Paying for Coffee—It’s Complicated: Part 4

Part 4: Not Just  What You Pay, But How You Buy

Historically, many have viewed importers as middlemen, a gateway through which coffee passes on its way from the farmer to the roaster, adding nothing much but hassle and costs. While the direct trade movement has done a lot for promoting healthy supply chains in specialty coffee, it has inadvertently reinforced this narrative, downplaying the role of importers in sourcing, logistics, and overall quality. Depending on the importer you work with, they can play a major role in your coffee’s quality from start to finish, and when you buy coffee from an importer, you’re also buying into their supply chains and the roots they have—or haven’t—put down in a particular region.

How Does Your Importer Set Coffee Prices?

Many importers fix their prices around the C market, paying a certain amount over it at any given time. It’s good to ask if your importer does this or not, because the C market is extremely volatile; importers who price coffee that way may beat the C market price, but they’re still subjecting producers to a fluctuating income, leaving them vulnerable to not recouping their costs in a given season, much less being able to reinvest profits into their farm.

Other importers pay just slightly above average baseline rates for the lower quality brackets they purchase, then pay out premiums for higher quality brackets in an attempt to incentivize higher-quality production. It’s important to remember that no matter how talented most producers are, the main bulk of what they produce will still live in the lower quality brackets, so the baseline price an importer pays is essentially who they are as a coffee buyer.

At Red Fox, we see our prices as a key part of our sourcing strategy, allowing us to access the best producers and producing groups while allowing them to do their best work year after year. To do this, we set our baseline rates not against the C market and not against the local average, but at a rate that incentivizes producers selling their coffee to us rather than someone else, which benefits all parties. Beyond that, producers also receive quality premiums for higher-scoring lots, allowing them to allocate resources toward producing special microlots without being afraid to lose money in the process. Since we also think of this as a retention strategy, we pay more to producers over time, especially when their work is stellar. For a frame of reference, the average FOB price of our coffee in 2018 was 200% above the Fair Trade floor price, and the highest price we paid for a coffee in 2018 was almost 700% above the Fair Trade floor price.

How Does Your Importer Build Supply Chains?

One of the things that’s important to know about your importer is how they work within a supply chain. While the myth of the importer as useless middleman is largely just that, that doesn’t mean that all supply chains are created equal, and it’s important for importers to speak honestly about the role they play.

Many importers, especially ones on the smaller end of the spectrum, receive samples from exporters, cup them, and buy their favorites. While this is a perfectly legitimate way to buy coffee, it doesn’t take up nearly the same amount of time and energy that it takes to seek out new farmers and try to close gaps in market access. It also doesn’t constitute the same investment in developing resilient supply chains.

If that investment matters to you as a consumer, it’s important to talk to your importer about how they buy coffee; things like how much time they spend at origin, what they do when they’re there, who hosts them when they go, who coordinated the hosting, will give you some clues as to how vested they are within a region.

At Red Fox, we work very particularly in regions where we can work within our ideal purchasing model: deep investing in regions that are hard to reach, that have historically lacked market access and differentiation from the larger pool of regional coffee. While we’re very much focused on curating quality, we’re also deeply embedded in the supply chains we work within.

How Does Your Importer Add Value?

When you think about the price paid to the producer, it’s important to think about what kind of value an importer adds to the producer’s work.

For instance, at Red Fox we spend hours each day cupping samples. We might cup hundreds of samples to put together a bulk regional lot, separating out extra high-quality offers along the way and reporting our results back to each producing group. To make sure our cupping protocols are accurate and unbiased, we use a double-blind cupping system called signal detection where samples are randomized with multiple cups placed apart from each other on the table. To make sure our roasting protocols accurately represent every coffee that comes through our door, we do countless Ikawa experiments, tweaking our profiles constantly in order to find the profile that will show us who the coffee really is. And, once coffees arrive at the warehouses we work with, we taste every coffee every 30 days for as long as we’re in our position to track their quality over time and use the information to keep getting better.

Beyond that, people may not find logistics very exciting, but they can have a huge impact on quality. It takes a lot of work, but we make sure that coffee gets from origin to here in as timely and direct a manner as possible, ensuring that it lives up to its full quality potential from start to finish.

