Coffee prices (the C-market for Arabica) have hit a
four five six seven year low. It’s trading today at just over $1.10 per pound for March 2014 delivery. In March 2011 it was trading at over $3.00/lb. That means if you planted coffee in 2011 expecting to receive about $3.00 a pound when it was ready for harvest (at earliest March 2014) your budget was off by a factor of three.
We know that the 2014 harvest is going to be much smaller in most Central American countries because of the ongoing coffee rust pandemic, yet coffee prices are still collapsing. Why is that and what does it mean for farmers, people who depend on coffee production for their income? I had a chance recently to visit with Noah Namowicz, Director of International Sales at coffee importing company Café Imports. He had just returned from a buying trip to Colombia, and he saw the effects of falling C-market firsthand.
Colombia, thanks the Federal Coffee Growers Organization (the FNC) has some price subsidy and a better infrastructure for supporting farmers finically than many other coffee growing countries, but even there, the system, with prices hitting such lows, is under severe strain.
Even with the subsidy payments from the FNC (which are nearing exhausting since the funds have been used repeatedly as the market falls) many farmers are facing higher costs for production than what they can sell their coffee for.
As Noah explains, “There’s the FNC price of (approximately) 425,000 pesos per carga. It’s kind a weird measurement, [but you roughly get] 90 kilos of green from that.” Which means, including the subsidy, the farmers “are essentially getting paid $221 divided by 198lbs and [they end up] getting paid around $1.12/pound farm gate.”
“It’s really low,” Noah says. “The average price per production is 490,000 [pesos per carga]. So they’re getting paid less than what it costs to produce it. The government subsidy is supposed to help but that figure includes it.”
In fact, the FNC price support was supposed to be only a stopgap measure until the market rebounded. Instead the market has gone down even further. Alejandro Renjifo at Fairfield Trading, in Portland, Ore., says “This was meant to be a temporary measure but the price has gone south, and thus the government has been unable to end it.”
So when farmers are faced with declining revenue, frequently the best option they have is to cut costs. Noah says, “What we saw some people doing, because labor is so expensive, is that some producers are delivering wet parchment. They’re saving time to get cash quickly, and they’re getting paid half of that [already low price]. Essentially they’re getting a payday loan.”
Noah was visiting San Agustin, Pitalito, and Acevedo in Huila, and he says bluntly that what he saw “Is not the norm.”
“What happens in a market like this, specifically Colombia, when the cost of production is not being met, is that [the farmers] are less likely to have the number of pickers on hand as is usual,” says Noah, “so we see a lot of over-ripes. A normal week of production has two or three passes [by pickers], essentially now they’re only taking one. In some of the fermentation tanks we saw a lot of over-ripes. It goes directly to the fact that they don’t have enough money to pay people to pick.”
Noah hastens to add that top-end and specialty coffees from Colombia are still going to be exceptional this year, and that most of the farmers he saw struggling (and doing things like delivering over-ripes) were typically those who are far more dependent on the C-market price since they produce mainly commodity coffee. There’s no doubt, however, that the falling C-market means financial hardship throughout the coffee growing community since many people (and communities) are dependent on commodity coffee for a huge part of their economic livelihood.
Alejandro adds, “The situation today in Colombia is that growers are losing money. This means, that no fertilization, no agrochemicals, [and] picking frequency is now 20 to 25 days (instead of 15 to 20) with lots of over-ripe cherries. Also lots of coffee [is being] sold in wet parchment, that is coffee that is pulped and fermented but not dried. Is sold for little just to get some cash quick. Those that dry the coffee in the patio, are pressed to sell their coffee quickly. [That means] the wait until buyers decide sometimes is too long, and the farmers sell by the time the buyer has decided to go ahead. This is the case for our recent visit that we had eight micro lots available and on the day of the cupping we had only three or four. Where are the others? The answer was [already] sold.”
So the farmers pass up on the chance at a quality premium that companies like Cafe Imports pay, to just get some cash in the pockets fast. And it’s hard to blame them. Many of them are utterly dependent on whatever cash they can get. They have many bills to pay, and they’ve been waiting for months to get any part of their harvest in so they can sell it.
There is still some hope, at least for farmers who can produce exceptional coffees. “One thing which we’ve seen in this low market,” says Noah, “is more roasters are willing are to pay more for really great coffees. There’s a higher tolerance to pay that premium now because the prices is still lower than it was two years ago, even with our farmer premiums. The quality premium is still benefitting the farmer. The trend we’ve seen is quality-minded roasters are still buying high quality coffees.”
And working with importers like Cafe Imports can be a way for some economic stability for farmers by improving quality. “Programs like ours are really attractive,” says Noah. “[But] there are both extremes. Some people just turning in [any coffee they can], and other people [emphasizing] improving quality. It takes quality leaders and role models in producer communities to lead the charge on quality, with our support and the education of the exporters and cupping labs.”
Sometimes it feels like the C-market and specialty coffee are completely separate things. The coffees that most specialty coffee shops sell are just that, specialty, and their price basis isn’t 100-percent dependent on the C-market. They are sold at higher prices, frequently with high traceability and with relationships between the farmer, the importer and the buyer. But the truth is that almost every coffee farmer that sells specialty lots also produces C-market basis, commodity, coffee. And those farmers depend on selling the commodity coffee to support their farm financially. When you’re a coffee farmer, Noah says, “you need to have that avenue. It’s like when you cook, and you use every single piece of the cow. Every coffee has a home even if that home is a big gallon tub of ice cream.”
And if farmers can’t get paid enough to make farming worthwhile, if they can’t sell their lower-grade coffees for more than the price of production, then the whole operation comes under stress. So a falling C-market may not mean a whole lot for specialty coffee cafes right now, but it certainly is affecting specialty coffee growers.