Insights

Gathering Green Specialty Coffee Prices into another Industry Benchmark

Posted on 23rd Sep 2015 13:32:33 in Coffee Market

Gathering Green Specialty Coffee Prices into another Industry Benchmark

In the next two weeks, we will gather data for the third quarter Specialty Coffee Retail Price Index. When the numbers, charts and commentary are ready, they will (for the first time) be translated into Spanish and sent to Latin American coffee growers and cooperatives who will be selling specialty-grade coffees during the upcoming harvest season. Our hope is that the quarterly SCRPI reports will provide credible benchmark information for these critical negotiations.

We are also thinking about another potential benchmark; one that might help to supplant current references to commodity market prices in specialty coffee negotiations.

Five specialty coffee roasters are posting green prices in annual transparency reports: 49th Parallel Coffee Roasters, Barismo, Bird Rock Coffee Roasters, Counter Culture and Tim Wendelboe. These reports post free on board (FOB) prices, which are prices paid for green coffees that have been processed, packed and stacked into containers. In addition, nine roasters currently post FOB prices on the TT Coffees page: 49th Parallel Coffee Roasters, Bird Rock Coffee Roasters, Cafe Campesino, Counter Culture, De La Gente,  Equator Coffees & Teas, Higher Grounds Trading Company, and Transcend Coffee.

When aggregated, these green prices provide information about what the best direct trade roasters are currently paying for specialty-grade coffees.

How much are roasters paying?

The average price paid for 98 coffees in the five most recent transparency reports is $3.96 per green pound. This is almost identical to the $3.97 average for the 39 coffees that were registered on the TT Coffees page on or before September 15th.

The range of posted prices is also informative. In the transparency reports sample, green prices bottom out at $1.69 per pound, while the minimum price in the TT Coffees sample is $2.50. Thus, all reported direct trade transactions closed well above the prevailing New York C price, and above the Fair Trade (non-organic) minimum of $1.60 per pound. Moreover, the up-side for these coffees is considerable! Even though we set aside seven “elite” coffees – geishas that were imported from Panama at very high prices – the maximum green prices in the two samples are $10.50 and $10.70, respectively. This demonstrates the economic opportunities that arise within coffee communities when growers are “paid for coffee based on quality not on what the [commodity] market says (Bird Rock).”


Are green specialty prices different across growing regions?

The last TTC Insight showed that roasted coffee prices vary across growing regions. We can make similar comparisons using the green prices in these two samples. The figure below shows that the highest average prices ($4.10 in the transparency reports sample and $4.19 in the TT Coffees sample) are for coffees sourced from Central America. On the other hand, average prices for coffees sourced from Africa came in at $3.91 and $3.35 in the two samples.

                                                   

What can we change and what can we learn?

Aggregated and widely-shared data on green specialty coffee prices can become a powerful force for change in specialty coffee markets. Imagine the difference between one negotiation that starts and ends with information about the current New York C price; compared to another negotiation that factors in recent insights from the SCRPI, and recent averages for these transparently traded coffees.

As the number of transparently-traded roasters and coffees grows, we can also learn more from the green prices that are reported. We have seen how these green prices can vary according to a coffee’s country-of-origin. As sample sizes increase, we might begin to leverage other information that is provided in some of the transparency reports. Many of the reports identify the coffee varietals purchased in each lot. Tim Wendelboe provides information about the quantities purchased. Counter Culture reports the coffees’ cupping scores and the duration of the buying relationship with each grower. 49th Parallel reminds readers about the (variable) costs that are incurred on the way from the farm gate to the shipping container.

Just imagine a robust and up-to-date econometric model that gives specialty coffee market participants – sellers and buyers – an initial estimate of an appropriate price for “2,500 pounds of bourbon grown in Honduras by a farm that we have been working with for 4 years and cupping at roughly 87.5 points; knowing that we are selling into the western US market, and that Honduran growers will spend roughly 14% of the negotiated price getting their coffee from farm gate to container.” Seems like the right place for a specialty coffee negotiation to start!


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