The traditional way of buying coffee goes through various intermediaries/middlemen. Prices are low and the producers (coffee farmers), who do most of the labor-intensive work and often work under poor conditions, only receive a fraction of it. Often, they do not receive enough to make a living – let alone a decent one.
We invest the money available to us in a fair trade and a sustainable development in coffee growing countries. Instead of paying money to outdated labels that we do not fully agree with, we have developed a model that makes sense to us, which is tested and improved continuously. These are its integral factors:
- Green Coffee Requirements: We have defined a range of minimum requirements which have to be met during production, processing and trade of all coffees. They cover various areas, however, the key topics are treating the environment with respect, ensuring fair working conditions for everyone involved and avoiding any kind of discrimination whatsoever. Complying with the Green Coffee Requirements is a basic prerequisite for us in order to consider purchasing coffee from an organization.
- minimum price: When purchasing green coffee, we always pay the Fairtrade minimum at the very least, however, in almost all cases we pay a few times that amount.
- trade on equal terms: We do our utmost not to exploit our powerful position in the market. We do not set the prices for the coffees we buy, but the producers and cooperatives do. Prices are only negotiated if there's a specific reason, which is usually not the case.
- long-term relationships: Whenever we buy coffee, we pursue a long-term collaboration with the producers of that coffee. We buy from the same farms/cooperatives year after year, if possible. An ongoing exchange directly with the producers is important to us in order to foster the relationships and learn from each other – with origin trips, phone calls, emails and messenger apps.
- 1% of revenue: At least 1% of our revenue goes back to the coffee growing countries. This is, of course, in addition to the asking prices of the coffees we buy. Part of this 1% is used as a quality bonus and is added to the prices that we pay for the coffees. We thereby increase the already high prices significantly, often by more than 5%. The second part is invested in selected social and sustainable projects chosen by us every year..
- transparency: We want to see and understand where the products we use come from. It is therefore crucial to us to gain insight into prices, working as well as environmental conditions during production and processing. At the same time, we communicate thoroughly and openly.
- direct trade practices: We buy coffee as direct as reasonably possible, meaning we cut out all unnecessary intermediaries.
Cost of Production
Recent studies (e.g. by UC Davis/WWU Münster/ICO or Caravela Coffee) have shown that the average production costs for one pound of green coffee are around $1.05-1.40. This value varies greatly depending on the country, region, size of the farm and other factors. Furthermore, unpaid work contributed by family members on coffee farms is difficult to take into consideration within the scope of studies. It should be noted, too, that more than than the absolutely necessary cost of production should be covered. Producers should achieve financial security and be able to pay for necessary investments as well as to overcome a year with low harvest yield due to weather.
If the producers get paid more for their coffee, they obviously tend to be more motivated to produce good coffee. With financial stability and security, they may also be able and willing to optimize certain steps and workflows in growing and processing their coffees or they may be able to take certain risks by experimenting, which can lead to better results in the future.
The Fairtrade price is what we call the minimum that a Fairtrade-certified company is obliged to pay for certain goods. The base price has been the same since 2011: $1.35 per American pound (lb) of Arabica green coffee («natural» process) resp. $1.40 («washed» process). A so-called Fairtrade premium of $0.20 is added on top of that so the total Fairtrade minimum price amounts to $1.55 (natural) resp. $1.60 (washed). This equals roughly $3.40 resp. $3.53 per kilogram.
The Fairtrade minimum price is set too low in our opinion. However, the «c price» for Arabica coffee at the stock market was even lower throughout the last few years. In April/May 2019, it fell to a record low of $0.87/lb – it hadn't been that low since 2005. More recently, the c price climbed rapidly, however, it is very volatile and does not help with price security.
We generally don't work with the Fairtrade certification – more about this topic below. However, we use the Mindestpreis minimum price as a kind of benchmark. Our general rule for the purchasing price is to always pay more than the higher of the two Fairtrade minimum values incl. the premium, meaning more than $1.60/lb. For the majority of coffees we buy, we do not only pay a little more, but much more – often a multiple thereof.
On this page, for reasons of clarity and comprehensibility, we call this value of $1.60/lb the «Fairtrade minimum».
The above mentioned prices always relate to the «FOB price». FOB means «free on board» and is a «Incoterm», a norm in international trade that dictates certain terms. To put it simply, FOB means that the risks and costs related to the purchased goods are transferred to the purchasing party as soon as the goods are loaded onto the ship.
The FOB price thus also entails, in addition to the cost of the coffee itself, costs for things such as processing of the coffee, bagging it or transporting it to the harbor.
