It has been roughly two and half years since I took over the green buying responsibilities from Sam. One of my key goals was to start purchasing directly from producers at the farm level, which I can happily say we achieved this year in our Honduras offerings and our forthcoming fresh crop from Brazil. Given the diversity on our current offer sheet, I thought it might be the right time to reflect on the different models for sourcing and discuss some frequent misconceptions on trade practices.
A disclaimer here: I am going to be talking about origin prices in a very generalized way. Every region produces coffees that sell on auction for very high prices (take, for example, the Esmeralda Geisha Cañas Verdes, which sold on auction this year for a whopping $1,325.00 per kilogram) and unjustly low prices. Also, I am also going to stumble through this with my typical crude and brutish flair, so I would be remiss to not point out that several other roasters have issued incredible sustainability and transparency reports (including counter culture, onyx, and 49th), which are certainly worth a read.
So, I often encounter the misconception that South America produces the most expensive coffees. It no doubt stems from endless campaigns from chains that claim (alteration is fun) ‘100% Arabica from Colombia’. Granted we do spend a fair bit of our yearly budget on gems like La Palmera, but at Cut, our most expense offerings are always those from Kenya and Ethiopia. So despite the fact we have direct trade and fair trade coffees on our menu, it is actually those lone, unmarked, certification-free coffees that cap out our budget.
To make sense of pricing, lets start with the c-market. Coffee is traded on the commodities market, meaning it has a daily price reflecting the value of current trades and ‘futures’ (spot, forward, and option contracts for ‘future’ crops of coffee). This is the base point for purchasing and, as of Friday’s close, it sits at $1.25 USD per pound of green coffee. A massive chunk of global coffee (aka ‘commodity coffee’) sells at this price or with a small set amount added to that floating mark (for example, “c-market +0.15 USD”). In fact, those ‘100% Arabica from Colombia’ slogans would be referring to coffee purchased at this low price.
Fair Trade and Organic certifications exist in relationship to the c-market. You can always access these price points on Fair Trade International’s website. As of September 6th, for washed arabica Fair Trade coffee the ‘minimum price’ is 1.40 USD plus a +0.20 USD ‘Fair Trade Premium’. If the c-market exceeds that minimum price, the premium shifts to that value. As one of the largest certification organizations, they also list the organic differential, which currently sits at +0.30 USD. Meaning, the price for Fair Trade and Organic certified washed arabica coffee is currently 1.90 per pound, only 0.65 USD higher than base market price.
As outlined in past emails (or in this case, blog entries), to gain these certifications, producers must use third-party organizations, which often cost a great deal of money and require a larger scale operation. Seeking the fair trade logo at second wave chains is a great idea, as it will typically mean a better relationship with farmers and producers. However, it is still such a low base price that it is by no means a principle we rely on at Cut.
In Part Two, we will tackle Direct Trade.
Lee Knuttila 