Coffee Prices

Extreme Coffee Prices are not good for the industry

There has been a growing trend of late for unique one-off coffees to sell for extreme prices via online coffee auctions. For example, recently, at the Best of Panama 2018 online auction, coffees sold for as much as US$803 per pound. To put that price in perspective, using that coffee in the cafe, we would likely have to charge $150 per latte to justify the cost of goods for that green coffee. Most of these outrageous prices are being paid by Asian coffee companies, where one can presume that there is a market for these ridiculously expensive coffees. Even with the assumption that is indeed the case, that in Japan customers are prepared to pay those amounts for coffee, I still have a huge problem with the trend of outrageous prices for exotic coffees when the bulk of the coffee sold in the world, sell below the producers cost of production, and keep most coffee producers around the world in perpetual poverty.  

I think there has always been a fascination in the marketplac with high priced goods. I too have participated at times in this marketplace, albeit a wine market, where high prices are assumed to correlate to increasing quality. While this relationship between price and quality are often true, it cannot be said to be a universal truth, and expectations around price will definitely skew the consumer's perception of quality. Many experiments have been done in the wine world, where consumers were presented with the same wine, at different price points, and without exception those who were given a more expensive price point rate the wine a better quality than those who are told the wine is cheaper. So it is not the objective quality of the wine that is at play, but the consumer's perception of the quality based on the price they are told it costs.

Much like fad coffees such as Koppi Luak (the Indonesian coffee consumed by Civets) which achieve crazy prices, these extreme coffee prices only serve to skew the market towards the fadish and the fantastic and diminish the value of coffees that are excellent but still are priced far below their true value.

What I want to see in the marketplace is a consumer base that understands the value of great quality coffee and is willing to pay a fair market price for that coffee, so that vast majority of coffee producers on this planet can live sustainable lives. I would argue that almost every quality coffee shop in North America discounts and subsidizes the cost of coffee to the consumer out of fear that the consumer will not pay the price that the coffee should be sold for.

Unlike cafes in North America, I point to the prices charged for coffee in countries like Norway and Denmark as positive examples, not simply because the cost of living is high in these countries, but because coffee companies are not afraid to charge their customers for the true value of the product that they sell, and their consumers are willing to pay higher prices for better quality. 

Even at Transcend, we are guilty of this tendency to undervalue and sell our coffee at prices below what we ought to. If you factor in the quality and prices we pay for our green coffee, the cost of roasting it, the fixed costs of our staff, our cafes, our labour, etc., our prices should be at least thirty percent more than what we currently charge. And yet, largely because of fear, we maintain a pricing structure similar to that of our main competitor Starbucks, which is a company that has efficiencies and economies of scale that we could only dream of, not to mention comparatively lesser quality when it comes to the coffee that they source and roast.

While it is true that the producers who are paid US$800 per pound for coffee are being handsomely rewarded, we are talking about the sale of 200 lbs of coffee. This is but a thimble in the vast ocean of global coffee production and is not helping in any way to alleviate the chronic poverty model upon which the global coffee industry is built. What is needed is for all producers, globally, to receive truly sustainable prices for their produce, which not only cover their true costs of production but also allow for surplus, so that their families can thrive. This is the ideal for the world of coffee.

CBC Summer Coffee Column

This summer I have the privilege of being a columnist on the CBC Edmonton AM morning show. In addition of being sleep deprived out of fear of not being downtown on time, I am afforded the opportunity to talk with Mark Connolly about some timely topics facing the coffee industry. 

You can listen to the column here

This morning we chatted about the fact that the commodity price of coffee has essentially not changed in the last thirty years. If you look at the New York Stock Exchange price for coffee on July 27, 1999 (this was as far back as I could online), coffee was trading at $0.97 per pound. The price for coffee on the NYSE today is currently at $1.10 as I write this post. It doesn't take a rocket scientist to figure out that there is something shockingly wrong with this picture. How is it possible that the price of green coffee has only appreciated by thirteen cents when the cost of everything else has gone up significantly more - for example, the price of gas in Edmonton was $.51 per litre in 1999 and today is $1.25 per litre. Not only has the price of green coffee not kept pace with general inflation rates, the amount of money flowing back to the vast majority of coffee producers has not changed significantly. A troubling reality is that most coffee farmers globally do not get paid enough at farm gate to cover their cost of production. 

There is much debate around what the true cost of production is for coffee producers, and given the global nature of the industry, and the changing economics from one country to another, this is fair. With that said, it is estimated that an average cost of production is roughly US$2 per pound. The c market price referenced above is not referring to high quality coffee, and most companies do pay price differentials for better quality coffee. However, what is clear is that despite price differentials, fair-trade, and countless other certification programs, a vast majority of coffee growers around the world live in perpetual poverty.

This reality has perpetuated during my entire tenure within this industry. What can we do about it? What can be done? As a consumer, you can begin to ask questions of your favourite coffee provider, you can start to inform yourself about the issues facing the coffee industry globally.

Ask your coffee provider if they know who grows their coffee, how much the farmer gets paid, what percentage of the price they pay goes back to the farmer. You could ask if they know what the FOB (Free on Board) price is for their coffee. If your favourite coffee purveyor can't answer these questions, you may want to start shopping around for one that can. Transparency in the coffee industry is really the best mechanism to ensure that coffee producers start to receive their fair share of the money derived from this global industry.

For more information the World Coffee Research site is a great start.

A link to the WCR Annual Report is located here for your easy access.