A sufficiently high FOB price is the fundament of fair payment. Since payment is rarely done directly to the producer, the FOB price does not necessarily tell us how much money reaches them. That makes direct trade routes and long-term relationships based on trust as well as the direct contact to producers important.
The FOB price is still a value that helps comparing the prices of different coffees.
Another important value is called «farmgate price». This tells us how much money was paid to the producer at the time the coffee left the farm. Since coffee does not always leave the farm in the same state, the farmgate price leaves some questions unanswered. Basically, we can distinguish between three types of farmgate prices:
- «coffee cherries»: The coffee cherries are picked on the farm and sold as they are. The farm does not need any kind of equipment for processing the coffee, neither do the farmers need any knowledge, since processing is done elsewhere after the cherries are sold. Since several kilograms of cherries are needed to produce one kg of green coffee, but also because the work, risk and equipment for processing is not on farm-level, the price is the lowest in this case. An example from Ethiopia: $0.35 for 1 lb coffee cherries
- «parchment coffee»: The coffee is processed and dried on farm-level. The last, yellow-brownish layer that covers the green coffee, is not removed yet. In this case, the farm requires equipment and knowledge for processing, but not for this last step of milling. An example from Peru: $1.06 for 1lb parchment coffee
- «green coffee»: The coffee is processed completely before it's sold by the farm. The farm can ask for the highest price in this scenario, but it also means more work is done on the farm and thus more equipment as well as knowledge is required on farm-level. An example from Guatemala: $2.32 per 1lb green coffee
If the coffee leaves the farm in the state of cherry or parchment, one or several processing steps are due after, which adds costs on top of the farmgate price. If the coffee is fully processed, dried and milled before being sold by the farm the farm, this means that the difference between the farmgate price and the FOB price will be rather low. However, costs for logistics, storage, transportation to the harbor and export are still added on top.
Read the prices in our online store
On each of our coffees' detail page you can see how much we paid for it and how much this is in relation to the Fairtrade minimum.
We paid $5/lb for a given coffee. This equals 3.125 times the Fairtrade minimum incl. the premium = 313% (rounded).
The bar above the price information represents the full price we paid. The white part of the bar relates to the Fairtrade minimum, the green part the amount that's on top of the Fairtrade minimum.
There are numerous certifications out there that promise one thing or another to the consumer, the most popular ones being the Fairtrade and various organic certifications. Other common certifications in coffee are UTZ or Rainforest Alliance. On the one hand, they can help the consumer choose a product that fulfils certain standards. On the other hand, however, these standards differ greatly from one certification to the next and are often rather incomprehensible to the consumer. Many certifications lack important criteria for a sustainable production. Working conditions for farm workers as well as transportation routes and supply chains are often of minor importance or do not matter at all.
Meeting the specific criteria of a certain organic or the Fairtrade certification does not entitle a coffee producer to sell their coffee with that certification. To do so, they have to pay a substantial amount of money, which many of whom cannot afford. Those who can afford it and decide to do so, usually expect to be able to sell their coffee at a higher price in order to justify this financial investment. Unfortunately, this often does not add up due to dirty deals and combined deals (key words «combos» and «confidentiales»).
If we buy certified coffee and want to print a organic or Fairtrade certification on our bags, we as a roastery would have to get certified as well – and pay yet another fee, although we're working with the same coffee. Naturally, all the fees paid for these certifications would be included in the price calculation and thereby be passed on to the customers: the coffee becomes more expensive – but not necessarily better.
During the last few years, the term «Direct Trade» appeared more and more often on retail coffee bags on which there was a Fairtrade logo a few years prior. Direct Trade is not a protected certification like Fairtrade so any roastery can just decide to print it on their bags and define the term on their own. The word suggests the coffees bearing this term were purchased by a direct trade route, directly from the producers. This makes many consumers believe that the whole handling and logistics of buying that coffee was done by the roastery. In reality, this is not the case most of the time. In order for the coffee to get from a producer to a roaster, there are usually a few other parties involved such as a farmer cooperative, an export company, several warehouses and shipping companies as well as a green coffee trader that imports the coffee. And this is not a bad thing, since most of us roasters are not capable of handling all these steps by themselves, neither do we have the expert knowledge that the people running these companies have.
Coffees bought that way are often labelled Direct Trade. Common key criteria for a roastery to label their coffee that way are that they are in direct contact to the producer (or they even just have the contact information so they could theoretically stay in direct contact) or that they know the prices paid to the producers. Both things absolutely make sense, yet the term Direct Trade seems a little bit misleading to us. For that reason, we do not use this term as a sort of label for our coffees, even though we want the trade routes of our coffees to be as direct as reasonably possible. In order for our coffees to travel safely from the farm to our roastery, a few companies other than the producer's and our own are crucial.
