The 10 cent coffee challenge

For every coffee you drink at your favourite cafe, or from your plunger at home, the farmer who grew the coffee that went into your cup will have earned about 10 cents. For reasons I’ll explain below, I estimate that the farmer would need to be paid about twice that much to be making a sustainable living from growing your coffee.

With flat whites selling in cafes at $4.00 each and the cost of your plunger coffee at around 60 cents, it shouldn’t be too hard for me as a dedicated fair trader to ensure that the grower could earn 20 cents per cup, should it? However, in practice this is a very hard thing for me – or for anyone else - to achieve.

Firstly, to better understand the problem, let’s head back to the coffee farm. World coffee prices have fallen steadily over recent decades, and so too has the income of the millions of small-scale farmers who grow much of the world’s supply. Around 1990, following a particularly sharp fall in prices, prices earned by farmers became unsustainably low and have stayed too low ever since; by this I mean, that since that date it’s become much harder for coffee farmers to maintain a viable income – they generally can’t afford to replace aging trees, and therefore grow less coffee year by year – and as a result their children have become much less likely to take over the family farm. The full impact of shrinking prices has taken a long time to show through, but now we’re really starting to see the long-term impact of these low prices. The average age of coffee farmers in hallowed producer countries such as Colombia and Kenya is now over 50, and total production volumes in these countries are falling steadily. Where coffee is being grown in greater volume, in countries such as Vietnam, production is more mechanised and the quality of the coffee is correspondingly low – this is coffee destined for the instant coffee market and is not the kind of coffee we would want to see showing up in our cafes.

So if, as an importer buying directly from farmer co-operatives, I believe that farmers need to earn double what they receive today (prices they haven’t seen since prior to 1990), what’s to stop me paying them this price?

Our market is stopping me. While Trade Aid sells its own brand of coffee, we mostly have to retail this coffee through stores which have such high running costs (rent, staffing, and other overheads) that these stores are not profitable as things stand. Adding extra cost to the products we buy would only leave us losing more money through these outlets. Much of the rest sells into supermarkets where we face strong competition on price, and where shoppers have grown used to paying less than $7 for a packet of organic fair trade coffee. At any rate, 97% of the coffee I buy is then sold onwards as green (unroasted) coffee to other coffee roasters, and while these roasters are generally happy to pay a little extra for Trade Aid-sourced coffee, they won’t pay anything like close to double our current asking price.

But with so much apparent margin to play around with between that original 10 cents and the final retail price of either 60 cents or $4.00 for that cup of coffee you drink, can’t those of us in the coffee business do a better job of controlling the costs in between?

One of the challenges is the high quality demanded of the final product, which requires some or all of the following: expensive roasting equipment and a building to house it in, trained roasters, barista trainers, trained baristas, expensive espresso making equipment, milk (which, in a flat white, costs about as much as the coffee), shop rent, retail staffing, taxes and other sundry costs. Roasters and cafe owners assure me that they are making scant profit and that any surplus profits must lie elsewhere in the trading chain. There is some truth to this – they’re offering a handmade product at a commodity price.

There’s also the issue of pricing generally; even though some roasters, some cafe owners, some retailers and some retail customers would respectfully pay higher prices to their coffee suppliers if they believed that doing so would support fair prices for farmers, they would need to both (a) trust that any extra money they paid would be passed on to farmers and (b) be given the opportunity to do so in the first place, in a trading world where a product is usually marketed at one price only. By dint of a typical customer’s expectations (given that so many of us are out for a bargain), this one price becomes a lowest-common-denominator price for all of us.

All this leaves me thinking that if I’m to offer the higher prices to farmers that they need to maintain their farms, cover the basic living costs of their families, and motivate their children to become coffee farmers in the future, I’m going to have to do a better job of working with willing consumers here in New Zealand to address this pricing challenge.

For this to work, you would need to take me at my word that while the market requires us to sell our coffee at a standard base price, that you can pay us more for this product, knowing that farmers will receive all the crucial extra amount you pay in the form of a rebate which we would channel back to their co-operatives in its entirety.

For our part we would also need to develop a new sales channel with lower structural costs for you to support. My hunch is that such a channel might need to be an online store; we would eliminate the need to pay for a bricks and mortar location, you would buy more directly from us than you probably do at present, and the difference would go straight back to coffee producers in the form of a rebate. I figure we’d need to cover the tax component of your extra payments, assuming that you’d like to know that 100% of your extra payment would be passed on, and that this will be a critical factor in your decision to pay a higher price.

As for your flat whites, we could do the same; strive to find a lower-cost way to provide you with the cafe-style coffee experience you want, provide a rebate back to farmers as their share of the cost saved, and retail these coffees at a base price but which also allows you to pay an overprice that goes straight back to farmers.

I can’t think of a better alternative to this new model – can you? If so I’d love to hear your thoughts, which I will gladly share with fair traders all over the world who are grappling with this same challenge in their efforts to support sustainable coffee production for small-scale, artisan farmers, and to pay them the higher prices they need in a world where the monetary forces of the regular marketplace are stacked against them.