without factoring exchange rates (and inflation), any statistics about pricing are virtually useless and misleading. Again, The missing factor in what I’ve laid out here is the inflation rate which has a large impact on purchasing power of net earnings. We all agree that farmers are underpaid, the real trick is determining by how much.

  19. Chris C Says:

    Coffee is too high. There, I said it. Everyone else is afraid to say. Maybe in NY or somewhere on the west coast it’s not, but in the midwest…it’s too high. Come on down

  20. GrumpyTom Says:

    I think your point towards the end is true of all farmers.

    “…the most important part of the chain, the farmer, has the highest risk (no control over … prices, exchange rates and the weather) and is the only one who is not making a healthy profit.”

    It is certainly true of farmers in Australia.

  21. Tim Wendelboe Says:

    I think you need to consider inflation as well. Historically, from 1955 until 2012, Colombia Inflation Rate averaged 15.3% per year. This is quite substantial. Unfortunately the exchange rate is not compensating for a 30 year stand still dollar price.
    And the fact of the matter is it costs around 600.000 pesos to produce 125kg (1 karga) of parchment in Colombia. Todays market pays them about 500.000 – 580.000 pesos per karga. You do the maths.

  22. Tim Wendelboe Says:

    Thanks for the comment.
    I do agree that certification can be good. However, a lot of farmers are not interested in certification for the simple fact that they need to pay and also work more for a very little extra profit. In Colombia the cost of production is about 600.000 pesos to produce 125kg (1 karga) of parchment. Todays market pays them about 560.000 pesos per karga if the coffee is of good quality. If the farmer is certified by Rainforest alliance or UTZ they would get 573.600 pesos for the same coffee. They are still loosing money. The premium a consumer pays for certified coffee is much higher than what the farmer recieves, so the ones making a profit on certified coffees is everyone else but the farmer. Therefore I think that Certification is not the best way to deal with these issues.

    Transparency and informative marketing is our choice of dealing with it, and for our farmers that works well. We are paying more than 1.000.000 pesos per karga in Colombia and negotiating price with the farmer directly, based on costs and quality. Also we are implementing sustainable farming practices in line with certification practices. If it is possible for a small roaster like us, it is certainly possible for other small roasters and especially bigger roasters who have more buying power and capital.

    I also want to mention that a lot of roasters are so concerned about the farmers becoming more sustainable. In my experience, the farmers I work with are very concerned about the environment. They are very concerned about improving the standard of living of their workers. They don’t want to ruin the land that they are depending on. Yes, they sometimes need some education in how to become more sustainable, but in my opinion, the ones that really needs to get a lesson in how to become more sustainable are the roasters and consumers in our part of the world. We could become a lot better at recycling, using less energy, making less waste, and getting a more sustainable lifestyle. So, before we go on policing everyone else, we should start with ourselves.

  23. Tim Wendelboe Says:

    I don’t see how transparency is not a good thing. I believe corruption, and exploitation comes from un-transparent models in society.
    What I mean about using labels as “direct trade” and “fair trade” as being lazy is that most consumers and also coffee professionals don’t understand what it means. So many companies use “direct trade” these days and if you look at how they buy and sell coffee there is nothing consistent about their models.
    I believe in more education and having a transparent and respectable trade with farmers. We have been spending every day for 5 years telling our customers in our store, whole sale clients and blog readers about how we buy coffee, about transparency and importance of paying the farmers a fair price. This has made a lot of our customers aware of what we do and what we stand for. Putting a label on the bag to answer for fair business practices is in my opinion the easy way out. In most cases it doesn’t tell me anything as there are no clear definitions of the term “direct trade”.

    Having said that, I do think the idea of a more direct trading model where prices are negotiated with the farmers and more transparency is great, so I do endorse the intentions of “direct trade” labeling, but unfortunately sometimes the ones using such labels have no clue about what went to the farmer.

  24. Luis Samper FNC-Colombia Says:

    Thank you Tim for touching on very important and timely topics. Your last few posts have touched on the question of environmental and economic sustainability and the challenges we have, as an industry, to provide for a raising quality of life for coffee growers. Who will be the future Eliases of this world if they don’t see that this crop can improve their chances for a better future?
    Perhaps the biggest question in today´s market is whether prices are providing the right signals and incentives for coffee growers to keep producing high quality coffees. One does not know really what the New York exchange market stands for anymore, as you can market against it many investors with no interest in the bean decide to buy and sell coffee there to obtain a profit. So prices, exchange rates and on top of them nature often become quite a good excuse to quit the coffee business altogether.
    Achieving the desired change one grower and one customer at a time, however, may not be fast enough for the millions of coffee growers in the world or the over half a million Colombian coffee growers. Joining forces in terms of achieving differentiation, relevant R&D and defending their collective reputation by way of Geographical Indications or similar instruments are complementary and necessary efforts that we are implementing in Colombia. Given the scale of the challenges and the inefficiency of the current price discovery system for high quality coffees, we can only agree with you that coffee is way too cheap.

  25. Angel Says:

    Tim, I wrote an article to continue your post… I work in coffee in France, and my parents are coffee producers: http://coffeeuniversebelco.wordpress.com/2012/11/21/coffee-is-cheap-it-is-very-cheap/

  26. Tim Wendelboe Says:

    great.
    Will read it as soon as I can.