The word «relationship» (with the producers) is used a lot in specialty and even commodity coffee. When marketing coffee with the aim of that word, one easily suggests that this relationship is on equal terms. Unfortunately, the production and trade of coffee are still very much influenced by the colonial era, which puts us the buyer in a position of power while the seller often does not have a chance to set a price for their product themselves. We put an emphasis on not taking advantage of our position and we therefore don't negotiate prices if there's no specific reason that would suggest otherwise. We do always strive for a trade on equal terms as well as long-lasting relationships, meaning we buy from the same producers year after year whenever possible.
Transparency is crucial to us. It is integral across the whole supply chain: from working conditions on a farm, to prices and costs, amount and type of pesticides and fungicides used to water management or processing. We want to know! We want to know under what conditions the coffee that we drink and sell has been grown, processed and shipped. At the same time, we want to be transparent as a company and share information about our own production, processes and our values that are part of our every day.
Not only the coffee supply chain but within the global economy transparency is something, that is being requested frequently. Companies have been reluctant to disclose valuable and sensitive information for example from their competitors.
How we deal with sensitive information is one of the most complex issues of our time. In general, we see a trend towards more transparency. That's good and important. In our opinion, we need much more transparency. We need to see, know, hear and understand things in the area we work in. Yes, in certain circumstances it is crucial to keep and protect sensitive information. In other situations, though, it is just as important to make certain information available to business partners or to the public. Consumers pay more and more attention to what they buy. They steer the market and the supply chains with their buying behavior to a certain degree. However, if a piece of information – for example the price a coffee farm is being paid for their coffee – is not available for any of the products in the shelf, consumers are not able to force the market to adjust. In that case, all the involved parties have to take responsibility. It is not only up to the consumers to generate the necessary pressure for companies to do «the right thing».
Only when requesting transparency, we can see where the problems are hiding. Transparency, however, is only a tool resp. a requirement that helps us as a company to do make the right decisions. Interpreting the information on hand is key. One has to evaluate the information and whether they are plausible and correct. Technology such as blockchain will help to trace and track products, unified standards can be created, the law could request more transparency and compliance from companies, etc.
As a small roastery, we can try to learn as much as possible about the coffees we buy and evaluate the information we receive, analyse them and draw our conclusions. This is us making our contribution to a transparent supply chain. If we notice any problems, e.g. someone is not paid enough or not treated the way they should be, we have to speak to the producer and/or importer about it and, if necessary, cancel the trading relationship. We further provide our coffee contract data to the Specialty Coffee Transaction Guide. The project assesses tens of thousands of coffee purchasing contracts of small to big companies – roasters, cooperatives at origin, importers, exporters and green coffee traders – and creates an annual report that can act as a guideline for purchasing and pricing of green coffee.
We believe that in the coming years transparency in supply chains will be an even greater topic in public discussion due to the current economic, political and climate situation.
Talk to the Producers
We always want to talk directly to the producers and cooperatives. This helps us to learn more about the coffees we buy and about the people who produce it. According to the feedback we receive, this exchange is also valuable to the producers, as they get to ask questions and provide feedback to us just the same. We can tell them ourselves what we like about their coffees or what our customers are expecting, which also helps them to possibly adjust some things or motivates them to start experiments. Specifics of the processing and drying of the coffee can be discussed first-hand. Producers also often ask for photos of our café and roastery or of our retails coffee bags. Often, they don't get to see the final product of their work. Some of them also roast coffee themselves for their own use or to sell to tourists and/or locals, which makes it interesting to talk about roasting as well.
Our intention is to visit all producers, whose coffee we purchase, every couple of years. It doesn't make sense to us in any way (environmentally, financially, time-wise) to visit every farm every year. With today's technology it is possible to reach almost all producers even in remote areas in some way or another. It does make sense, however, to personally visit the people who grow the coffees we buy every now and then to actually talk to them in person and see what has changed on their farms with our own eyes.
To import our coffees, we work with specialized and experienced companies who foster a direct relationship with the producers. These companies are at origin more often than we are. They have their own projects in the areas of research, consultation and further education in coffee growing countries. Some of these companies only work with coffees from one single country and therefore collaborate very closely with the producers.
The trade of coffee is a complex affair. We are hopeful of making progress in various areas with our sourcing model. The model's efficacy is examined and improved on a regular basis. By publishing our purchasing prices, we hope to offer a valuable insight to the consumers. This, then, should help to ensure fair payment and appreciation for everyone involved in the coffee supply chain.