Bird Rock Coffee Roasters’ Direct Trade Transparency Report
Central America 2014
August 12, 2014
As part of our continued effort to better educate our customers and employees on the concept of Direct Trade, we have developed a Transparency Report – sort of an essay on our position — as well as a spreadsheet detailing the coffees we classify as Direct Trade1 sourced during our late February/early March 2014 sourcing trip.
Direct Trade Coffees
With our Direct Trade coffees, we have negotiated a price directly with the farmer, visited the farmer’s farm, and/or met in person at origin, often cupping coffee with the farmer. We may have also collaborated with the grower on experiments and/or with lot separation. Our Direct Trade philosophy is built on the concept that we want to build a mutually beneficial long-term relationship with the grower in which the grower becomes a business partner, not just a supplier. In addition, our Direct Trade coffees are often exclusive lots.
To demonstrate the value of open Direct Trade relationships, we have set this transparency report to show the price we paid for the coffee Freight On Board (FOB), which signifies the price for coffee after milling but before export; the final price negotiated with the grower. And, 100% of the price you see in our report went directly to the grower, not 90%, not 85%, but 100%. Importantly, this does not represent a farmer’s profit since there is the cost to grow, harvest and mill the coffee.
The FOB price does not show: Cost of export, cost of import, interest on amount we borrowed to pay for the coffee, storage (all paid to the company that imports the coffee), transport to our roastery, packaging, our labor, roastery overhead, and – most importantly and something that is easy to over-look- cost of traveling to origin: Air fare, food and lodging, beer (used for grower/roaster relationship building only).
These additional actual hard costs have nothing to do with the price we are paying the farmer so we are not including them here. Certainly, however, the reality of running a business means that our actual costs will limit what we can pay the farmer given the market limits to what we can charge a consumer for a pound of roasted coffee.
In our report, the FOB price is compared to the approximate “C” market or commodity price for coffee at the time of this trip. After oil, coffee is the world’s most traded commodity. The C price trends upwards or downwards depending on supply and demand.
Commodity Coffee, Specialty Coffee, and Fair Trade Coffee
“Commodity Coffee” is low-end, bad tasting coffee often used for instant coffee and sold at a pretty cheap price. While some of coffee grown by farmers we work with is indeed “commodity grade” and sold as such, most of what these farmers grow, and what we purchase at Bird Rock Coffee Roasters, is “Specialty Grade” coffee that is of higher quality.
The farmers growing specialty grade coffee are more involved in production and have better farm infrastructure than other farms. Their commitment and engagement enables them to market their coffee more effectively to brokers and roasters willing to pay for a better product . They can, then, charge more for their coffee than farmers who produce exclusively commodity-grade coffee.
Some of the farmers we work with have been producing specialty coffee for years. However, some of the farmers we work with are new to specialty coffee and are making the transition to producing more high-end coffee. Regardless of the length of time they have been producing specialty coffee, the commodity coffee price can represent a starting point for negotiations with these growers.
Then again, sometimes the commodity price has zero baring on what a grower might want for their coffee so final price always comes down to a case-by-case basis and sometimes the number of years we have been working with a grower will effect the price we ultimately pay.
We have also included the approximate minimum Fair Trade price paid to FT cooperatives during our sourcing trip.
According to Fair Trade International:
… if the market price (C Market ) is higher than the FT minimum price, the FT price payer must pay the market price plus the $0.20 Fair Trade premium. For example, if the current market price for organic washed coffee is $2 per pound. The Fair Trade price payer (usually importer) must pay: Market Price (i.e. $2) + Organic Premium ($0.30) + FT Premium ($0.20).
Given that at the time of our Direct Trade purchase, the C market was very close to the FT minimum of $1.65, we went ahead and added 20 cents to the cost of the C market price to show an approximate minimum FT price of $1.80 at the time of our trip. You will notice in the above quote that Fair Trade has an additional premium of 30 cents per pound for organic coffee. While some of the farms we work with are Rainforest Alliance certified, none this season were certified organic so the FT organic premium did not apply to what we were actually buying.
Lastly, we have included three Auction Coffees here. We consider Auction Coffees to be between our Direct Trade definition and our Farm to Cup coffees. We decided to include them because we see this as one of the more sustainable and positive coffee-buying methods available to good farmers.
With auction coffees, farmers have access directly to buyers on-line, allowing buyers from all over the world to bid on a farmer’s coffee. And, while the auction organizers take a fee, the vast majority of the funds raised during these auctions go directly to the growers.
With auctions like the Cup of Excellence (COE), you have a fantastic demonstration of basic market principles in which great coffee is rewarded and, in general, the better the coffee, the more money people are willing to spend. This is not a negotiation with the grower–the price for the coffee is driven purely buy the quality of the cup.
OK, here we go… a ton of build up for a snapshot report of our direct trade season but it is a start:
Bird Rock Coffee Roasters’ Direct Trade Purchases for Central America Season: 2014
Countries: Guatemala, El Salvador, Panama, Nicaragua
Total Direct Trade Bags Purchased: 154
(164 including auction)
Number of Farms we bought from: 8
(11 if you count auction)
|Coffee Origin Country||Farm/Mill||Coffee Type||C Market Price per lb.||Fair Trade Price per lb.||FOB Price per lb.|
|El Salvador||JASAL||Special Prep||$1.60||$1.80||$3.90|
|El Salvador||JASAL||Special Prep||$1.60||$1.80||$4.00|
|Guatemala||El Injerto||Special Prep||$1.60||$1.80||$4.50|
|Panama||Elida Estate||Special Prep N||$1.60||$1.80||$6.25|
|Panama||Los Lajones||Special Prep N||$1.60||$1.80||$6.00|
|Nicaragua||Fila Alta||Auction COE||$1.90||$2.10||$11.35|
So how is this different from the typical way roasters buy coffee from a green bean broker? Well, to simplify, it is about what the farmer receives. If a roaster is buying specialty coffee from a broker “spot” using a stable of coffees a broker has already imported, he/she may indeed pay $3.50/lb for something that is of “Specialty Grade.”
However, the price paid to the broker is not the price paid to the farmer. The brokers price includes all associated costs of import/export, storage, not to mention the costs that broker had to pay to source the coffee at origin in the first place on top of the margin that the broker takes — which can be anywhere from 20 cents a pound to over $1/pound for some brokers.
In many cases, if we work backwards from the price a broker is charging – and we do buy a lot of coffee spot from brokers in addition to coffee we buy via our Farm to Cup program – the person who actually grew the coffee might not end up with very much money.
Going forward, we are also moving towards an even greater level of transparency. Soon, we hope to report on specific programs our farmers are undertaking both socially for their employees and environmentally. We are not where we want to be yet when it comes to our Direct Trade and our Farm to Cup program. Depending on the time of year, 80-90% of our coffees may be Direct Trade but at other times, our Direct Trade percentage might be as low as 30-40%.
As a small company, we cannot travel year around but we are investing more and more each year into projects at origin that will help us establish more relationships that will lead to better coffee and more sustainable partnerships.
- 1. The report does not include coffees we sourced at origin that we classify only as “Farm to Cup.” Broadly, our “Farm to Cup” coffees encompass all coffee sourced at origin but would not be considered “Direct Trade.” These coffees, though we sourced responsibly and even negotiated a price with a particular farmer, they may have been facilitated via a third party and we did not get the opportunity to meet the farmer, see his/her farm, or even perhaps the growing region where they operate.