Transparent Trade Coffee followers appreciate the efforts that certain roasters make to ensure that the specialty coffee sector has detailed information about green coffee prices. Counter Culture’s Transparency Reports are especially interesting because they cover a large number of specialty coffee contracts. Setting aside nine coffees listed as ‘Off Menu’ and one very small lot from Thailand, their most recent report includes 293 coffees contracted in the October 2015 to September 2016 period.
A First Look at Prices
The average green price per pound (fob) in this sample is $4.22. However, because prices and quantities are negatively correlated (r=-0.23), the quantity-weighted average is $3.15 per pound. As one would expect, there is also a robust correlation (r=0.59) between green prices and coffee quality:
Do Names Matter?
A previous TTC Insight discussed the implications for roasted coffee prices of featuring growers’ names in branding and marketing efforts. More recent SCRPI data from 2017 continue to show a substantial price premium, +$5.82 at the upper end of the market, for specialty coffees with named growers.
In their most recent Transparency Report, Counter Culture notes whether each coffee was roasted and sold as part of a blend (like Apollo, Big Trouble, or Fast Forward) or with a specific grower designation (like La Golondrina, Nuevo Amanecer or Finca El Puente). When we split the sample into these two groups, we see some important differences:
|Destined for Blends (N=178)||Ultimately Named (N=115)||Difference|
|Average Green Price Per Pound (FOB)||$3.56||$5.21||+$1.64*|
|Average Quality Score||85.0 points||87.0 points||+2.0 points*|
|Average Quality Purchased||9,865 pounds||8,324 pounds||-1,541 pounds|
|Average Length of Relationship||3.9 years||5.8 years||+1.9 years*|
*significant at p < 0.01
The average price paid for green coffees sold with a specific grower designation is $1.64 higher than those that make their way into blends. This 46% green price premium is significant at p<0.01. When reflecting on this difference, Meredith Taylor, Sustainability Manager at Counter Culture, explains that “when we specifically name products after farmers, we do so because their coffee reaches a certain quality level.” This explanation is supported by the data, where the ultimately-named green coffees also have significantly higher cupping scores: 87.0 points on average compared to 85.0 for the blended coffees.
Meredith goes on to explain that “we often start out by buying a general lot in order to explore the potential of working with that partner. As the partnership develops over time, we start to try to differentiate quality tiers, separating lots based on things like variety, elevation, grade, community, washing station, and farmer.” These relationship-specific investments help us understand why ultimately-named coffees are grown by farmers with significantly longer relationships with Counter Culture; an average of 5.8 years compared to 3.9 years.
These additional variables also help us appreciate why prices in the sub-sample of ultimately-named coffees has a much higher standard deviation (0.49) than that observed in blend-designated coffees (0.12). Taken together, 95 percent of the prices for ultimately-named coffees fall in the $4.23 to $6.19 range, while 95 percent of the prices for blend-designated coffees fall in the lower and narrower $3.31 to $3.81 range.
What Does this Mean?
These preliminary observations indicate what can be learned (and taught) about green and roasted specialty coffee pricing when roasters have the commitment and courage to reveal specific information.
For Counter Culture, the higher prices that customers pay for roasted coffees from named growers are matched by non-trivial premiums for the affected green coffees. This seems appropriate given that these transactions cover both quality scores and other valuable elements of a coffee’s story, including the farm’s elevation and micro-climate, the amount of growing experience on the farm, and the different processes used to convert cherries into dried beans. Because many of these elements belong to farmers, it is nice to see naming premiums reflected in green coffee prices. However, as we think about where the different elements of a roasted coffee’s ultimate value are generated, Meredith reminds us that “just because we paid a higher fob price for a coffee does not mean that the farmer got paid any more. For example, a higher fob might reflect us paying the exporter to keep lots separated during the milling process rather than representing a higher premium paid to the farmer.”
The higher and more variable prices paid for green coffees that are sold with specific farm names is additional evidence that specialty coffee farmers have more to sell than their cupping scores. How much more is still an open question, as Meredith indicates when she says: “I don't think we can quantify how much a coffee's story drives its sales volume, but I'm sure it's more than zero. Say, for example, we have a named coffee that we sold last year and can get that same coffee again this year at the same quality level. We can look back at how that coffee sold last year and if it sold well, we might pay more for that coffee this year knowing that our customers will recognize the name.”
We must continue to learn about these additional drivers of specialty coffee valuations, and make sure that farmers know how to invest in and then charge for them. As we gain these additional insights, we will be in a better position to advise coffee farmers (and roasters) about the specific benefits and costs of investing in deeper, longer-term sourcing relationships.