FEATURE NEWS
Coffee prices are at their lowest in more than a decade. Australian
industry leaders tell BeanScene how this affects their relationships
with farmers, the local market, and the future of coffee.
W
here will the coffee
industry be in 50
years? A hopeful
barista might tell
you that coffee
will resemble wine, with their role like
that of a sommelier, recommending
premium coffees from a select reserve
list. Another could warn you of the perils
of climate change, putting 50 per cent of
coffee producing land at risk. But what if
we faced an industry in which producers
focus solely on volume and cherries are
picked by machine?
Campos Coffee Founder Will Young
says with record-low prices being paid
to coffee farmers, this “coffee dystopia”
could very well become a reality.
“The situation is soul destroying. At a
time when the specialty coffee movement
is getting bigger and bigger, the C Price is
getting lower and lower, which is pushing
coffee farmers to give up on coffee all
together or just say, ‘forget it, we’ll go for
volume instead’,” Will tells BeanScene.
“If it continues this way, we’ll go back
into a recommodification stage, where
there’s no nod to terroir and it will all
taste the same.”
The International Coffee Organization
(ICO) says the coffee market has
experienced a continued downward trend
since 2016. On 7 May 2019, the daily
price fell to 89.31 US cents per pound,its lowest point since 2006.
Most of the world’s coffee is traded
as a commodity on the New York Stock
Exchange (NYSE). On this “C Market”,
the C Price, the amount in US dollars
Arabica coffee is traded for, is largely
determined by supply and demand as well
as speculation through futures contracts,
deals to buy coffee at a later date for a
price determined in the present.
Sasa Sestic, Founder of Ona Coffee
and Project Origin, says in theory,
futures contracts allow coffee roasters to
back their future supply chains if they
predict a low yield. However, actors
from outside the coffee industry have
complicated things.
“What’s happening is hedge funds and
investors, who understand the market and
stock exchange, are buying the futures
when prices are low and selling their stock
when prices are high,” Sasa says. “People
setting the prices are not working in
coffee. A majority of them have not even
visited a farm.”
John Russell-Storey, Marketing
Manager – Trade at green bean trader
Cofi-Com, says many consumers falsely
assume that how much they pay for a
latte reflects what farmers receive for
their coffee.
“The reality is a complex maze of
skills and expertise from growing, milling,
grading, distribution on the green side,then roasting, blending through to the end
cost of espresso equipment, baristas on
the roasted side,” John says. “These are
factors that New York doesn’t reflect.”
Elements that can play into speculation
and the value of coffee include the
strength of the US dollar, the Brazilian
real – where a majority of coffee is
grown – and production levels.
Campos Coffee’s Will says
overproduction from Brazil is a key
contributor to the C Price decline.
“Brazil has overproduced by the
same quantity of coffee that Colombia
produces. When you get that much more
volume going into coffee, it’s going to
push prices down,” Will says.
While the majority of specialty coffee is
purchased through direct trade instead of
the C Market, Sasa says these low prices
are still affecting high-end producers.
“Maybe 10 per cent of the coffee we
buy worldwide is specialty, but 90 per
cent is purchased as a commodity. Besides
that, a lot of specialty coffee is also bought
with a differential based on the NYSE, so
when the C Price plummets, so does the
specialty price,” Sasa says.
Craig Dickson, Managing Director
of Veneziano Coffee Roasters and CEO
of Nomad Coffee Group, says many
producers are forced to sell the majority
of their crop at C Market prices.
“Specialty grade coffee is maybe onlyCoffee in crisis
32 beanscenemag.com.auFEATURE NEWS
Coffee prices are at their lowest in more than a decade. Australian
industry leaders tell BeanScene how this affects their relationships
with farmers, the local market, and the future of coffee.
