Diving Back into Costa Rica

This piece comes directly from owner and co-founder Aleco Chigounis. 

The first country I ever worked in and one in which I have deep roots, Costa Rica is singular in that it’s one of the few coffee-producing countries where coffee farming is a truly viable business. 

As we embark on this new origin voyage in Costa Rica, we hope to better understand and be part of the realities behind this success and apply them to our other core origins. The upward mobility of producers is always front and center in our work, but a constant struggle in most coffee-producing regions, especially the remote smallholder communities we’ve built our model on. These first purchases from Costa Rica represent the next step in exploring how that mission can look different from place to place and is constantly evolving as the core of what we do. 

History

While new to Red Fox as a coffee source, Costa Rica is not new to me personally. I have history there beginning in 2002 when, four days after graduating from college, I hopped a plane to San Jose to work for Rodrigo Vargas of the famed Doka and Santa Eduviges Estates. Rodrigo was in the midst of opening a roastery and a series of coffee shops along the trail from his farms in Alajuela to the Poas Volcano. He wanted help getting this business off of the ground. He brought me down to do just that.  

I started with zero experience on the origin side but all of the will and desire to get down there and learn. I had never even been to mainland Latin America before jumping on that plane from Newark. I had no clue what to expect. Doing so forever changed my life, powerfully. My life and career were instantly propelled down a singular path focused on green coffee sourcing. I’m still very much on that journey thanks to Rodrigo, Arnoldo Leiva, Manuel Morales, Juan Ramon Alvarado, and the countless others who either took me under their wings or gave me opportunities to help me climb that ladder as a coffee professional.  

After a year working between Rodrigo’s estates and his export company, The Coffee Source, I moved on to run a joint venture for the Neumann Kaffee Gruppe between Costa Rica, Guatemala, and InterAmerican Coffee in Houston. Over the course of my time down there I had the opportunities to learn from the farm level through export, working for an independent producer and then the largest wet milling operation in the country. I trained with many who still might be the best cuppers I’ve ever learned from. These were very much my formative coffee training years.  

Changing of the Tide

Strictly from the sourcing end of the spectrum, I did my best work in Costa Rica after having moved to Portland. I became the buyer for Stumptown exactly in tandem with the launching of what was coined as “The Costa Rican Micro Mill Revolution.” Prior to this tidal shift, coffee farmers in Costa Rica historically did just that: farming. Centralized wet mills dominated the landscape for over a century. Producers tended their farms over the course of the year through harvesting, bringing their cherry down the mountain to either a cooperatively-held or privately-owned washing station where their coffees were blended with that of other farmers across their greater region. In Costa Rica, differentiation and brand identity didn’t exist for those other than the largest landholders.  

That is, until the early aughts. Coffee farmers ranging from just a few hectares of production to several dozens of hectares began investing in processing equipment along the lines of mechanical demucilagers over traditional fermentation methods. Costa Rica has some of the strictest environmental standards of producing countries when it comes to water contamination and reintegrating water back into the local waterways. With mechanical demucilagers, smaller producers now had the ability to keep their product identity intact and therefore extend value for their goods.  

The Costa Rica I left in 2006 was not the Costa Rica I came back to buy from in 2007. 

Since then, producers have been able to gain control over their own supply chains and branding from start to finish. Other factors help producers succeed. It’s a country with a great education system and fantastic roads. It’s a small country, making transport and access far easier than other origins we’ve built Red Fox around. Production is also small in Costa Rica, and scarcity means higher prices. Producers there don’t just survive, they make a viable living.  

Red Fox Producer Alliance

The producers we kick off our Costa Rica campaign with are virtually all folks that I had bought from for a very long time prior to founding Red Fox in 2014. Tonio Barrantes from Herbazu in Lourdes de Naranjo, Ricardo Perez from Helsar de Zarcero in Zarcero de Naranjo, Hector Bonilla from Don Mayo San Marcos de Tarrazu. These folks are the pioneers of that micro mill movement almost 20 years ago.  

We’ll be offering a series of processing sets from these three mills later this month. Keep your eyes open for details.  

Why Now?

