Wednesday, June 26, 2013

FOB Price on Label

We are now launching an idea we have had since we started The Coffee Collective. We feel that its time to make it transparent for the consumers what is actually paid for the green beans.

When we started buying green beans in The Coffee Collective in 2007 we had the same idea, but we understood from some of the producers we were buying from that they would feel a bit uncomfortable if we revealed what we were paying them. Therefore we didn't do it back then.

Now a lot of things has happened since 2007.

Firstly, back then it was in the aftermath of the coffee crisis, when the market price was extremely low in the period from 1999 to 2005. In 2007 prices had increased since 2005. The market price is now falling again to levels that seems unsustainable. At the same time a rust outbreak is creating huge problems in many producing countries (mainly in Latin America) without the market reacting.

Secondly, within the specialty coffee industry other roasters and traders are now revealing their green prices on their websites, so we do not feel that we are breaking a bond of trust between us and the producers.

Thirdly, on the suggestion of one of the producers we work with, we have added to the transparent price how long we have been working together as a way of showing our relationship.

We believe that it is important to be transparent towards the consumers. We know from our dialogue with our costumers regarding Direct Trade that a lot of people actually are interested in knowing that when they pay a high price for a bag of quality coffee the producer who has created the initial potential for this quality is also getting their share.
Therefore we have chosen to add the following info on each of our bags as we get coffees in from now on:

  • The FOB price in $/lb
  • The percentage this price is above the market price
  • For how many years we have visited the producer and/or
  • For how many years we have been buying from the producer
We have debated back and forth about which "level" of price we should put on as well as in which units.
In the end we have choosen to put on the price we have paid as a percentage above the market price to have an easier understandable price for people who might not feel entirely comfortable with FOB (Free On Board) prices or the like. For the calculation of this percentage we use the ICO stats for the New York prices of the relevant quality category in the month of our contract (this is not entirely exact base to use as it underestimates the calculated percentage a bit, but we find it to be the most transparent method we could come up with. Since it underestimates the percentage and we also publish the exact price we still believe it is a decent way to present it. We are though open for better suggestions).

To have an exact number as well, we have chosen to put on the FOB price in $/lb to have a price that is easy to compare between markets, countries as well as with Fair Trade.

We of course think that it is very important what the actual producers receive and not just what is paid on the FOB level. It is though very different from place to place, producers to producer and country to country how the "farm gate" - or "producer" - price is structured. In some places the producer will cover all export costs themselves in others their will be several levels taking care of several functions in the beans way from cherry to FOB. Since we believe that it is important to have comparable prices we have chosen to focus for now on the FOB price.

In most of our cases the price paid to the producer will be the FOB price minus 0,6 - 1,0 $/lb.

We still want to work with our Direct Trade model as an accountable way of communicating how we buy our greens and here we will still document to our clients what the actual producer has been paid. And we will still keep the promise that if it states Direct Trade on one of our bags the producer has gotten at least 25% above the Fair Trade price.

As a last thing we feel that its imperative for us to say that we do not believe that we by doing this have found a golden solution on transparency or anything else in regards to coffee ethics. But by putting the price we have paid for our greens on the bags we hope that we can contribute to at least two things:

First is to develop the understanding the consumers have of coffee and how it is traded.

Second is spurring a debate amongst consumers on these issues. We hope by doing this, more and more people will think about coffee prices and start talking about how unsustainable a lot of the market is.

The first bags with this info is actually already out, since we just got new crop home from Kieni, Gichathaini and Esmeralda that was released Friday 14th of June. This Friday two more coffees, Finca Vista Hermosa and El Diamante will also feature the price info.


Unknown said...

Great Work! You are truly establishing a model for transparency in Specialty Coffee. Keep up the good work!

The Coffee Collective said...

Thanks Andrew. Reading the post again I see that the relation between the price we pay and the quality of the coffee we get, probably has not been described sufficiently. On each label we write "Kvaliteten berettiger at vi har betalt X% over markedsprisen (Y $/lb FOB)". Which means that the quality justifies that we have paid X% above the market price and then the exact number in the bracket. The important point here is that its not to be nice we have paid more than the market price but because we have gotten a product of special quality. - Peter

Unknown said...

You are engaging in a real conversation with your consumer on the actual value of coffee. I agree, what is important is that you give the coffee an actual value and that is a great starting point for a discussion with your consumer. This an important next step with Specialty Coffee, 'How do we value quality?' and what does it mean. Thanks again, i look forward to hearing about your reactions and lessons. But i do think it is something that all of us in the Specialty Coffee industry should consider. - Andrew

Kim Elena Ionescu said...

How interesting! I share your view that the FOB price is an imperfect way to communicate the complexity of diverse supply chains. I appreciate your efforts to give context to Direct Trade's relentless focus on price by adding the percentage above the market and the longevity of the relationship. In the transparency report Counter Culture Coffee publishes annually, we include the latter but haven't attempted to calculate the former, so I'd be curious to hear your thoughts and any feedback from customers (does it raise more questions than it answers? what other information might be relevant?). Thanks for taking this ongoing conversation to new heights!