Coffee Economics 101

Coffee is complex. I could end here and the story of coffee would be 98% more complete than it currently is in the minds of most coffee drinkers. Coffee, to most, is not complex. It’s ubiquitous. A given. A well of dark liquid that, God forbid, will ever dry up. But the refrain here is this, coffee is complex.

Coffee Economics 101 seems like a good starting place to building a healthy foundation for understanding & enjoying coffee more fully.

This article is by no means a comprehensive guide to the world of buying & selling coffee — at best it will synthesize the complexities surrounding the economics of coffee and provoke more learning on your behalf. It will address the concepts of unit price and supply & demand in their relation to the coffee industry. Having said all of that, coffee is a difficult product to break down into a unit price like you would the cost of a latte or a scone and the conventional method of supply and demand just doesn’t work too well either.

Here’s why:

Brazil is the world’s largest coffee producer so they tip the scales the most. Say Brazil kicks ass one year and produces a ton of coffee, right? Supply of coffee is in no shortage, therefore the demand for it decreases. Well, what does that mean for the coffee farmer in Sumatra, Ethiopia, even Peru? Should we think just because Brazil had a good year that means they did too? Was their weather favorable? Did their buyers pay on time the harvest before? Did a disease kill 10% of their crop because a certain species of animal is going extinct? What about civil unrest or changes in the political party? Supply of coffee isn’t a global measure, it’s hardly one nationally.

Now, unit price. There are approximately 25 million smallholder farmers across the world working daily to protect & ensure their crop is the best it can be, oftentimes employing a lot of people to do so. The “C Market” attempts to break coffee down into a unit price per pound — the “C Market” per lb price got as low as .86 cents in 2019. Think about that. How is that a sustainable measure? It’s healthy for us to see coffee as a vital product to communities, as opposed to just an isolated farmer — this will keep us from trying to apply cost-basis philosophy to such a broad industry like coffee.

Coffee isn’t like this: Hello Sharks, my name is James and I’m starting a coffee farm. I’m asking for a $2M investment in exchange for 20% equity in my company. This money will allow the first round of crop planting, shade-tree planting, certifications, processing facilities, exporting expenses, and all labor involved. It will cost me $400 per coffee tree with an ROI of 30%. The first harvesting year will be in three years and we will be cash-flow positive in 5–7, in hopes that La Roya doesn’t wipe out my entire crop, what do ya say? ……

When any agriculture is industrialized, it becomes unsustainable, both financially & ecologically.

Coffee is a generational crop, not a get rich quick one. It takes decades of buying and cultivating land, building good business relations, weathering the risks of the environment and both local and global economies. When you read about farmers walking away from their farms because they can no longer afford them, that isn’t a “close-the-doors-recover-what-you-can-try-again-next-year” situation. It’s the loss of decades of work and the sole revenue bucket for potentially an entire community if nonetheless an entire family.

It’s 2020. You could leave Birmingham southbound on Delta and be in Guatemala City sipping a Piña Colada by noon. The world is a small enough place to know the producers of the coffee we drink, just like we should know the factory where our favorite pair of jeans were made. We should all become more aware, as consumers, of the true cost of production for coffee, and be willing to work towards the best price for both parties in order to get it.

Seeds is not a company that will shame coffee drinkers or coffee buyers — as we said, coffee is complex — but, we do want everyone to be aware of those complexities and care for the producers of coffee better. Coffee is a crop we love, but can wildly take for granted. A product that fuels well over half of Americans daily yet doesn’t equate that same vitality in terms of economics back to the farmer. Coffee, the caffeinated liquid, is not a human right and we must all do better at acknowledging that.

— — — — — — — — — — — — — — — — — —

Seed’s (like most specialty coffee) does not pay for coffee based on the C-Market price. The coffees we buy range anywhere from $3.30 per lb to $5.60 per lb with the occasional fun, “exotic” coffee that can range anywhere from $9-$24.

See ya at Seeds!