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 climb upward. Extreme weather conditions in Brazil and Vietnam, the global economic situation spiraling out of control, the European deforestation regulation, increased coffee consumption in Asian countries, wars, Trump, speculators, diseases, fungi, slow progress in plant research, and logistics bottlenecks have each contributed and continue to contribute their part. What does this mean for the relevant players along the value chain? Who profits 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 was 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 time there was a record high of $3.11 per pound or $6.84 per kg of raw coffee on the coffee exchange, the ICE Arabica Futures or also called the "C price". Traders, roasters, and end consumers have since been able to benefit from sometimes devastatingly low prices for almost half a century.
The producers were and are price takers. They had to accept the prices determined on the commodity exchange in New York.
From this precarious and unfortunate situation, the sense of justice of many was awakened, 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 shifted to partnerships with cooperatives or even farmers. "Relationship coffee" became the guiding slogan of ambitious and morally conscious traders and roasters in recent years.
The Pickers, Producers, and Cooperatives
Rarely and only sporadically was coffee a profitable business for farmers, producers, and cooperatives in the last five decades. Or in other words: it was a physically demanding, sometimes unfortunate business.
These fatal conditions in coffee production have been known for a long time.
The main answer was long seen in increasing production. Entire programs by traders and roasters were ramped up to accompany this technical development. But coffee production cannot be reduced to yield per hectare—otherwise the increase in production per hectare would have had to work miracles. Systemic poverty in the coffee sector is still a reality and cannot be argued away even by well-sounding projects.
Pickers and Producers
Self-employed coffee farmers like Doña Maria for example may be able to benefit from the high prices. For once, producers can look to the near future with peace of mind and can even choose whom to sell 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 actually generate enough income. We're not talking about big money here, but about income that covers costs and finances a living.
The Cooperatives
For cooperatives like Apas for example, the current situation with the high exchange price is an enormous challenge. They must find the balance between the interests of their members and their commitments to partners. If farmers don't prove loyal 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, who are often associated with the still-to-be-demystified concept of Direct Trade. Both are in difficult situations.
The Coffee Trading Houses
Established traders often have entrenched structures, which means they cannot react flexibly to exceptional situations. Since they primarily buy on the exchange, the price has a direct impact on profit margins. When the exchange price is low, their profit margin is higher. When the exchange price is high, their margin is correspondingly smaller. While they once generally had significantly more margin on the product, this has been in lower territory for years, and profit is only possible through high volume. With high exchange prices, this small remaining margin could be completely wiped out. Bankruptcies and takeovers are to be expected.
Modern Traders
From the need to treat people fairly and justly and to shape the environment sustainably, many social intermediaries have formed in the last two decades. They see themselves as mediators of partnerships and thus lay the foundation for consumption with a clear conscience. Often, modern traders pay producers a fixed premium over the exchange price, which is intended to better cover the costs incurred on a farm. Many also offer the possibility of supporting the calculation of various cost structures and calculating the costs incurred on a farm together with the farmers. Like the cooperatives, in the current situation modern traders are also in an ambivalent position. On the one hand, the mentioned and fixed premium to the exchange is hardly affordable. On the other hand is the partner, perhaps a cooperative, who must pay the high price. Various relationships are currently being severely strained and tested.
The Roasteries
Medium and small roasteries have gained a lot of momentum since the emergence of specialty coffee 20 years ago and were carried along by the "Third Wave" movement. Social coffee drinking in a hip coffee bar became the new normal for many. One of the promises of specialty roasteries was that through the consumption of carefully selected beans, sustainability would be promoted and producers would be paid fairly—this touched a nerve of the times.
Relationships with socially and sustainably committed traders or directly with producers were established. Visits to coffee farms were on the yearly agenda to be able to exert influence directly on site and support projects. Many have also sealed partnerships with a fixed price premium over the exchange price—like the modern traders mentioned before.
What happens now? What if the exchange price is significantly higher than what specialty roasteries 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 we can more easily respond 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, even as a consumer, good coffee can be supported. Good here is not reduced to sensory qualities but is equally firmly related to just, fair, moral, and environmentally conscious. So let's buy coffee from roasteries that care deeply about what they do. Because coffee without values is worthless.
