Deeper Market Insights from Counter Culture's Transparency Reports
In October, Counter Culture released its most recent Transparency Report. This is a must-read for individuals and organizations interested in transparent transactions within the specialty coffee sector. In their own words, the highlights from the 2014 report include:
- Our average
FOB price paid for a single-origin coffee, weighted by poundage, was $3.37.
- Our average
cupping score for our single origin coffees, weighted by poundage, was 87.5.
- 97% (by weight) of our single-origin
coffee for 2014 came from existing relationships.
In the following paragraphs, we complement these descriptive statistics by examining the inter-relationships among the variables summarized in the report. Starting with 81 direct trade lots purchased in 2014, we dropped three outlier coffees (one with a very high price, and two purchased in very small quantities) and another 15 coffees referred to as off-menu coffees. This leaves a sample of 63 coffees.
We used this sample to estimate a simple regression model with green price per pound (f.o.b.) as the dependent variable. This produced the following results:
What do these three coefficients suggest?
- Counter Culture is paying growers for cup
quality. While the (unweighted) average
price in this sample is $3.81, moving from the minimum to the maximum cupping
score (a range of 11.5 points) is worth roughly $3.10 per green pound.
- The quantity of coffee purchased in each lot
varies dramatically. In fact, the
sample range is roughly 54,000 pounds! Moving from the minimum to the maximum quantity
purchased corresponds to a price reduction of roughly $1.60 per green pound.
- Relationships also matter. Moving from the minimum to the maximum of the length-of-relationship variable (a range of 12 years) is worth roughly $1.20 per green pound.
As we reflect on these effects, it is important to consider that these three variables do not move independently of one another. Consider the following correlations:
The two significant correlations in this table are revealing. The negative correlation between relationship length and cupping score suggests that Counter Culture is forming newer relationships with growers whose coffees receive higher cupping scores. This is consistent with the idea that the specialty segment is trending over time in the direction of higher quality. There is also additional evidence of loyalty in the data, as the quantity purchased from growers is positively correlated with the length of relationship with Counter Culture.
Rules-of-thumb for specialty coffee pricing?
For those trying to divorce specialty coffee pricing from the vagaries of commodity market pricing, these observations suggest three useful rules-of-thumb:
- Green pricing
should be driven by cup quality;
- Green prices
might be lower when buyers purchase in larger quantities; and
- Durable buying
relationships should be rewarded with higher prices and larger volumes.
This sounds like a description of a market that is actually working (for both growers and buyers). It also reminds us of the good things that might happen if appropriate specialty coffee market conversations are supported by transparent pricing data:
Knowing the "free on board" (FOB) price, for example, might not change anything for a consumer, but it can start a conversation. We want everyone to want better coffee, and, in order to drive improvement on the consumer end of the coffee-supply chain, we have to provide information so that people can ask better questions.
 The model includes a set of control variables to indicate whether the coffee was grown in Africa, Central America, South America, or some other region.