When we started Red Fox, it was with a goal of helping smallholders in remote, isolated areas gain specialty market access and brand recognition for their superb coffees and communities. On starting the business, I didn’t look to Costa Rica for just that reason: they didn’t need that kind of uplift. It wasn’t complicated–the value we could bring to the table was to work in the places that had less marketplace access, not places where sourcing was already viable. 

So what’s changed? Over the last few years we’ve been in more and more frequent contact with old producer partners, who’ve reached out with the intent to increase their diversity of buyer. With our long-term relationship, they’re looking past the exclusivity they have with current supply chains and want to broaden their options. From our end, we had previously shied away from profiles outside of those that washed coffee brings to the table so consistently. But 2022 has brought new experiences and an expansion of our own minds and palates. We’ve bought more sundried coffee than ever from our partners in Ethiopia, and we’re excited to bring on new profiles from Costa Rica to diversify our customers’ menus as well. 

2022 Season

This year, we’re working with four different producer families. 

The biggest share comes to us from Finca Las Nubes in the Dota Valley of Tarrazu, up around 1800 masl and owned by Roberto Mata. He’s the only one we’ve never bought coffee from before, but not because it’s a new relationship. When I was buying Costa Rican coffee with Stumptown, he was a leader in a large cooperative, and we’ve been friends since the beginning. Now that he’s retired, he grows his own coffee: 

Finca Las Nubes: fruit forward, refreshing, Rainier cherry, kiwi, lemon-lime. 

We’ve purchased several lots from a wet mill called Don Mayo In San Marcos, Tarrazu, owned by the Bonilla family. Multi-year COE winners, they were one of my biggest sources back at Stumptown.

Don Diego Washed: yellow plum, green apple, toasted sugar

El Beneficio Yellow Honey: pear, carob, blondie

La Ladera Yellow Honey: Hosoi pear, red honey

San Miguel Anaerobic Natural: articulate Bing cherry, fresh-cut strawberry

Don Mayo Natural: green grape, spring honey (fresh, ethereal) 

Los Tucanes Red Honey Geisha: ripe blackberry (very tart but sweet), high percentage cocoa

Herbazu comes to us from the Barrantes family in La Planada, possibly the one we’re most excited about. Antonio Barrantes is one of the pioneers of this micromill revolution, and his coffees are spectacular. These lots include the famed Costa Rican Villasarchi variety.

Finca La Planada Washed: clementine, tropical lime, refreshing finish. Possibly my favorite of all. 

Finca La Planada Yellow Honey: honeysuckle, green grape, meyer lemon

Helsar De Zarcero comes from the Perez family, Ricardo and his two daughters, in Naranjo in the West Valley. We’re buying just a little this year but there’s lots of room to grow. 

Finca Las Casuarias Washed: Raisin, milk chocolate, fresh whole milk or cream finish

Finca Las Casuarias Red Honey: Golden raisin, dried redcurrant, green apple

Interested in sourcing coffee with us? Reach out at info@redfoxcoffeemerchants.comTo learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.

Q3 2022: Looking Towards Great Peru Season Amid Complex Logistics, Competitive Acquisitions Market

As we head into Q3 2022, global and domestic logistics issues persist while the C market has remained high and relatively more stable over the last quarter. Summer SPOT staples Ethiopia, Mexico and Kenya are looking great with the vast majority of containers either here or on their way while we roll straight into Peru, Colombia, and Rwanda seasons. In producing countries, coffee prices remain high and competition for top-tier specialty is fierce. As always, we’re directly on the ground connecting with key partners and making sure they’re happy delivering their coffee to Red Fox year over year, whether the market is up or down. In Peru, we’re expecting our earliest shipments yet. 

Read on for more on all of this, or click here to listen.

Supply, Demand, & The C Market

As we’ve said before, we don’t use C market futures to hedge, nor do we trade a speculative position. The main role market fluctuations play for us is in acquisition discussions with producer partners and ensuring our prices are competitive no matter what. However much we want to work outside the C market, high and/or volatile markets like the current one impact supply-side dynamics and from there, the supply chain as a whole. 

While daily volatility in the C price persists, the range over the last quarter seems to have tentatively stabilized around 220 cents per pound. At time of writing, the market hovers near that level. Over the last quarter, its largest daily jump of 16 cents per pound in early May occurred after it had almost dipped below 200. Every time it seems to break 230, it’s followed by a few days of adjustment bringing it back into that 220ish range. 

