What is the true price of quality?
The market will never tell you.
Coffee’s price has been low for an awfully long time. Coffee as a commodity is traded on the futures market and is known as the C price. The C price is the benchmark for arabica coffee and is based on supply and demand around the world. There are many things that can move a coffee’s price and although quality is considered in the form of differentials (in some countries coffees are valued slightly higher than the market) this isn’t intrinsic to coffee’s value.
You would be forgiven for thinking that coffee's value would be dictated by its quality but unfortunately, this just isn’t the case.
A lot of of factors play a role in how coffee is priced and over the last couple of years coffee prices have been extremeley volatile. Mainly due to a large frost in Brazil, of which the true damage and loss is still not known. The pandemic didn’t help matters and combined with the war in Ukraine, rising inflation and the cost of living crisis, the price of coffee has been soaring, creating a perfect storm in the markets.
Specialty coffee has always operated above the C price, paying premiums for coffee based on quality rather than supply(although a lot of this premium doesn’t end up in the producer’s hands). Over the past 10 years, the futures market has not really factored into any of my purchasing decisions but over the past year and a hlaf coffee has almost doubled in price. This has left many specialty coffee roasters in unfamiliar territory and highlights the fact that specialty coffee is linked closer to the C price than some would like to admit…
Businesses that have based their models around the low price of raw materials are now searching for quality at prices that no longer exist and are facing the decision of raising their prices or looking for cheaper alternatives. The problem is higher prices in the market do not tend to incentivise quality as it makes no sense to invest in quality practices if the market price is high.
Qaulity in coffee is a relatively new idea and with the rise of specialty coffee over the last 15/20 years coupled with low market prices has created incentives for producers who have the access to finance to invest in better farm practices as the premiums paid for specialty coffee were deemed worth it. However, now the industry finds itself in a tricky situation where the price for quality in seemingly to high for most to pay…
I do think that things are settleing and some are getting their heads around the fact that coffee will hopefully not drop to the lows we have seen and have started building the new price structures into their models but, I know a lot of businesses will struggle to adapt and we will see some companies choosing to loose margin in place for having physical stock in their hands, but the one thing I hope that comes out this is that we can communicate effectively that coffe shouldn’t be cheap. It will be a real shame if the prices for specialty coffee remain low to the consumer just because we are frightened that business will go elsewhere and miss the chance to show the true cost of this wonderful product.
I have to admit that the situation isn’t easy, a lot of businesses are struggling with rising prices but, the opportunity to highlight the true value of quality coffee could be the beginning of something that will have a long lasting impact on the future of coffee production for the next generation.
Think about it.
Cheers
Burts.