W
herewillthecoffee
industrybein 50
years?A hopeful
baristamighttell
youthatcoffee
willresemblewine,withtheirrolelike
thatof a sommelier,recommending
premiumcoffeesfroma selectreserve
list.Anothercouldwarnyouof theperils
of climatechange,putting 50 percentof
coffeeproducinglandat risk.Butwhatif
wefacedanindustryin whichproducers
focussolelyonvolumeandcherriesare
pickedbymachine?
CamposCoffeeFounderWillYoung
sayswithrecord-lowpricesbeingpaid
to coffeefarmers,this“coffeedystopia”
couldverywellbecomea reality.
“Thesituationis souldestroying.Ata
timewhenthespecialtycoffeemovement
is gettingbiggerandbigger,theC Priceis
gettinglowerandlower,whichis pushing
coffeefarmersto giveuponcoffeeall
togetherorjustsay,‘forgetit, we’llgofor
volumeinstead’,”WilltellsBeanScene.
“Ifit continuesthisway,we’llgoback
intoa recommodificationstage,where
there’snonodto terroirandit willall
tastethesame.”
TheInternationalCoffeeOrganization
(ICO)saysthecoffeemarkethas
experienceda continueddownwardtrend
since2016.On7 May2019,thedaily
pricefellto 89.31UScentsperpound,
itslowestpointsince2006.
Mostof theworld’scoffeeis traded
asa commodityontheNewYorkStock
Exchange(NYSE). Onthis“CMarket”,
theC Price,theamountin USdollars
Arabicacoffeeis tradedfor,is largely
determinedbysupplyanddemandaswell
asspeculationthroughfuturescontracts,
dealsto buycoffeeat a laterdatefora
pricedeterminedin thepresent.
SasaSestic,Founderof OnaCoffee
andProjectOrigin,saysin theory,
futurescontractsallowcoffeeroastersto
backtheirfuturesupplychainsif they
predicta lowyield.However,actors
fromoutsidethecoffeeindustryhave
complicatedthings.
“What’shappeningis hedgefundsand
investors,whounderstandthemarketand
stockexchange,arebuyingthefutures
whenpricesarelowandsellingtheirstock
whenpricesarehigh,”Sasasays.“People
settingthepricesarenotworkingin
coffee.A majorityof themhavenoteven
visiteda farm.”
JohnRussell-Storey,Marketing
Manager– Tradeat greenbeantrader
Cofi-Com,saysmanyconsumersfalsely
assumethathowmuchtheypayfora
lattereflectswhatfarmersreceivefor
theircoffee.
“Therealityis a complexmazeof
skillsandexpertisefromgrowing,milling,
grading, distribution on the green side,thenroasting,blendingthroughto theend
costof espressoequipment,baristason
theroastedside,”Johnsays.“Theseare
factorsthatNewYorkdoesn’treflect.”
Elementsthatcanplayintospeculation
andthevalueof coffeeincludethe
strengthof theUSdollar,theBrazilian
real– wherea majorityof coffeeis
grown– andproductionlevels.
CamposCoffee’sWillsays
overproductionfromBrazilis a key
contributorto theC Pricedecline.
“Brazilhasoverproducedbythe
samequantityof coffeethatColombia
produces.Whenyougetthatmuchmore
volumegoingintocoffee,it’sgoingto
pushpricesdown,”Willsays.
Whilethemajorityof specialtycoffeeis
purchasedthroughdirecttradeinsteadof
theC Market,Sasasaystheselowprices
arestillaffectinghigh-endproducers.
“Maybe 10 percentof thecoffeewe
buyworldwideis specialty,but 90 per
centis purchasedasa commodity.Besides
that,a lotof specialtycoffeeis alsobought
witha differentialbasedontheNYSE,so
whentheC Priceplummets,sodoesthe
specialtyprice,”Sasasays.
CraigDickson,ManagingDirector
of VenezianoCoffeeRoastersandCEO
of NomadCoffeeGroup,saysmany
producersareforcedto sellthemajority
of theircropat C Marketprices.
“Specialty grade coffee is maybe only32 beanscenemag.com.au