Importers come in all shapes and sizes, and even more than asking how much a producer got paid, it’s critical to learn about yours and how they work.

To learn more about the complexities of coffee pricing, take a look at Part 1, Part 2, and Part 3.  Stay tuned for part 5, which will cover how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph

 

New Fruits You Should Try: Nariño and Inzá

If you haven’t bought Colombian coffee from us yet, the time is now. We have delicious, versatile coffees from Nariño and Inzá on both coasts that shine on the cupping table and absolutely stun at production roast levels. Just as important as their quality, Colombia is home to some of our oldest relationships, and these coffees represent the absolute best of what community leaders can do from a local to a global scale, in terms of both impact and quality.

Our relationship with Inzá-based ASORCAFE dates back to 2006, when Geovanny Liscano farmed just one hectare of land with his wife and father. The coffee was superb and the infrastructure was humble, but over time, Geovanny reinvested profits back into the land, bought surrounding plots, and built up processing infrastructure into a thing of beauty for the whole community. ASORCAFE is incredibly well-organized with a laser-focus on ethics; they don’t allow corruption in their ranks, and this value shows in the cup. The coffees they produce are some of the most complete coffees in the country, bringing to the table a succulent sweetness, a juicy, ciderlike mouthfeel, and bright, clean acidity that can be malic, pear-like, and even kiwi-like. They’re perfectly structured and essentially flawless.

In Nariño, we’ve been inspired since 2007 by FUDAM leaders Raquel and Jeremias Lasso. With soaring altitudes and ideal varieties, the quality was always stunning; even more importantly, Raquel is an innovative leader that inspires the best work from her community and gives it in return. More recently, she’s formed a group within FUDAM called Manos de Mujeres, focused on the empowerment of women growers within her community, with projects ensuring they see a fair 50% of farm profits and a goal of opening an organic fertilizer facility. Currently in the process of becoming certified Fair Trade Organic, FUDAM is a perfect example of how community investment can and should represent an investment in quality. Flavor-wise, we see Nariño as the proverbial fruit basket: the best lots run the gamut from ripe, succulent stone fruits on the yellow flesh side (peach, apricot, nectarine) to tart, refreshing white grape and Granny Smith to perfectly sweet citrus of the most coveted varieties (tangerine, satsuma, and even sweet lime).

We have a ton of history with these coffees, and we want you to as well. Flavor profiles are diverse, so get in touch and we’ll help you find the perfect coffee for your menu.

Paying for Coffee—It’s Complicated: Part 3

Part 3: Sustainably Meeting Costs—Why Context Matters More than Numbers

Without context on cost of production and other costs throughout the supply chain, the price paid for coffee is just a number. Think of it like rent: if I told you what I pay for my apartment, the number would be meaningless without knowing more about its size, location, and the general cost of space in my region. The same is true for coffee pricing.

The main factors that affect cost of production for producers are the size of the farm, the varieties and yields on a particular farm, transportation costs, processing costs, and the labor laws that govern the region. Towards the middle of the supply chain, similar factors apply over top of this, namely the costs faced by importers (often affected by their size and operating costs) and how much margin they make over top of those costs in order to sustain their business.

Farm-side, the size of the farm has a huge impact on cost of production. Most farming equipment expenses are fixed, costing a certain amount upfront regardless of how much coffee the farm produces, so large estates benefit from economies of scale that smallholder farmers (most of the farmers we work with) can’t access. On top of that, certain varieties yield more coffee per year than others, meaning that for the same amount of planting and harvesting work, farmers get a smaller volume.

Transportation costs also change from region to region, adding significant cost to producers in more remote areas (again, most of the farmers we work with), and similarly, milling and processing costs vary depending on producers’ setup and infrastructure.

Last but not least, labor laws have a huge impact on producer costs: for example, in Ecuador where all full-time employees are paid a minimum wage in addition to health care and paid time off, costs of production (rightly) go up.

Towards the middle of the chain, size and operating costs have similar impacts. Smaller importers face higher overhead through lacking the same economies of scale; for instance, importers who don’t have their own warehouses pay for warehousing through third parties, costs that are significant and that larger importers don’t incur.