That said, key Arabica origins Brazil and Colombia have increased exports, with the Brazilian Real valued at a near six month low, further increasing pressure to export. While in the past, those increased exports would indicate a softening market, current analyst sentiment is that the market will continue to ride high into 2023. 

Despite increased exports and projections in some of Arabica’s largest producing countries, some analysts still project a global deficit for 2021/2022 season. This dynamic could shift as inventories in consuming countries continue to grow and we could possibly see a turnaround as early as later this year. Currently, SPOT coffee has tremendous value as the deficit hangs on. From Red Fox’s end, we’ll see our SPOT position grow through summer as top Mexico lots have landed and will continue to do so. We also have our eyes on the prize in Peru as we begin acquisition season this month.  

The biggest supply challenge remains logistics and the continued container shortage. Increased Colombia imports have also created what we expect to be a short term warehouse backup in Houston due to commercial roasters and pent-up demand. 

Inflation and recession fears continue to worry analysts, but the market is currently trading within range of the 20 day moving average.  

Note: At time of publication, the C market is down over 10 points. 

Logistics, Port, & Warehouse Updates 

Ocean freight delays continue, exacerbated by COVID lockdowns in Chinese port cities reducing global container availability. Domestic logistics challenges persist. Gas prices are extremely high, causing inflated trucking pricing. Chassis availability is very limited. Truckers have to fight for equipment to pull containers from the pier. Removing containers from port before demurrage charges start is a major struggle. Warehouses are backed up unloading and stripping coffees into inventory, causing additional delays.

Congestion in gulf ports, especially Houston, increased significantly as importers attempt to find new routings to West Coast warehouses. Houston warehouses are operating way over normal capacity with significant delays preparing orders for pickup, even turning away containers they have no room to unload.

Rail lines from Houston and the East Coast are overwhelmed and increasingly running short of equipment. Appointments for pickup from rail yards are extended, often two or more weeks out before freight can be picked up or delivered to warehouses.

Domestic trucking disruptions continue. All carriers continue to adjust pricing amid high fuel prices and increased overall costs. Customers are frequently reporting delayed and damaged freight, with little sign of easing in the near future.

Mexico 

Despite challenges on multiple fronts during the Mexico harvest and shipping season (particularly lower production and increased costs), we’ve had our biggest and best year to date in terms of overall volume and quality sourced. We’ve increased our personnel and presence in this increasingly re-emerging and important origin.  

The majority of shipments are now either landed, afloat, or in transit with final lots being milled this week. With continued difficulties at port including shipping line availability, delays, and high prices, we’ve used the opportunity to move coffee overland across the US/Mexico border whenever feasible, greatly decreasing transit times.

Harvest is complete and origin activity is focused around finishing milling and shipping as well as planting. The rainy season has begun in full force across the country after a slight delay and reports show a strong flowering.  

As if more challenges were needed in the already fragile production zone of Sierra Sur in Oaxaca, Hurricane Agatha made landfall on the mountainous Pacific Coast as a category 2 storm in late May, bringing severe flooding and damage to the region. This was the earliest category 2 storm off the Pacific ocean in recorded history. Of the hardest hit areas, the remote, isolated Ozolotepec region in Pluma—where we source some of the top coffees in the state from several small communities—was the hardest hit with landslides, power outages, and damaged and closed roads from heavy flooding and winds.  

Longer-term damage is still being assessed, but we know coffee trees were part of the losses and the next several harvests will be impacted. We’ll know the full extent of these losses in the coming months. 

We’re working to coordinate relief funding to support rebuilding and replanting efforts in these communities through coffee sales with our respective roaster partners. If interested, please reach out to your sales representative. 

Available Lots:

We have tons of fresh arrivals with more arriving in July from Oaxaca, Chiapas, and Veracruz in NJ, Houston, and CA. Reach out for pre-ship and arrival samples!

Peru 

Our sourcing team spent the month of June visiting supply chain partners in Amazonas, Cajamarca, Cusco, and Puno to plan for the 2022 season. 

