The coffee market is in the midst of a price rally that has seen practically only one direction in recent weeks and days: steeply upwards. Extreme weather conditions in Brazil and Vietnam, the disrupted global economic situation, the European Deforestation Regulation, increased coffee consumption in Asian countries, wars, Trump, speculators, diseases, fungi, too slow progress in plant research, and logistics bottlenecks have all contributed to this situation. What does this mean for the relevant players along the value chain? Who benefits and who loses? And what about our morning cup of coffee? We provide context.
The last 47 years
On November 27, 2024, the coffee price was $3.26/lb. That's $7.17 USD/kg for green coffee. This is 70% more than 11 months ago. It has been 47 years since the last record high of $3.11 per pound or $6.84 per kg of green coffee on the coffee exchange, the ICE Arabica Futures or "C price." Traders, roasteries, and end consumers have since been able to benefit from sometimes catastrophically low prices for almost half a century.
Producers were and still are price takers. They had to accept the prices determined on the commodity exchange in New York.
This precarious and unfortunate situation awakened a sense of justice in many who, in addition to focusing on quality, also placed great value on the social aspect. Various certifications such as Fair Trade, Max Havelaar, and Bird Friendly were created to advocate for fair wages or promote a sustainable ecosystem. More and more, the focus was placed on partnerships with cooperatives or even individual farmers. "Relationship coffee" became the guiding slogan for ambitious and ethical traders and roasteries in recent years.
The pickers, producers, and cooperatives
Only rarely and sporadically has coffee been a profitable business for farmers, producers, and cooperatives in the last five decades. Or, to put it another way: it was a physically demanding, sometimes dire business.
These dire conditions in coffee production have been known for a long time.
For a long time, the main answer was seen in increasing production. Entire programs by traders and roasteries were launched to support this technical development. But coffee production cannot be reduced to yield per hectare – otherwise, increasing production per hectare would have had to work wonders. Systemic poverty in the coffee sector is still a reality and cannot be talked away even by well-sounding projects.
Pickers and producers
Independent coffee farmers such as Doña Maria may be able to benefit from the high prices. For once, producers can look to the near future with peace of mind and may even be able to choose who they want to sell coffee to. A sustained high exchange price could lead to fewer people emigrating from growing countries and abandoning coffee farms, and even earning enough from working on a coffee farm. We are not talking about big money, but about income that covers costs and finances a livelihood.
The cooperatives
For cooperatives like Apas, the current situation with the high exchange price is an enormous challenge. They have to balance the interests of their members with their obligations to partners. If farmers are not loyal and sell their cherries to other cooperatives or intermediaries, so-called coyotes, they are left without coffee and may not be able to fulfill contracts.
The traders
In the coffee trade, a distinction is often made between large, established coffee trading houses and modern traders, who are often associated with the still-to-be-demystified term "direct trade." Both are in difficult situations.
The coffee trading houses
Established traders often have rigid structures, which makes them inflexible in responding to exceptional situations. Since they primarily buy on the exchange, the price directly influences their profit margin. If the exchange price is low, their profit margin is higher. If the exchange price is high, their margin is correspondingly smaller. While they generally had significantly higher margins on the product in the past, these have been in lower realms for years, and profit is only possible through high volume. Due to the high exchange prices, this small remaining margin could be completely eroded. Bankruptcies and takeovers are to be expected.
Modern traders
Out of a need to treat people fairly and justly and to help shape the environment sustainably, many social intermediaries have formed in the last two decades. They see themselves as facilitators of partnerships and thus lay the foundation for conscious consumption. Modern traders often pay producers a fixed premium above the exchange price, which is intended to better cover the costs incurred on a farm. Many also offer the possibility of assisting with the calculation of various cost structures and calculating the expenses incurred on a farm together with the farmers. Like the cooperatives, modern traders are also in an ambivalent situation in the current climate. On the one hand, the fixed premium above the exchange price is hardly affordable. On the other hand, there is the partner, perhaps a cooperative, that has to pay the high price. The various relationships are currently under severe strain and being put to the test.
The roasteries
Medium and small roasteries have gained a lot of momentum since the advent of specialty coffee 20 years ago and were carried by the "Third Wave." Social coffee drinking in a hip coffee shop became the new normal for many. One of the promises of specialty roasteries was that enjoying carefully selected beans would promote sustainability and fairly compensate producers – this struck a chord with the times.
Relationships were built with socially and sustainably committed traders or directly with producers. Visits to coffee farms were on the annual agenda to exert direct influence on site and support projects. Many also sealed partnerships with a fixed price premium above the exchange price – like the aforementioned modern traders.
What happens next? What if the exchange price is significantly higher than what specialty roasteries paid just a year ago? What if there are no longer any monetary incentives for producers to produce high quality or organic coffee, because the exchange price is so high?
The current situation challenges us all. As a roastery, we are currently having intensive discussions with our partners. We are trying to reduce our costs as much as possible and increase our efficiency so that we can react more easily to the new coffee prices.
And as connoisseurs?
Sooner or later, the increased prices will also affect the morning cup of coffee and roasted coffee in general. Coffee will become more expensive. With careful selection and conscious consumption, connoisseurs can also help support good coffee. "Good" is not limited to sensory aspects but equally refers to fair, just, ethical, and environmentally conscious. So let's buy coffee from roasteries that attach great importance to what they do. Because coffee without values is worthless.
