Post by: Dušan Matičič, Head roaster at GOAT STORY
Cover image: PLOTCOFFEE Green Coffee Ambassadors
The last couple years have been tough on the world. The world economy is at a crossroad, the epidemic isn't helping and while politicians are trying to tell us thgat everything is fine and dandy we're seeing indicators that sh*?* is about to hit the fan. And I'm sad to say that coffee is not excluded.
So what's going on in the world of (specialty) coffee?
We won't sugarcoat it – the price of coffee is rising.
Let's move back a couple years. May 2019 to be exact. The price of coffee at the commodities market has reached a shocking low by plunging below $0.90/lb. While this was good news for consumers, roasters and coffee dealers, it was bad news for coffee farmers. Production of coffee at that price, no matter the quality, was unsustainable. And the result was clear ... farms were struggling. Struggling to survive. Receiving such a disgraceful price for crop that needs a lot of manual labor simply doesn't make sense.
And farmers reacted.
Farms closing. Farmers ruined. Some moved to other crops to at least break even. Families couldn't afford to put their childern to school. A price as low as that simply doesn't make sense to keep on production.
And the world of coffee? Well, big players stocked up on contracts for coffee at that low price. Hey, it's a free market, right? Wrong. It's capitalism at its worst ... Making huge profits on the shoulders of farmers who struggle to survive. It's wrong.
Now even in 2019 with super low prices of green coffee, the specialty coffee community took a different approach by paying premiums on market prices. I'm happy to see roasters worldwide paying respect to coffee producers and paying a fair(er) price for their green coffee.
It makes sense.
Let's get a bit hypothetical here ...
We're a roastery and we like to offer great coffee to our customers. Great coffee doesn't grow by itself. That is why we source coffee from farms that take special care in growing their coffee. Because they afre aware that if they grow high(er) quality coffee they can charge a higher price for it.
So we have high quality coffee at a higher price. What does that mean?
- The farmer receives a fair price for the coffee. He can put his kids to school, invest in better farming processes, fertilizer, experiment with new varietals, processing methods. Ensuring that the quality of coffee will get even better each season.
- Awareness for specialty coffee grows. We are seeing this in our country where people are willing to pay the extra price to get a better cup of coffee thus increasing demand for a better cup of coffee.
- With increasing demand for high quality (specialty) coffee we as roasters can increase our purchases of green coffee, which means farmers can sell more coffee and generate higher profits. Circling back to #1 ...
I'd say it's a win-win for everyone: farmers make a decent living and feel respected for their work. Roasters roast more coffee thus growing their business. That means also expanding their partnerships with farms. And coffee loving customers are treated with a better cup every season. Now that all makes sense, right?
Now just to be clear – this concept doesn't apply to the masses ... coffee is still mostly treated as a »need« instead of »pleasure«. And while the specialty coffee segment is growing in the world, it's still a niche. But hey, it's a growing niche!!!
And now back to the price of coffee in the market.
The market price of coffee has tripled since May 2019 with a price increase of 90% in the last year only. And while the price was at an long time low just a couple years ago, it's now hovering at a long time high. We're now seeing the highest price for coffee in a decade and the price just seems to shock us every day.
Market price of coffee going from crazy lows in 2019 to crazy highs in 2022
Why is the price skyrocketing?
When the amount of coffee that is available in the world declines, the prices rise. Yup, basic free market economy. If coffee supply is scarce, those who need it are willing to pay a higher price. Until demand for coffee declines (or there's more coffee produced).
And we're slowly getting closer to the core of the problem right now ...
You may already know that coffee is produced in about 70 countries in the world but the bulk of coffee production is concentrated in a few countries: Brazil and Vietnam account for about half of the world's coffee production. Colombia, Indonesia and Honduras account for another quarter. A change in production in any of these countries can send shockwaves through the coffee market. And last two years have been ... crazy.
The cost of coffee production has risen, that's a fact
Fuel, fertilizer, packaging, labor, even packaging materials – it's all getting more exspensive. Contributing to an increase in price. An if that weren't enough, here comes climate change, Covid and the crazy price action in global logistics that caused the movement of coffee around the world to increase drastically – right now the price of moving a container of coffee is about 4-5x more expensive compared to a couple years ago.
Challenges at the origin
Let's start with Brazil who has seen frost like never before in 2021, wiping out a significant amount of their coffee output. And to make things even worse, frost affecdts farms on a longer time scale because a coffee plant that was damaged by frost will not grow coffee anymore. This means that farmers need to replace the damaged plants and these new plants will grow coffee after 3 – 5 years, leaving a gap in production. There are some less affected plants that can be pruned, but still it takes a couple years for the plant to recover. And imagine, when the largest producer of coffee in the world doesn't produce enough coffee, markets react with higher prices due to lower availability.
Coffee frost in Brazil - a sad sight for the coffee industry
As for other high volume producers, Vietnam has suffered a blow due to Covid cases skyrocketing last year, causing lockdowns that blocked the shipping of coffee. Again, less coffee in the market, prices rising.
Add to that some crazy rainfall and protests against the government in Colombia that caused 2021 exports to drop significantly and we're seeing the bigger picture now ...
The price of coffee is high at the moment due to lower supply, higher cost of production and logistics. And while some roasteries can keep the prices at pre-crisis level due to larger stock of coffee in their warehouses that they bought at a lower price, I do expect a significant price increase in roasted coffee. It's already happening. Prices of coffee for the end consumer are already rising but the worst is yet to come later in 2022.
Specialty coffee roasters do have an advantage here as we have been paying premiums on green coffee even before the whole »crisis« struck. But still, we're seeing and increase in prices.
At GOAT STORY we're fighting price increases by optimizing our workflow but rest assured that we will never lower our quality of coffee coming from our roastery. Because you deserve an amazing cup of coffee.
We just wanted to give you a heads up if you notice a slight increase in the price of coffee. It's not an excuse. It's a free market reality.