Why coffee price guides are flawed

Price guides are flawed
  • Price guides omit crucial information and leave coffee farmers at the mercy of volatile commodity markets
  • Fairtrade International reported that smallholder producers receive less than $1.00 a pound (or $2.20 per kilo) for their coffee
  • Transaction reports help producers make better decisions, gives them a more advantageous bargaining position, and allows them to explore new markets.

COFFEE FARMERS work hard to produce consistent harvests year-round, yet they are generally “price takers”, especially smallholders. And while the industry is focusing more on transparency on the consumer side, it may not be as effective as we think.

A coffee price guide has become an industry standard – a way for roasters to show how much they are paying their producers. Often called “transparency reports”, they are a document that demonstrates goodwill between farmer and buyer.

“Transparency reports are descriptions or inventories so purchasers can be transparent to the folks they buy green coffee from,” says Peter Roberts, the academic director at Transparent Trade Coffee.

Ben Carlson, the co-founder of Long Miles Coffee Project in Burundi, says: “It’s a way for coffee importers and roasters to justify what they are spending on coffee. From a roaster’s perspective, it shows that they are paying a price that is fair.”

However, price guides aren’t always accurate, and as such, may not be as helpful as we might think.

They can often be confusing because there is no standard format. The prices used are often taken from different points in the supply chain – anywhere from farmgate to when the coffee has landed in the importing country. These irregularities make it difficult to know how much has actually been paid for the coffee.

While producers and purchasers understand what the C-price is, not everyone understands how exactly the price of higher-quality coffee is differentiated from coffee traded on commodity markets.

And with such a volatile market, there are actors along the supply chain who are able to make money from fluctuations in price. Yet, because price guides are falling short, it is unclear what producers are receiving. 

coffee price guides are a document showing how much purchasers paid for their coffee

Transparency reports must be more thorough

Transparency reports are a step in the right direction, but they only provide an (often flawed) snapshot of a much larger picture.

They often ignore key data that is needed to assess whether or not the farmers are receiving a fair price. For instance, while they show prices, they often don’t consider what is a sustainable income and how that varies from region to region. The cost of living varies massively across the Bean Belt – which means that price guides can be misleading in this case.

Similarly, production costs are not shown in price guides either. For example, a report might show that a roaster has paid three times the market price for coffee – but without information about the farmer’s costs of production, it is unclear whether or not that is sufficient.

Each farm will have different costs of production. A large cooperative in Brazil will have vastly different cost structures to subsistence farmers in Burundi, yet this information is not shown.

“These reports are really subjective – sometimes the transparency reports are to ease the importers’ or the roasters’ conscience that they paid a fair price,” Ben says. “Sometimes 3x the price for green coffee might still not be enough.

“These reports can be manipulated and leveraged for personal gains,” he says.

Some companies have been accused of using transparency reports as a form of greenwashing, presenting an image of fairness to the consumer while not understanding the effects of their price on the producer.

However, for a relatively new industry, price guides are a positive step towards understanding transparency. Ben suggests that the main objective of price guides is to initiate a conversation on why better prices should be paid to coffee farmers.

But now that we’re having that conversation, it’s time to look towards a better system.

Transaction guides are a more thorough way to talk about coffee price

Transaction guides

Improving transparency is an area that still requires more work and effort to achieve, and price guides are a good concept and a sensible place to begin a conversation.

“Roasters should absolutely publish transparency reports, imperfect as they are,” Peter says. “Any attempt at making more information available eases a lot of concerns. We need to find a way for the rest of the world to be influenced by these reports.”

Part of this will be ensuring that we get more clarity on pricing mechanisms from these reports.

Transaction guides, rather than price guides, are one way to dig a little deeper. They outline some or all of the following points:

– FOB price

– Where the coffee was produced

– How it was processed

– The cost of production

– Purchase size and volume

– Cupping scores

This helps us to get more of the larger picture and understand the transaction in greater detail.

For example, the Specialty Coffee Transaction Guide accounts for prices paid and cupping scores for over 10,000 contracts – helping buyers and growers negotiate prices independent of the commodity market.

“Pricing guides have to boomerang back to producers in terms of what should be considered a poor price, an average price and a good price,” Peter says. “I don’t think transparency reports do that and that’s why we started the transaction guides.”

Transaction reports help producers make better decisions, gives them a more advantageous bargaining position, and allows them to explore new markets.

While increased transparency is a good thing, especially when it comes from producers, a guide is just a guide – it can do nothing to address the root causes of inequity in the supply chain.

They are a good place to start, but price guides must begin to consider the market from the producers’ perspective. Only when there is greater clarity over how coffee is priced and what is truly “fair” will we have the clarity we need as an industry.