Words by Freda Yuan
Head of Coffee, Origin Coffee
When it comes to seeking transparency in the speciality coffee sector, it can feel a little like wading through murky waters. Not only does the definition change along each stage of the production line, but the terminology can often mean something different for the farmer, producer, and the coffee drinker. For us, our idea of transparency appears through each stage of interaction and filters straight to you. It’s by no means a perfect market – or a level playing field – but we hope that by continuously sharing our involvement and progress, openly discussing and acknowledging existing practices, as well as working to do right by a complex and constantly shifting industry, we can keep things as clear as possible.
Which is one of the main reasons behind our Live Coffee Transparency Report. By reviewing, updating, and sharing this report, we’re opening up an often complicated and confusing conversation about fairness in a volatile market. Not only can we evaluate our own supply chain, but continuously look to better it, contributing to and leading change from the bottom up, ensuring we take care of our partners, coffee producers, and farmers. This kind of transparency means shining a light on what Farmgate Prices, and the Free on Board prices actually translate to.
The Farmgate Price is the market value of the coffee, minus transport and admin costs; it’s the term given to the price for the sale of farm produce direct from the producer. A simple-enough definition, but this pricing means something different to each country and producer. While Farmgate Pricing is very straight forward in most of Central and South America, with the coffee producers being the ones who grow and process their own coffee, the Farmgate Price in East Africa can be rather more complex, with the washing station and local cooperative playing a crucial part in the success of the industry. Most coffee farmers in East Africa grow, on average, 200 coffee trees in their back yard—not enough to make up enough volume themselves. As such, the coffee cherries from each farm are sold on to washing stations and cooperatives who act as the coffee producers, with each lot of coffee that is bought being the result of between 50-100 farmers. Taking these differences into consideration, you’ll find that we’ve renamed the Farmgate Price as the Price to Producer to make things clearer when it comes to knowing exactly who’s receiving that final price.
FREE ON BOARD (FOB) PRICE
The general term for agreeing upon the purchase of the coffee from the coffee producer is commonly referred to as Free on Board (FoB), and is the benchmark for much international trade. This FoB price means that, once agreed, the price includes everything up to the coffee being placed on board the ship – just the same way that you might agree upon a price with your local tradesman for a supply of firewood, with the understanding that the price includes the wood being chopped, dried, and loaded up for delivery. There are many stages involved before the coffee is loaded onto the ship, with costs involved throughout. Depending on the coffee producing country, once the coffee is picked and processed (which incurs labour costs), transport is most likely needed once the coffee is ready to leave the farm and be sold. If a local agency is involved, then the coffee is next sold to an exporter, which might involve further travel costs, as well as a service charge. The exporter will store the coffee in a warehouse, process it through a dry mill to remove the parchment, and then transport the coffee to the port. For some, there are fewer steps, so fewer costs involved, such as in El Salvador, where we’re able to purchase directly from producer. However, in Colombia or Ethiopia, the coffee journey may require more hands, meaning more charges until it is loaded onto the ship.
Free on Board means free responsibility from the seller once the coffee is on the ship; the seller may be exporter or producer with exporting licences. The united currency for calculating FOB is USD and the unit is in lbs. (1kg = 2.24lbs).
FAIRTRADE & C MARKET
Fairtrade prices are based on FoB terms, and this rule is applied to every coffee producing country. The Fairtrade price is always at $1.40/lb FoB and is considered stable enough to guarantee that the producers make calculable and predictable income—as long as they produce enough volume. There is no regulation for producers to produce certain qualities of coffee, so long as there is volume. However, this definition of fair is still questionable. After all, who judges what is fair when each coffee producing country has their own economical scale, production structure, supply chain, and culture? Recognising fair pay is nothing new—but there’s still a lot of work to be done.
In the simplest terms, we’re committed to paying the right price to coffee producers, ensuring our supply chain is economically and socially sustainable: that seemingly simple cup of coffee has come a long way, with a lot of work and risk involved, and we think that should be fairly recognised.
The coffee commodity market (C market) has long set the price benchmark for certain coffee producing countries, yet provides no guarantee for the quality of the coffee, or a guarantee of income for the producer. The price fluctuates based on the C market movement, much the way the stock market does, proving a risky gamble for every harvest where, on bad days, the coffee a producer sells does not even cover costs. For the past decade, the speciality coffee industry has fought hard to advocate for paying fairly for quality coffee—a no-brainer to us.
At Origin Coffee, we either work with coffee producers directly, or with trusted local partners. The coffee quality score and the pricing are agreed for both parties upon each harvest. The prices don't fluctuate, and the partnerships flourish through these practices, such as our relationship with The Mierisch Family in Nicaragua, whom we’ve had the pleasure of working with for over a decade, and our longstanding partnership with Carlos Pola and Fernando Lima in El Salvador, which continues to grow. Such relationships have been built upon open, transparent foundations where mutual respect has led to much more than a business rapport, but true friendship. Each year, we commit to similar or increased quantities of crop, fully understanding that factors such as climate can impact flavour and more.
Where direct relationships with the producers aren’t possible, we work with a number of trusted exporters in Colombia, Brazil, Peru, and East Africa who help us source coffee from local producers, most of whom are small farm holders. And while each country and exporter work differently, the consistent measure for each is that the price remains above the C market and Fairtrade pricing points. These exporters provide services such as quality control, transport from rural areas to the warehouse or milling facilities, and through customs procedures. Each step of the journey results in additional costs that ultimately reflect in the end price.
Being fully transparent about every level of our operation has always been at the heart of who we are as a company, and our Live Transparency Coffee Report is another step in the right direction on a still long road, stripping back the layers and jargon of the industry, throughout the entire supply chain. And as we continuously work with this clear mindset, the more we realise there’s still plenty more to be done—a challenge we gladly embrace.