Why higher coffee prices can be a good thing
Some alarming stories have been published the past few months about increasing coffee prices. What is it really about? Who profits from it? And who suffers? Will prices increase for coffee drinkers? We turn to Oxfam’s coffee expert Stefaan Calmeyn for answers. The verdict: yes, Oxfam coffee will become more expensive, but for the right reason.
What determines coffee prices?
First of all: the increase we’re seeing right now concerns the price of ‘green beans’, so unroasted coffee beans. How is this determined?
The expected evolution in supply and demand plays a major role of course. Demand is currently up everywhere, after a difficult year due to Covid-19. But the supply threatens to stagnate. This is mainly due to the bad weather during the coffee harvesting period in Brazil (the largest coffee producer) but also the unsafe conditions in Colombia and transport problems throughout the world. And when demand is higher than supply, the price increases. That makes sense.
However: the price for green (Arabica) coffee is determined on an international stock market in New York. Anyone can play that market, even those who don’t actually sell or buy coffee. So a great deal of speculation is done with coffee, which can cause major price fluctuations.
1 dollar per pound vs fair trade minimum price
The fact that the coffee price increases on the New York stock market is, in itself, a good thing. The price of coffee has been very low for decades, even below 1 dollar per pound (just under 500 g). In 1989 major players such as the US and Brazil cancelled international quota agreements. Since then we have seen a downward trend in the price of coffee, and even less stability. Speculation on the stock market increases that effect.
Those low prices and fluctuations hit the coffee farmers the hardest: it is practically impossible for them to estimate how much they will get paid for their product. And they have no reserves to protect them against fluctuations like the big players do.
For many coffee farmers a price of less than 1 dollar per pound does not even cover their costs. That’s why the fair trade minimum price – the minimum price that Oxfam always pays – is 1.4 dollars per pound. We pay an additional 0.2 dollars fair trade premium on top of that, plus often organic and quality premiums as well. And we always go for long-term collaborations so we can ensure more certainty in this uncertain sector.
At Oxfam the increase in price goes to the coffee farmers
Now that the market price exceeds the fair trade minimum price Oxfam of course also pays the higher market price. The fair trade premium and – when applicable – organic and quality premiums remain the same. This increase in the price of natural resources can have an effect on the price of our processed coffee. As a customer you pay a slightly higher price that goes directly to the cooperatives that supply our green coffee.
And unfortunately that is the exception
In contrast to Oxfam’s transparent, direct trade with coffee cooperatives, price determination for conventional convention is an opaque warren. How much a farmer is paid for the coffee depends on a myriad of factors. But all too often there is no direct relationship between higher consumer prices and the income of the coffee farmers.
That a cup of coffee is becoming more and more expensive is, for a large part, because the Belgian consumer is prepared to pay more for high quality, a moment of pleasure and simplicity, such as coffee beans and small portions for at home, use in coffee bars, etc.
What’s wrong with that? Nothing really, as long as the consumer is willing to pay extra for it. But the cultivators of the natural resources don’t receive any of the extra profit from the higher price the coffee drinker pays for the end product.
It is usually the large companies at the end of the chain that benefit from the higher consumer price. A little bit for higher production costs but mainly for higher profit margins. The farmers, as a crucial link in the chain, continue to receive the same (too) low income. While their production costs and climate risks (drought, heat, excessive rain) increase they are getting the short end of the stick in all areas as the latest edition of the Coffee barometer report shows.
In the year 2021 the consumer wants a superior coffee experience and responsible consumption. Oxfam coffee gives you both. And that while the price of our traditional coffees (e.g., Dessert, Mocha, etc.) remain in line with the market.
More expensive coffee can be a good thing
That’s why we at Oxfam are not alarmed by the gradually increasing price of coffee. If – and that is the condition – this increase in price trickles down to the coffee farmers, they will finally be able to have a stable living income that covers their costs and risks. In that case more expensive coffee is not a problem, but a rectification of an age-old injustice. In other words, a legitimate reason to pay a little extra.
After 50 years Oxfam is and remains the fair trade pioneer. We prove that trading can be done differently and we will continue to serve fair coffee. But the entire sector must become more sustainable, in the best interest of everyone who loves coffee. And we still have a long way to go…