Head Roaster Matt Leddingham in Jan 2108, with Zinabu Abamecha at the Yachi Kachise Co-operative in Jimma region, Ethiopia.
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It's been a long time coming. And, Mark's been quite vocal about this year about the state of the specialty coffee industry here. Sometimes too vocal, he'll admit!
So, here we are, in a bid for clarity, publishing the price we pay to coffee producers. Not to an exporter, not the price after it's arrived at the roastery (ex. Warehouse), the price directly paid to the producer, or co-operative. It's called Farmgate. We'll explain how we arrived at this decision to publish, and the context of Farmgate in the coffee supply chain - cherry to cup, if you will. We're not saying our model is the only model, or that it is the right model. All we know is the majority of the coffee industry trades off the back of farmers being paid very low prices for the hard work they put in.
How is coffee traded?
The second highest traded commodity in world, coffee, is traded in $US per pound, determined by the global C Price. The greatest influence on this price is Brazil, the largest producer of coffee. If Brazilian producers all try to sell their coffee at the same time, the market deems the value to be less. If Brazil has a lean harvest, the price of coffee goes up. We recently saw the price of coffee dropped below US $1/lb.
Seven Seeds, and many other coffee companies, do not regard the C Price as an accurate reflection of the worth of 'specialty grade coffee,' nor is Fairtrade. The term direct trade was spawned by American roasters like Intelligentsia, and Stumptown, reached out to coffee producers to offer them more money, directly, taking away the exporter, or importer as the go between. This only works when you have the volume to enable a more cost effect container full of coffee. Something which we can't always do, and something which many small roasters can't either.
How we purchase coffee
Our approach to buying high quality coffee is to find the most direct line to the producer, and build year-on-year relationships, ensuring consistency of supply, and a mutual understanding of what we deem as high quality. In some cases we go directly to the coffee producer - like Freddy Aurelias in Guatemala. We can fill a container with coffee, and take the risk that it will arrive in a timely way, hoping the quality is still the same as when we sampled it, and that it's not damaged, or lost in transit.
In other cases like Kenya, where we go through an auction, which is the norm for specialty grade there. We engage an exporter, Dormans, to purchase on our behalf. But, for us, it still means visiting Dormans in Nairobi to select the coffees, we want.
There are times when we need to purchase 'spot' that is, an importer (broker) here in Australia already has the coffee in their warehouse here. If we can't purchase a larger amount directly, a coffee we've purchased might run out quicker than we expected, or the quality hasn't meet our expectations, we need to make a spot purchase. In this process we continue to ask for transparency form the broker before we secure a lot.
Now, let's look at a recent coffee, as an example to what farmgate means in context to other trading models.
Farmgate
This is the price which a coffee producer, or cooperative directly receive for their coffee in parchment (coffee cherry that has been wet milled, but not yet dry-milled). Or, any agricultural product for that matter- it's a common term in trading which 'the market' deems as the value of the good. The product could be wool, grain, or beef. The value of that good will fluctuate based on demand, primarily. The deemed value of the good may be higher than cost of production, i.e. the producer would earn a profit. Or, the deemed market value of the good maybe lower than cost of production, meaning the producer will lose money.
The price which Gilberto Rojas directly received $5.26 AU/kg for selling his parchment coffee to Azahar Coffee Company. The estimated cost of production for specialty coffee in the region is $4.34 AU/kg, so Gilberto made a profit. At the time of purchase the C-Price was $2.85. The Faritrade price farmgate changes based on country to country, producer to producer and is linked to the C-Price.
FOB - Freight On Board
After Azahar bought Gilberto's Parchment Coffee, they dry milled the coffee; removed the layer of parchment, sorted for further defects, polished (resulting in a 30% weight loss) and then packaged the coffee for export. They then transported the coffee from Huila to Cartagena Port, where it was then ready to be loaded on board a ship. This all costs Azahar $7.02 AU/kg, resulting in the final FOB price of $12.28 AU/kg - which we paid to Azahar.
Plus shipping costs, roasting, labour and the rest!
As stated on the source card, on top of the FOB price, we also pay to have the coffee shipped from Cartagena to Melbourne port, trucked to us in Fairfield, quality assessed, roasted (resulting in another 15% weight loss), packaged & then retail it. Clearing adding significant cost and risk along the way.
So, why publish the farmgate price?
We're proud that the price we pay truly sustains coffee producers continue in the industry. A handful of coffee companies around the world are also publishing their farmgate prices, and encourage more to do the same, so consumers can make more informed choices.
We've explained the context of farmgate in coffee trading with one particular producer, we hope you have a little more information to make your own assessment of transparency. Every coffee you drink has been through this process and country to country, region to region, farmer to farmer, there are different approaches and payment structures that need to be navigated, all with their own complications.
This industry is enthralling, fun, it keeps you on your toes, and dare we say it, nuanced.