  27. Federico Says:

    I think that both ends of the coffee chain (producers and baristas) are getting less than they deserve for their work. As much as I agree that producers could and should get paid more for their hard work and well earned efforts when they produce outstanding coffees, I also beleive baristas could and should get paid better for their craft and skills in brewing those outstanding coffees to their maximum potential. To do so, we need to get more customers to understand about what high quality coffee means and what it costs to bring to their cups in a model of complete transparency, so we can have people happily and proudly willing to pay more for a great cup coffee. I also think that we should stop to rethink and reinvent the specialty coffee experience from top to bottom so the consumers get caught off guard and begin seeing specialty coffee retailers in a whole new light and stop associating them as mere upgrade versions of the regular coffee shopping experience they get from the usual big multinational brands. When we come up with something new/groundbreaking/game-changing experience and our customers are well informed of quality and transparency, then they willpay more for their coffee and this will allow rewarding better both endsof the coffee chain.

  28. Tim Wendelboe Says:

    Great comment Federico. I agree. I think our end of the industry needs to be better at differenciating ourselves from the gig multi national coffee chains.

  29. Patrick Says:

    Hi Tim,
    First I want to say that I really appreciate your post, and your administration of this great dialogue among professionals. I agree with most of your points, but would like to elaborate on the discussion about labeling. First off, I don’t feel like Fair Trade and Direct Trade belong in the same conversation in this particular context (although I understand their relation), since Fair Trade is an institutionalized certification and Direct Trade is simply a concept in specialty coffee that has no real broad definition. I think we all need to be careful about judging the practices of other companies and making generalizations about what an internal labeling system implies. I don’t dispute that there exists some widespread misuse of claiming Direct Trade, Direct Sourcing, or Relationship business models, but that does not mean that responsible and effective ones should be discredited for use of labeling. Because Direct Trade is not a certification, I think that the use of DT labeling comes with great responsibility to the roaster. Those labels absolutely have the capacity to encourage reliance by the consumer on a loosely defined concept of fairness, rather than really pursuing information and being accountable for what their purchase is contributing to. That being said, an internal DT labeling system can serve as an anchored structure for transparency in a business model. If you create a system as a company to clearly define and solidify what the DT label on your bags means, and offer the specifics to the consumer, it can actually streamline the ability to spread the right sort of education about coffee production. It can also offer a level of internal accountability within the company in regards to buying practices. Its all well and good to say that your coffees are sourced responsibly, but if you force yourself to continually test that idea against a specific set of standards, ones that your customers are equally privy to, it can help keep the validity of your current practices in check and encourage continued improvement of them. In a lot of ways I think this is the same type of ideal you seem to strive for in your company Tim, just managed through a different system. I’m not saying it’s right or wrong, but it is valid. Terms like Direct Trade need to be clearly defined by roasters in the context of their own companies, not anyone else’s. That is increasingly important when a term becomes more widespread. I say this all with the utmost respect for you and your company, Tim. I think your commitment to transparency represents a positive trend for this industry, and I appreciate this venue to discuss a common passion with you and others. I just want to make sure we explore all aspects of an issue before passing judgement.

  30. Imma Says:

    It was good for me to read these posts, from everyone, since we are in the process of buying coffee from farmers in Colombia. “We” are a tiny coffee company in Iceland and as owners we do the roasting and work behind the bar, so we are in close relations with the costumer every day. For us the “Direct Trade” labeling is useless and would be lazy, because it would mean that we would do less talking to the costumer. Because people are suckers for marketing tricks like labels that make you feel better about stuff you buy. I think that we should take our craftsmanship on a higher level and respect it, weather it is roasters or baristas. We have to convince the costumer that paying more is fair, for everyone in the whole coffee chain. If we believe in what we are doing and educate the costumer then things will move faster in the right direction.

    We find that people want to know about the farmers and if they are doing well. But people care more about the taste of the cup in the end and so do we. So, Tim, I agree with you, I am in it for the aroma and flavor :) If I don´t like it, I won´t buy it, no matter the labels. But we do find “our” farmers and stick to them and try to build up a good relationship with them.

    For those 5% of costumers that care about the origin, we have a conversation with and tell them everything we know about the coffee and the farmer. Those people are willing to pay more and others don´t care!So tomorrow I will raise the prizes in my coffee shop :)

  31. Tim Wendelboe Says:

    Great Imma!

  32. Terry van Niekerk Says:

    Hello Tim , I did enjoy your writing! We are doing coffee excursions in Panama here and this is an Item where we talk about …a lot! Specially the Dutch people are complaining about the prices( I am Dutch). But after the big story, they understand.. they do not realize what is going on before they have the coffee in their cup!
    Good luck and happy holidays,
    Terry

  33. Coffee Affair Says:

    Thanks Tim for being open and bringing data to the wider public. Although you still have to battle with ignorance on behalf of many, it is certainly a good way forward to further understanding.

  34. Leonardo Says:

    Hello Tim, Great article and it shows that you have widely knowledge about coffee production in Colombia. The high quality costs more but, not everyone produces top quality. If you ask to each coffee producer one by one in the whole world, they will say that they produce the best coffee ever.

    So your work is really hard because you have to identify the high quality coffee and now days do not exist real standards for that type of coffee. I´m not talking about comoddities nor certificates coffee, those are a completly different story. I´m talking about high quality in cup. Specialty coffee is a word that no means too much today because that word include many means.

    You are doing an excellent job. Congrats!!!

  35. TradeSwiss Says:

    Hi
    I agree with you, but one very important think is coffee quality, if we can take care on quality we can follow your discussions.
    kindly yours
    Algimantas
    Lithuania

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