While quality is up from last season, production is down an average of 20% across the country. This is due partly to inconsistent weather and the regular coffee production cycle, among other factors. Some supply chain partners reported lower production due to a shortage of guano de isla, a critical fertilizer input for organic coffee farmers. Earlier this year, the Peruvian government encouraged use of guano de isla to replace urea, a synthetic fertilizer imported primarily from Russia and in short supply since war began in Ukraine, causing a countrywide shortage of guano de isla

The price of coffee is up 25% from this time last year. Buyers across the country are paying around 16 soles (USD $4.30) per kilo of parchment, compared to around 12 soles last year. 

In Peru, we work almost exclusively with producer groups (cooperatives and associations) to source coffee—the only exception being Puno, where we have been unable to find a reliable partner. Even as we’re fully confident in our producer partners being able to deliver our volume based on conversations in the field, we’re seeing concerns that the competitive market may threaten the stability of producer groups in general, a critical community support structure for producer longevity and quality.

We’ve seen over time how these groups are best positioned to provide growers with the agronomic assistance and community support required to produce quality coffee. While not all producer groups are perfect, they’re also best positioned to provide a competitive and stable option for producers to sell their coffee over the long term. They provide consistently higher prices whether the market is down or up for significant volumes of coffee rather than just microlots. Producers typically have market options and can access high prices for top lots even when the market is down but lack good options for the bulk of their coffee (clean cup 84/85 point coffee) when the market is down. Red Fox and producer groups both pay consistently higher than market prices for volume, even when the market is down.

The role of producer groups goes far beyond trading coffee. Producer groups we work with play an instrumental role in providing supplies like fertilizers, materials for the implementation of wet milling and drying infrastructure, seedlings, agronomic assistance, and more. These services are critical to increasing both quality and productivity. In a supply chain where individual producers have an average of two hectares in remote locations, it’s difficult and costly for producers to get these inputs and services on their own. 

Producer groups also obtain certifications which increase the value of their members’ coffee when prices are down. Some groups provide access to credit, not just for programs related to coffee production but also to cover unforeseen expenses such as medical emergencies. They offer employment opportunities, training for young people, disaster relief, and cover gaps the government leaves in remote communities, like during pandemic restrictions in Spring 2020. 

It’s important to note that not all producer groups benefit members. There are many mismanaged groups with corrupt leaders or employees and other organizational issues. We spend a significant amount of time in the field vetting groups and making sure we’re aligned. We’ll stop working with a group if we are not staying true to our model.

In Peru, we pay the most competitive prices we can for coffee regardless of the C market price, and we rely on producer groups to provide these services and to pay competitive prices to their members. Producer groups are present year-round, not just during the harvest season to purchase parchment. The current local market is incredibly competitive, and producers have many options for selling their coffee. Local traders procuring coffee for large commercial buyers, multinational companies, and even specialty coffee companies are going farm-to-farm offering cash upfront for parchment. 

While it’s always a win for coffee producers to receive high prices, the current local market may have a long-term destabilizing effect given the volatility of coffee prices: we know these buyers won’t be going farm-to-farm offering attractive prices to producers when the market comes down. In the current market, it’s difficult for producer groups to compete with the local market prices because they make investments that these other buyers don’t. There’s concern that producer group members will sell at least some of their coffee to local traders, putting producer groups in a difficult position with the long-term buyers to whom they have committed volume. 

Ultimately, these local traders reap the benefits of the investments made by producer groups. The local traders’ total investment to purchase quality coffee is less because they are only paying for the parchment itself. We’re committed to paying competitive prices. We need to do so even in this context, where we, via the producer groups, are ultimately subsidizing the local traders whose only relationship with the producer is a commercial one. 

The producers we met with this past month are committed to their producer groups, to producing quality, and to maintaining a long-term relationship with us. After facing similar challenges last year, we’re confident that our supply chain partners will fulfill their volume and quality commitments with Red Fox. At the same time, we want to ensure that they’re well positioned to do this through the prices we pay. 

Perus will be going afloat earlier than ever this season, with the first containers scheduled to ship to New Jersey and California in August. 

Available Lots:

We’re flush with beautiful Peru SPOT in warehouses on all three coasts.

Ethiopia

As Ethiopia awaits the necessary rains to trigger flowering for the coming harvest, we’ve heard conflicting warehouse information out of Addis on the current crop in recent weeks. On the one hand, we’ve received news of bottlenecks due to full warehouses of processed green and container shortages. On the other hand, we’ve heard reports of depleted stocks due to increased violence in the field, specifically in Oromia via OLA (Oromo Liberation Army) forces against the Amhara peoples, preventing parchment from flowing into the city. 

