A Series About the Coffee Paradox: The Farmers’ Perspective
This is a new series that originates from a concern over a downward development in the coffee industry. During the last couple of weeks we’ve seen the market price of coffee drop to the lowest in more than a decade, affecting the economy of producers and farmers. In the previous article we compared this development to a similar occurrence dating back to the 00’s named, The Coffee Paradox. In this article we’ll explore today’s Coffee Paradox, from the farmers’ perspective.
Coffee is usually associated with a hot beverage you can enjoy in coffee shops and cafés. Perhaps you choose to take it to-go on a nice walk or brew the coffee at home. The beans are usually grown in beautiful landscapes on the hill of a mountain, and roasted providing a well-known and memorable aroma. But what doesn’t cross our minds, is, that most of the coffee industry is actually controlled far away from the mountain landscapes, in the city of New York on Wall Street. The financial market is important for a lot of reasons, but when the power of fictional numbers overtakes the economy in real life, it can have significant consequences for the people actually providing the product. The farmers and producers.
Paul Hicks from Daily Coffee News elaborates: »The C-price [red. the reference price for coffee set at Wallstreet] exacerbates volatility in the coffee market because it relies too much on speculation and is based on very short-term projections. The market overreacts to information, such as the weather in Brazil, because too many people involved in the coffee trade are trying to make a buck in the short term.«
That said, the most vulnerable factors in this picture are the farmers and the producers, who at the moment is paid below or just enough to cover the cost of production. Setting a fixed and fictional price on coffee will and already has, created severe poverty in the coffee producing lands.
»Imagine that you are a small-scale coffee farmer. You would constantly have to deal with many factors that can affect your production, your price and, ultimately, your profitability. Part of your job would be to find ways to manage and if possible mitigate the risks that your business faces,« says Giancarlo Ghiretti, Co-founder and CFO Caravela Coffee (2018).
Meet Edwin Martinez
Edwin Martinez is a farmer in Guatemala. He runs a family-owned farm named Finca Vista Hermosa. Eleven years ago, we bought the first coffee for The Coffee Collective directly from the farmer. It was the coffee from Edwin’s farm. Every year since then we’ve maintained a solid partnership.
We would like to present Edwin’s perspective on the development and in that connection, we have asked him how it affects the farmers of Guatemala.
There’s been a lot of talk about low coffee prices online and in the media. As a farmer, to what extend do you notice the development?
It obviously undermines the future of our industry to have a market paying below cost of production. More specifically it concerns me how many companies are implementing some financial sustainable buying practices on a small percentage of their business, in some cases as little as one percent. And then taking a very high percentage of their marketing budget to present an image of doing operating as a whole with financial sustainable practices when it is done with less than 5% of their throughput. These companies profit from this while hurting both supplier and consumer. It does not properly reward a producer based on cost and quality and it then creates confusion in the marketplace on what quality is.
How does the low coffee prices affect farmers?
Without a direct long term relationship it is devastating. It pushes those who have any other option that is better to do a different crop and in some cases this is a better decision if exceptional quality is not possible.
Do you see an increased demand for higher quality in coffee?
Yes I do see an increase in demand.
So, how does this add up with the low coffee prices?
It forces people to find financial sustainable supply chains or to make the decision to reduce quality in order to reduce cost, that takes years to recover from. This is unfortunate but is happening a lot.
Can you describe the consequences for the farmers?
If someone continues with coffee there are many consequences. The biggest is obviously financial in having payment that is below cost of production means rather than making money to work you are paying money to work. For this reason it often may make sense on paper to NOT pick the coffee if the net result is a greater financial loss in the short term, however this damages the trees and the coffee must be picked if you want to have a healthy tree and reasonable harvest the next year.
How would you describe what happened in Guatemala during the coffee crisis in the 00’s?
Many abandoned coffee and planted other things. Many lost their land and became homeless. Impact was big on farms of all sizes large and small. The ones least impacted perhaps were coffee workers who did not own land that were able to change their work without any long term commitments.
Where do you see the coffee industry going if this development continues?
This is a very big question I can’t provide a good answer to but I can speak to just one specific sector and that is the producer sector. I anticipate compartmentalization into 3 trajectories:
First, people will exit as it is not financial sustainable.
Second, commodity low grade will continue to be more efficient and financial sustainable in alignment with specific demands in that space. Success will be found in lowering costs and an outcome will be lower but more consistent quality and increase in financial sustainability on a larger scale.
Lastly, specialty coffee will begin migrating to fixed or cost based to also be more financial sustainable. We are seeing many efforts along these lines but it is still a very, very small percentage of what is considered specialty.
Any last thoughts on the matter?
The value of education is priceless and can change and create marketplace. It is a requirement for the supply chain to be financial sustainable for consumer education to increase. It is both academic and experiential. Paying fairly for values behind a product as well as paying fairly for intrinsic cup quality that can be experienced blindly in the cup.
We would like to thank Edwin for his collaboration on this article. You can learn more about Finca Vista Hermosa through the Coffee Lab in Guatemala City, where he and his employees makes sure to test and maintain the quality of their coffee. If you’d like to taste Edwin’s coffee yourself, you’re in luck. We have just launched a new batch of Finca Vista Hermosa-coffee for the 11th time.