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Coffee Prices

April 08, 2012

This is actually in response to two posts that I have read in the past few days one here on roaste written by Gazy and then another written by James Hoffman. They both are just talking about the prices of coffee and the impact and low price for it really.

It should be noted that the prices that are both shown in these two blogs are talking about the commodity price of coffee, these prices are not what most of the retailers on Roaste pay. However, as it was noted by James Hoffman they are most of the time tied to the commodity price, i.e. they may have a contract stating they are going to get paid two dollars above the commodity price. So that tie to the coffee we drink and the commodity price that is determined by a myraid of market forces, from the  esoteric to the real world ones are what determine the price.

My thought on this is that a lot of these commodity prices really are favored to large farmers that can operate on an economy of scale, and thus can afford to have a really low margin on their coffee. Or so I believe by my own experiences in agriculture, I grew up on a farm here in the USA, These pries just like corn or anything else here in the USA probably are squeezing out the small farmers that make the good coffee.

This leads me to believe like I believe was said by James, and insinuated by Gazy, there should be less focus on the price of coffee at the commodity level. I would be interested to know how the direct trade contracts are written up in coffee, and if it might be possible for some of them to start being written without regard to the commodity price. Having spend a brief amount of time in the wine industry, very brief, I know that at the time I was working the boutique wine maker that I was with had just inked a deal in which he agreed to buy grapes before they were even planted. So I would be interested to know how long term some of these deals are for.

Any deal that is written based on the commodity price of coffee is always going to carry risk for the farmers or the roasters. One side has the potential to win if any number of factors leads to the price either booming or crashing, it seems to me that contracts with each other that maybe are tied to something like inflation would be a better deal for both. However, how do you gauge inflation on the macro level?

Blogs:

Gazy, "Coffee: costs and price"

James Hoffman, "The absurdity of the C"

Picture from Direct Trade Intelligentsia (I think it's pretty)






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