The coffee market is in the midst of a price rally that in recent weeks and days has known practically only one direction: the steep path upward. Extreme weather conditions in Brazil and Vietnam, a global economic situation in disarray, the European Deforestation Regulation, increased coffee consumption in Asian countries, wars, Trump, speculators, diseases, fungi, slow progress in plant research, and logistics bottlenecks have contributed and continue to contribute their part. What does this mean for the relevant players along the value chain? Who benefits and who loses? And what about our cup of coffee in the morning? We break it down.
The last 47 years
On November 27, 2024, the coffee price stood at $3.26/lb. Per kilogram of raw coffee, that's 7.17 USD/kg. That's 70% more than 11 months ago. It's been 47 years since the last record high of $3.11 per pound or $6.84 per kg raw coffee on the coffee exchange, the ICE Arabica Futures or also called "C price." Traders, roasters, and end consumers have since been able to benefit for almost half a century from sometimes devastatingly low prices.
Producers were and are price takers. They had to accept the prices determined at the commodity exchange in New York.
This precarious and unfortunate situation awakened the sense of justice in many who, in addition to focusing on quality, also placed great value on the social aspect. Various certifications such as Fair Trade, Max Havelaar, or Bird Friendly were created to stand up for fair wages or to promote a sustainable ecosystem. Increasingly, the focus was placed on partnerships with cooperatives or even farmers. "Relationship coffee" became the guiding slogan of ambitious and principled traders and roasters in recent years.
The pickers, producers, and cooperatives
Rarely and sporadically was coffee in the last five decades a profitable business for farmers, producers, and cooperatives. In other words: it was a physically demanding, sometimes unfortunate business.
These fatal conditions in coffee production have long been known.
The main answer was long sought in increased production. Entire programs by traders and roasters were scaled up to accompany this technical development. But coffee production cannot be reduced to yield per hectare—otherwise, increased production per hectare would have had to work miracles. Systemic poverty in the coffee sector is still reality and cannot be argued away even by well-sounding projects.
Pickers and producers
Self-employed coffee farmers like for example Doña Maria might benefit from the high prices. For once, producers can look to the near future with peace of mind and can sometimes even choose who they want to sell their coffee to. A long-term high exchange price could lead to fewer people emigrating from coffee-growing countries and leaving coffee farms, and working on a coffee farm could even earn enough to live on. Here we're not talking about big money, but about income that covers costs and finances a livelihood.
The cooperatives
For cooperatives like for example Apas, the current situation with the high exchange price is an enormous challenge. They must balance the interests of their members and their obligations to partners. If farmers prove disloyal and sell their cherries to other cooperatives or intermediaries, so-called coyotes, the cooperatives are left without coffee and may not be able to fulfill contracts.
The traders
In coffee trading, a distinction is often made between large, established coffee trading houses and modern traders, which are often associated with the still-to-be-demystified concept of Direct Trade. Both find themselves in difficult situations.
The coffee trading houses
Established traders often have entrenched structures, which makes them inflexible in responding to extraordinary situations. Since they primarily buy on the exchange, the price has a direct impact on profit margin. When the exchange price is low, their profit margin is higher. When the exchange price is high, their margin is correspondingly smaller. While they formerly had significantly more margin on the product, this has been in lower ranges for years and profit is only possible through high volume. Due to high exchange prices, this small remaining margin could be completely eaten away. Bankruptcies and takeovers are to be expected.
Modern traders
From the desire to treat people fairly and equitably and to shape the environment sustainably, many social intermediaries have formed over the last two decades. They see themselves as mediators between partnerships and thus lay the foundation for consumption with a clear conscience. Modern traders often pay producers a fixed markup over the exchange price, which should better cover the costs on a farm. Many also offer the opportunity to support calculations of different cost structures and to calculate expenses on a farm together with farmers. Like the cooperatives, in the current situation modern traders are also in a mixed situation. On the one hand, the mentioned and fixed markup over the exchange is barely affordable. On the other hand stands the partner, perhaps a cooperative, which must pay the high price. The various relationships are currently being severely strained and put to the test.
The roasters
Medium and small roasters have experienced great tailwinds since the rise of specialty coffee 20 years ago and have been carried along by the "Third Wave." Social coffee drinking in a trendy coffee bar became the new normal for many. One of the promises of specialty roasters was that by enjoying carefully selected beans, sustainability would be promoted and producers fairly compensated—this touched a nerve of the times.
Relationships with socially and sustainably committed traders or directly with producers were built. Visits to coffee farms were on the annual agenda to be able to exert influence directly on site and support projects. Many have also sealed partnerships with a fixed price markup over the exchange price—like the modern traders mentioned earlier.
What happens now? What if the exchange price is significantly higher than what specialty roasters paid a year ago? What if there are no longer monetary incentives for producers to make high quality or organic coffee because the exchange price is so high?
The current situation challenges us all. As a roastery, we are currently having intensive discussions with our partners. We are trying to reduce our costs as much as possible and increase our efficiency so that we can react more easily to the new coffee prices.
And as consumers?
The increased prices will sooner or later also have an impact on the cup of coffee in the morning and roasted coffee in general. Coffee will become more expensive. With careful selection and conscious consumption, consumers can also help support good coffee. Good here is not reduced to sensory qualities but is also firmly related to just, fair, moral, and environmentally conscious. So let's buy coffee from roasteries that place great value on what they do. Because coffee without values is valueless.
