Sustainable Coffee – Who Gives Farmers the Fairest Price?

With increasing numbers of different ‘ethical’ organisations lending their badges to numerous bags of coffee, it’s making it increasingly confusing for consumers to make an informed decision on which coffee to buy. Which coffee best suits their ethics? All the different organisations, such as: Fairtrade, Rainforest Alliance, Organic Soil Association; all have different certification standards. Some focus solely on economic sustainability, some on environmental sustainability and some on both.

different ethical coffee organisations' logos

In this post I’m going to focus solely on economic sustainability; in particularly price sustainability. Do coffee farmers receive a high enough price for their coffee to make it worth their while growing this tasty crop? Are they making enough profit to have a decent standard of living and in turn are able to pay their workers enough so they have a decent standard of living too?

This is a very complex subject: over 100 million bags (60kg each) of coffee are sold each year, from over 70 different countries, produced by hundreds of thousands of farms and small-holdings. It’s therefore impossible to comment on every single transaction, so instead I will generalise on what happens in the coffee market.

Coffee Market Segments

Before I can talk about pricing, it’s important to differentiate the segments in the coffee market, as the two key segments: retail and speciality, operate very differently and subsequently pay very different prices. There is a great post over on the Nordic Coffee Culture Blog explaining the differences.

Basically, the retail segment’s philosophy is to produce a coffee, or range of coffees, with a consistent taste on a budget. This is trickier than it sounds as coffee harvested from the same farm will taste noticeably different from one season to the next. So their coffee is made up of a blend from a number of different sources, either from the same country or further afield, minimising the contribution each individual farm has to the overall flavour. This also means that they can chop and change the blend, dropping (or threatening to drop) more expensive sources for cheaper alternatives, without the fear of changing the overall flavour. Therefore, they typically have no mutual interest in individual farms, only for getting the right taste for the right price. The retail segment makes up the vast majority of the coffee market and the value they place on a particular coffee is based on the price at the New York Coffee Exchange, which is often referred to as the commodity price or C price for short.

The speciality segment on the other hand celebrates the individuality of coffee, from micro-climate to micro-climate, varietal to varietal and season to season. They value coffee for its taste (as well as to an extent it uniqueness – for example: Esmeralda Special) and will pay accordingly. As they value taste, they often have a vested interest in helping farms to improve the flavour of their coffee and may invest time and money improving farming techniques and infrastructure.

Is the Retail Segment Sustainable?

The C price for coffee is currently around 138 cents per lb.

Obviously, the price of living varies greatly from one producing country to the next. However, there is still a vast amount of evidence to suggest that the C price isn’t high enough to make coffee sustainable. Many of you will remember reading about the recent strikes in Columbia by coffee farmers. Farmers were protesting at only being paid $290 for 125kg lot of coffee, while the cost of production hovered around $350.

Of those farmers who do turn a profit, many struggle to make enough of a profit to feed their families throughout the year. They often go hungry between harvests in a phenomenon referred to in Central America as “los meses flacos”, or the thin months.

You can watch the full version of this video here.

There are also numerous reports, such as this one by Fairtrade Foundation (Page 6), suggesting that these low prices have led to many farmers abandoning their farms to search for work in the cities, along with their workers; probably the clearest sign that these prices aren’t sustainable.

Is the Speciality Segment Better?

The speciality segment pays far more for their coffee than the retail segment. If you look at the Cup of Excellence auctions results you’ll notice the prices paid are far and above the C price. Although it’s a little unfair to compare the two as: a) the Cup of Excellence competition is for the very best coffees that country has to offer so the auctions are highly competitive; and b) you should bare in mind when looking at auctions from previous years, that the C price has steadily fallen over the last 2 years from a high of 288 cents/lb.

Cup of Excellent 2012 auction results for Guatemala
Picture credit: Alliance for Coffee Excellence

Some speciality coffee roasters do publish the prices they pay for certain coffees. For example, Counter Culture and Tim Wendleboe both disclose the prices they paid for coffee purchased directly from the farmer (a process known as direct trade). Again these prices are above the C price.

Where do Ethical Organisations come in?

Ethical organisations are for the majority involved with the retail segment; which makes sense, as retail is the largest segment and it’s here where the key issue lies. For example, Fairtrade set their prices according to the C price. They have a set minimum price, currently set at 125 cents/lb, and when the C price rises above this, the price is calculated by the C price plus a Fairtrade premium, currently 10 cents. So with the C price at its current level the Fairtrade price would be 148 cents/lb.

Fairtrade prices compared to C price between 1989-2010
Picture credit: Fairtrade Foundation

So Which Coffee Should I Buy to Give Farmers the Fairest Price?

In general ethical organisations offer a slightly better price to the farmer than that of the rest of the retail segment. However, this is still way below the speciality segment. So if you wish to give farmers the best price than you should buy your coffee from a speciality retailer.

How do you spot speciality coffee? The most important thing to look for is traceability. If the bag, website or cafe that’s selling the coffee, tells you the exact origin of the coffee (or coffees if it’s a blend) – i.e. not just the country, but the name of region or farm too – then it’s almost definitely speciality. If it also offers information on the varietal, or processing, then that makes it even more certain. However, if you’re still not sure, then just ask. Speciality retailers are usually very passionate about their coffee and love talking about it, so will be more than happy to answer your questions.

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