Another factor that affects overhead is how much work goes into coffee selection. For instance, since we work primarily with smallholder farmers, we might cup through as many as 250 samples to form a container, whereas other importers will have cooperatives or producer groups bulk smallholders’ coffees into larger representative samples and may only need to cup one sample to put together one (or even more than one) container. On top of that, just like producers, importers have to set a margin around total costs so that they have money afterwards to pay other expenses and invest back into their business.

To learn more about the complexities of coffee pricing, take a look at Part 1 and Part 2, stay tuned for part 4, and part 5, which will cover the diversity of purchasing models and the influence they have on cost, and how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph

Paying for Coffee—It’s Complicated: Part 2

Part 2: Farmgate, FOB, EXW, and Beyond—Terms for Pricing and the Factors that Complicate Them

When people in the coffee industry talk about green coffee pricing, they use a variety of terms that can often cloud how much buyers actually pay for coffee at various stages of the supply chain. Because no official term acts as a standard point of discussion, it’s important to unpack these terms and the context they require for proper discussion and build a shared lexicon with your importer.

The main terms used for coffee prices are farmgate, FOB, and EXW, which refer to prices paid at different points in the supply chain.

Farmgate price is a general term for what the farmer actually makes on the coffee after the exporter takes their cut. When accurate and based on solid data, this number is helpful in understanding whether or not producers are making ends meet, but unfortunately there are no official standard for determining farmgate price—often, when you ask people for the farmgate price of a coffee, the answer you get is actually the FOB price (defined below) inaccurately framed as the price the farmer got paid, or a general estimate based on an adjusted FOB, which can present various levels of accuracy about what farmers are actually making.

Unfortunately, since this isn’t standardized, asking for farmgate price doesn’t guarantee that you’re getting a number accurate to what the farmer made—much less once you factor in context of cost of production (which we’ll cover later in this series). For this reason, it’s critical to build a shared lexicon with your importer and make sure you’re having the same conversation.

FOB price stands for the free on board price, which means the price of the coffee at the time when it’s delivered to the boat at the port of origin and ready to ship. This is the most commonly used payment term between importers and roasters, but it doesn’t tell you how much the farmer got paid, nor does it tell you about costs incurred by the importer once the coffee lands.

EXW price stands for the ex-warehouse price, which means the price when the coffee gets delivered to the warehouse in the country of consumption. Between the port of origin and the warehouse, the coffee has to land at the port, go through customs, and enter the warehouse. Since each of these processes costs money, the ex-warehouse price is higher than the FOB, further from what the farmer got paid but slightly closer to an actual cost estimate for the importer.

Each of these terms constitutes an important piece of the coffee pricing puzzle. If someone gives you a farmgate price, do you know what their process is for determining that number? The accuracy of their answer hinges on this question. Or, if you know the FOB but not the EXW, you may not have a good idea of how much warehousing and domestic transit costs affect smaller trading companies as opposed to giant multinationals. This, too, is an important piece of the puzzle of how much the producer got paid and how those costs echo up the supply chain.

To learn more about the complexities of coffee pricing, take a look at Part 1 and stay tuned for parts 3, 4, and 5, which will cover the importance of cost of production in coffee pricing, the diversity of purchasing models and the influence they have on cost, and how to ask an importer the right questions to make sure your purchases fit your values.

By: RJ Joseph

Three Forests: The Guji Uraga Story

At some of Ethiopia’s most extreme altitudes lies Guji’s Uraga region, a dense, mountainous forest that spans almost a thousand miles. Within this huge forest lie three smaller forests, and from these three forests—Yabitu Koba, Larcho Torka, and Harsu Haro—come some of the most extraordinary and sought-after coffees on our menu. These coffees are coming in soon, with our first containers having arrived, and they’ll go fast, so if you’re interested, get in touch.

