Chances are if you are reading this you enjoy drinking coffee and likely have a regular café, or favourite shop, or a brewing set-up at home. Which also means, you have likely encountered higher prices, especially over the last year. For this dispatch of Ask Lee, we dive into the mechanics of the ‘c-market’ for coffee but ask a better question: are higher prices not a good thing for the coffee chain?
To understand how coffee pricing works, there is a couple of crucial details. First, coffee is traded in USD. When I purchase a coffee either directly from a farm or through my network of exporters, the price is always reliant on the conversion rate of the Canadian Dollar. Equally, depending on where a coffee originates, the producer is tied to the fluctuations of American currency. Second, base coffee pricing is typically determined or calculated by the ‘c-price’. So, what is the c-market?
It is the global commodity exchange, which is similar to the stock market, but represents tangible goods. On this exchange, ‘coffee futures’ are bought and sold, akin to someone investing in the value of metals like gold or crops like grain. The logic on the c-market is determining the value of coffee in the future. It is accordingly speculative in nature. It is expressed in a ‘contract’ for 37,500 pounds of coffee and the price itself comes down to how much each of those pounds is worth in USD. The actual mechanics of the exchange operate with producers offering up coffee, the exchange warehousing them as ‘certified shares’ then buyers purchasing at the exchange rate.
So within this system, the more interesting question arises: why does it fluctuate? Since the price is determined by the value of coffee in the future, all the elements that affect coffee come into play, like climate change, harvest yields, the impact of geopolitics, production costs, plant disease, and so on. For example, too little or too much rainfall in a major producing country like Brazil means coffee will be scarce come harvest time, and the c-market price would rise. Alternatively, say new roads are built from major mills to facilitate transit to port, by easing complications, the price might go down. The list of factors is endless which speaks to coffee’s precarious nature as a living product heightened by the fact that coffee demands a very specific set of conditions that globally, only exist in a very select set of places.
I have been familiar with the c-market since starting in roasting but have often wondered: why does it exist? Originally, the aim was stability harvest-over-harvest because farmers would always have access to a market for selling, despite any shifting market demand or something like oversupply. Conversely, coffee roasters or importers would consistently have access to a stockpile of coffee despite potential shortages. It is a way to ‘fix’ a price or ‘hedge’ pricing in the sense that you can predict what is going to be on a coffee roaster’s menu months ahead or ensure that there will be a return on harvest.
However, there is a big ‘and yet’ at play: traders on the c-market extend well beyond the coffee industry. It is run by ‘speculators’ who leverage the market, not as farmers or importers or roasters, but as investors. In fact, increasingly the majority of coffee future contracts are purchased as part of portfolios, by pension funds, or hedge funds, or mutual funds, or by way of trading firms.
The reason is simple because of the litany of forces outlined above, coffee is unstable, and low stock translates to high prices. This fosters a return on investment. For example, low rainfall in Vietnam threatens yields, meaning prices will go up; firms which have ‘ample liquidity’ (in other terms, cash on hand) can buy contracts driving the prices up further and then turn around and sell these contracts at profit. Meanwhile roasters, who likely do not have as much liquidity and often need to contend with interest rates on loans, will then struggle to buy futures too far out due to prohibitive pricing.
You might be thinking: but Lee, specialty coffee pays more than these baseline prices, so none of this stuff really matters. Absolutely, specialty prices are typically above c-market and the quality of c-market coffee is not great. Its a screen size 15, ‘clean graded’ and typically old. But this all does matter given its significant sway on pricing across the board. Prices build upward from the c-market and the two are always connected. And more importantly, given the way specialty coffee positions itself as an industry that cares about farmers, this is hugely significant for producers.
I have talked about the ‘value proposition’ in many posts, with the take away being: so much of what we do is about getting cafe guests or home brewers to understand how much labour is behind every cup of coffee. It is about aligning coffee’s true value with its perceived value in order to ensure that people are paid for their work, which is especially important given the long history of exploitation and lopsided resource extraction. It is a universal truth in coffee is that we have leveraged farmers continuously by underpaying.
So this rising c-market does have a positive upside because it is an opportunity for more equitable pay for producers. A jump to $4.20 in December versus a low of $1.44 just two years ago has meant some producers have been able to see a much greater return on their crops. In one recent report, some farmers year-over-year income jumped four to six times, which is wonderful. So to the original question: yes, higher prices can be great for producers. However, you might notice a couple of qualifiers here and that is because, while this is generally good, it is not a solution to more structural issues in our industry.