Regardless, prices remain high as the larger exporters look to fill their short contract commitments. Travel to those Western areas remains close to impossible.  

Red Fox shipments have final US ETAs of July and August as more than 70% of our purchases are already stocked into warehouses on all three coasts.  

Available Lots:

Continental Terminals NJ and Dupuy/Cadeco Houston are flush with fresh crop offerings.  We are in the process of moving a larger SPOT position to The Annex, CA as well.  

We’ve also taken a deeper dive into the world of sundried coffee this season and have some extraordinary G1 lots from Guji Uraga arriving over the next five to six weeks.  

Colombia 

The big political news out of Colombia is the recent electoral win of former M-19 soldier and leftist populist Gustavo Petro over right-wing, Trump-style candidate Rodolfo Hernandez. The Petro win has quelled any immediate potential for protests and violence across the country.  Ports and major arteries remain open for business.  

The latest concerns for the coffee industry are currently three-fold:

  1. The continued devaluation of the peso against the dollar.
  2. Extended rainfall in this La Niña year expected to decrease production across the southern end of the country—specifically Cauca, Nariño, and Huila.
    1. According to our friend Frederic Boppe in Popayan: “during the next quarter (June, July, and August) Colombia will see rainfall over 30% above historical averages in much of the North and South regions.”
  3. A fertilizer shortage across the country.

The Ports of Buenaventura, Cartagena and Santa Marta are still experiencing container shortages although vessel departures to both the US and Europe are increasing.

Our friends at Asorcafe in Inzá are beginning to receive parchment at the association warehouses across the region. At time of print we’ll have cupped and vetted the first 10,000+ kg of parchment coffee. 

Our friend Gildardo Chincunque in Nariño has received nearly half of his expected volumes for the season in various subregions of Tablon de Gomez. We’ll be with him in the coming weeks to select through parchment and build lots.  

Prices are through the roof—more expensive than last year. We’ll have AFLOAT offers north of $5/lb EXW on our offer list prior to Labor Day.  

Rwanda 

The harvest season in Rwanda is in full swing and we’re seeing the first outturns from Kanzu in our Berkeley lab. 2022 is looking to be a year of high volume and high prices.

Weather has been good, including moderate and timely rainfall for cherry ripening. Both the Nyamasheke region and Rwanda in general are expecting higher volume than the last three years, a natural outcome of the cyclical nature of coffee production. 

Cherry prices are at a historical high across the country. The minimum price set by the National Agricultural and Export Board (NAEB) was 410 Rwandan francs per kilogram (rwf/kg) of cherry this season, an increase of 65% over last year’s price. In the Western Province and Nyamasheke region, where Kanzu is located, prices hit highs of 850-900 rwf/kg. NAEB has also released a new policy regulating export charges. Since May 30, export charges have increased from USD 2,033 per container up to USD 6,908 per container. Increasing costs are affecting the entire supply chain.

We’ll be cupping and approving lots in Kigali in mid-July and expect to have containers approved for shipment by the end of July. 

Kenya 

Kenya is now in the midst of their fly crop, though cooler weather has paused ripening. The hope is for heavy rains in the coming months to ensure a larger supply of AA and AB grades over C grades. Minimal rainfall could also potentially have a negative effect on quality. Kenya and the Port of Mombasa continue to face the same global container shortages and inconsistent vessel schedules as the rest of the coffee world.  

Available Lots:

Our SPOT stocks on all three coasts continue to dwindle due to heavy demand this season.  Our fourth and final container of the season has now arrived to Port of NJ and should strip into Continental, NJ this month.  

Guatemala 

Guatemala faced increased challenges this year as production costs rose 32% with fertilizer prices doubling. A lack of migration also worsened labor shortages.

On the weather front, June saw steady rains, boding well for the upcoming harvest. Our partners anticipate higher yields.

Available Lots:

We have fresh arrivals in NJ and Houston with bags en route to CA. Los Arroyos from Huehuetenango and San Jose Poaquil from Chimaltenango are available now in NJ.

To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.