Despite the incredible quality found in Guji Uraga, you wouldn’t have found these coffees on the market ten years ago—at least, not as Guji. Back then, Guji coffees lived under the Sidamo subhead, and the stellar coffees of Guji Uraga were trucked across the border into Yirgacheffe, where they could find a slightly higher price due to better name recognition. In 2010, Aleco tasted these coffees and recognized that they were unique, second to none, and worthy of differentiation. Now, eight years later, the three forests themselves and the distinct coffees within them deserve their own differentiation.

In Southwest Uraga lies the smaller Ugo Begne forest and Yabitu Koba village, where the Hana Asrat washing station produces a truly singular coffee. Managed by lifelong coffee trader Feku Jebril, Yabitu Koba brings with it incredibly ripe red fruits, blazing acidity, and classic Ethiopian florals like bergamot and jasmine. Originally hailing from Dilla, Gedeo’s capital, Feku sold the huge wet mill he used to own in order to move deeper into the forest, managing coffee production at Yabitu Koba with a laser focus on quality.

Heading northeast towards the center of Uraga, sky-high at 2510 masl, lies Larcho Torka forest. Managed by Feku’s brother Abdi Jebril, also a lifelong coffee trader, Larcho Torka coffee brings with it elegant flavors of candied lilac, a balanced lemonade acidity and dense, sugared sweetness. Abdi’s work at Larcho Torka is characterized by the same quality focus as Feku’s.

Towards Northeast Uraga lies the smaller Bire forest, a newer producing area where the coffee trees are young, only four to six years old. High up in the mountains at 2300 masl lies the Harsu Haro washing station, producing a coffee that offers the dense sweetness of raspberry and currants and the ripe, balanced acidity of clementine and yellow peach.

In all three forests, absolutely meticulous processing puts its signature on these coffees: first, they pass through McKinnon depulpers, then move into washing channels where they lose the rest of their mucilage. They move into soaking tanks for another 12 hours overnight, and in the morning, they’re laid on drying beds for eight to ten days.

The next step is key to the incredible shelf-life of Guji Uraga forest coffees: after drying, they move into the warehouse and rest for a week after drying to condition and stabilize. After that, the washing station teams hand-sort through the parchment, selecting only the cleanest coffee. Because of their incredible potential, consistently realized through meticulous processing, Guji Uraga Forest coffees not only come in sparkling, they continue to bloom and get even better over the course of the year. In coffee, there are two ways to do business: produce the most coffee, or produce the best, and Yabitu Koba, Larcho Torka, and Harsu Haro produce the best. These coffees will be here before you know it, so get in touch.

Paying for Coffee—It’s Complicated: Part 1

Part 1: Paying for Coffee—It’s Complicated

“How much did the producer get paid for this coffee?”

This is a question we’re excited to be hearing more of. Thanks to an epic and sustained dip in coffee’s C market price, more and more roasters are thinking about how much it costs to produce coffee and wondering if the producers whose coffee they work with are meeting those costs.

While it’s crucial that roasters interrogate whether or not producers are getting paid enough to survive and thrive, it’s even more critical that the answers they get are informed by the proper context. While asking about prices paid to farmers can be a great place to start, without the frame of reference about those farmers’ costs, how the importer is calculating that number, and what the middle of the supply chain looks like, those numbers can be all but meaningless. For real change to come from this conversation, we need to unpack the context that informs what coffee prices actually mean: we need to go further.

In this series, we’ll talk about why coffee pricing is complex, why context matters, and why it’s important to go deeper than asking for farmgate price.

In Part 2, we’ll talk about the terms for pricing coffee and the factors that complicate them: the meaning of farmgate pricing, the real numbers that underpin it, and the impact of shared lexicon—or lack thereof—on discussions around pricing.

Part 3 will discuss cost of production and sustainability, as well as why context often matters more than numbers.

In Part 4, we’ll talk about purchasing models and why what you pay sometimes matters less than how you buy.

In Part 5, we’ll explore how to ask the right questions about how coffee was priced and get real answers about your importer’s purchasing model.

As coffee lovers, we need to continue having that conversation and delving deeper; it’s absolutely critical to the future of coffee. To do that, we need to unpack all the context we can on what these numbers really mean, so that consumers at all levels of the coffee industry are able to make informed decisions about where their coffee should come from.

By: RJ Joseph