The core logic of the value proposition is that there is a kind of achievable end point in which enough money flows towards origin and undoes the many social and ethical issues associated with the coffee chain. And it keeps reminding me of Lauren Berlant’s notion of ‘cruel optimism’. She works through our cultural obsession with the good life fantasy. There is an optimism innate in the dreams of “enduring reciprocity” in things like romance, or work,or markets. However, we often ignore that our “fantasies are frayed” because in the present moment, our sense of stability and security is continuously dissolving.
For Berlant, things like “upward mobility, job security, political and social equality, and durable intimacy” are in a state of crisis but we are expected to continue to believe in the ‘good-life fantasy’ which becomes cruel. We suspend questions and ignore the ‘cruelty of the now’ through a belief that our ‘good life goals’ are easily achievable – if we simply endure. Thus, we deeply attach ourselves to the fantasy, but in doing so allow its falsity to flourish, and consequently, block ourselves from breaking out of the cruel state. She describes that cruel optimism “exists when something you desire is actually an obstacle to your flourishing”.
This might sound a touch vague, and she uses a wonderful array of complex examples from television, movies, art and literature, but as a crude illustration think of a bad romantic relationship. You are dedicated to the person despite it not being a good fit. Why? Because they are the foundation of the dreamy imagined future, but by staying with them, you are ensuring the happy future never comes. In this way, leaving means you end the fantasy and, equally, staying ensures you never get the happily ever after: you are anchored in a cruel optimism. Again, this is a very oversimplified example compared to the book, however you can see this double bind across our current cultural landscape: election results where people vote against their social-economic well being, or detrimental products in the wellness industry, or the inaccurate depiction of joy in social media. So, how does this apply to coffee?
The ‘good life fantasy’ in coffee is that we can continue to operate (in our various roles be it roaster, green buyer, or importer) within the long history of uneven resource extraction and exploitation and can eliminate inequality simply through more money. We focus on the ‘transaction’ in isolation and ignore the greater structural issues that foster and empower it, which is where we find the ‘double bind’ articulated by Berlant. We focus on money as salvation but in fact, the reduction of everything to transaction fuels the core problems. To step back: it is not that producers are shifting prices by storing crops but rather speculators seeking returns. It is not the roasting industry demanding we pay more, but rather the consequences of climate change that are destroying crops and propelling shortages.
As Berlant explains: we deeply attach ourselves to the fantasy, but in doing so allow its falsity to flourish, and consequently, trap ourselves in the cruel state.The blunt truth of coffee is that despite our ongoing attempts for ethical trade, the relentless nature of capitalism means that climate change, speculative investment, and exploitation of labour are inescapable. And yet, we constantly work to find new false hope within this isolated and doomed system: new waves, novel certifications, transparency reports, FOB prices on bags, and so on. Moreover, we are constantly trying to push the value proposition with pitches like, “we strive for ethical trade that lacks in mega-corporations”, which is true – but also means we are locked into the same ‘good life dream’ that these massive corporations rely upon and perpetuate.
For Berlant, this is part and parcel of the world we live in which everything is precarious and in crisis, so we search for things (objects, jobs, political beliefs, etc) that will ground us and provide the illusion that we are living the good life. In our affectual attachments we ignore the fact the system only knows destruction, crisis, and collapse. We latch on to things which give immediate relief and security. So you might be asking: do we then wallow in pessimism? Is there optimism which is not infused with cruelty?
Believe it or not, but I actually have hope! To return to the start: are higher prices a positive thing for the chain? Simple answer: yes. Longer answer: yes but it does not alleviate the deeply embedded inequalities and historical imbalances ingrained in coffee. The rising c-market has not been propelled by a sense that we should be paying farmers more but rather through speculation by investors outside of coffee and the climate crisis facilitated by industries like coffee. Accordingly, we need to recognize it as such, including the likelihood it is short lived and has no stability.
Instead of doing the ‘check mark’ inherent in the ‘good life dream’ we break away from a focus on the individual and isolated price point towards more long term and sustainable relationships. We focus on how wealth accumulates in select nodes and links in the industry. We push collective action and collective organization to tackle the propagation of inequality. We move past our obsession with the present and talk about the future by facing the actual material conditions of our crumbling world. This is getting novel length, so will end it here – but it is worth stressing, we should be hopeful and believe that things can change, we just need to start admitting and recognize what is not working, what is destructive, and abandon the cruel fantasies which block any true sense of optimism.
Lee Knuttila 