Issue #2: A Coffee Farmer's Income

Breaking down what price per pound actually means to a coffee farmer.

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The Parts We Don’t See

Two years ago, Mike and Caryn Nelson of Junior’s Roasted Coffee in Portland, Oregon launched the Ask Me About Cost Of Production comic. It was the culmination of their work with producers helping them determine how much it cost them to produce their coffee to establish the price Junior’s Roasted Coffee would be paying. As part of their initiative to drive more conversation around how coffee farmers are paid, the comic (and subsequent live events) were designed to highlight one key factor: in specialty coffee, many times farmers are paid less than what it cost them to actually produce that coffee. 

There have been initiatives to pay farmers more for their coffee starting with Fairtrade and Fair Trade trying to create a third-party certified alternative to the commodity pricing market in the late 1980s. Those motivating factors evolved in the late 90s with Direct Trade, a non-certified buying model of individual standards that was developed by coffee roasters like Intelligentsia Coffee, Counter Culture Coffee, and Stumptown Coffee that was designed to go a few steps further than what Fairtrade guaranteed.

In either case, pushing for higher prices for farmers generally glossed over one factor in the public discourse: how much did it cost that farmer to actually produce that coffee, and are they actually making a profit? Are specialty coffee prices actually creating a comfortable lifestyle for coffee farmers?

Most producers that I can think of sell most of their coffee at specialty coffee prices (well above market prices, to Shared Source), and I’ve seen them be able to make improvements to their homes, pay for unexpected health expenses, send children to school, and purchase consumer goods. But they still spend almost every day working on their farms (pruning, fermenting farm inputs for organic fertilizers, tending to worm bins, etc.) and I think that most city folks would not consider them to live middle class lifestyles.

I think about this statement a lot. It comes from green coffee buyer Michelle Stoler, who manages sales and operations for Shared Source in the US, in response to a question I asked her about whether or not a coffee farmer lives a middle class lifestyle.

She also brought up some other points — Do they live on the farm? Or do they live in the city and visit the farm occasionally? — that make answering this question fairly difficult. For one, generalizing about a group of various coffee farms even in one region within the same country will likely yield different experiences. Coffee farmers aren’t a monolith.

Azahar Coffee Company, based in Bogota, Colombia, is a green coffee exporter as well as a domestic coffee roaster that features Colombian coffees in its Bogota cafes. They’ve been working on a document titled “A Sustainable Coffee Buyer’s Guide” that hopes to better outline how to compensate coffee farmers in ways that make better impact, and you can see the presentation on the guide from this year’s Specialty Coffee Association Expo here. That document is based of a study they did that gathered information from 86 farms across four coffee growing areas in Colombia, and the data for each region presents huge differences in the average size of the farm, the average productivity for a farm, the average annual yield, and the average cost of production.

Coffee can mean many things: in English, “coffee” is used for a tree, a fruit, a dried seed, and a beverage all at the same time. Coffee farmer is almost as disparate of a term: we might refer to the person who owns a large estate that employs thousands and comes from a background of generational wealth a coffee farmer, but coffee farmer is also the term used for someone who picks a few baskets of cherries from the indigenous coffee trees that grow near their home.

Most coffee farms across Central and South America are likely categorized as a small estate, though that term can encompass a huge variety of sizes and styles of coffee farms, and these are mainly the types of farms that Azahar and Shared Source work with. Looking to what a coffee farmer is able to make when they sell their coffee can be difficult to track with these small farms.

Many producers find it difficult to estimate their cost of production, especially when much of the farm “inputs” are family labor and farm derivatives. On larger estates, it's a bit easier to calculate the cost of production because there are workers and salaries — maybe a farm administrator, pickers, pruners, maybe someone else who manages operations and pickers (like weighing their cherries, etc.) and someone else in charge of processing and/or the drying patio, etc., and there are likely farm input costs like agro-chemicals and fertilizers (or purchased organic fertilizers). It’s harder to calculate for smallholders who often rely on their own labor and on family members' labor for farm management tasks, and even harder to calculate when those same smallholders make their own organic inputs from materials that come from the farm (coffee cherry, pulp, rice husks, organic matter, etc.) because it’s hard to put a cost on that labor and those inputs- at that point, you start thinking about and calculating opportunity costs.

Even Azahar’s study made a point to mention this directly:

On average, we found that in addition to the farmer, two adult family members contributed significantly to the work on each farm, without receiving a salary aside from the farms’ income.

While the Azahar study advocates for pricing that is a more sustainable model that better compensates for this unpaid labor, as a coffee consumer, this leads to more questions about what we drink and how it impacts the world. It becomes immediately clear that legacy programs like Fairtrade, which operate as an independent, third party organization to guarantee basic working conditions and a basic floor price, just aren’t going to do much for these small estate farmers, if they could even qualify to be certified.

In a blog post from June 2019, Peter Kettler, the Senior Coffee Manager at Fairtrade International, argued that more should be paid for coffee than what Fairtrade was currently offering as a premium. At the time of that post, Fairtrade price was $1.40/lb for coffee, $1.70 for organic coffee, and there was a $.20 premium that farmers could qualify for. Kettler outlines how much a farmer would have to make to break the poverty line in Colombia, and argues that coffee needs to sell at $2 a pound to help farmers make a living income, not just break the poverty line.

At this time of writing this, the Fairtrade price for washed, Arabica coffee is… $1.40 per pound. The average cost of production that Azahar calculated from four different regions in Colombia was between $1.02/lb and $1.53/lb. And these figures are low: the cost of production for the example farm in Guatemala in Ask Me About Cost Of Production was $2.87/lb.

The ghost we’ve been chasing in this newsletter is the idea of the Coffee Price Crisis. Essentially, the cost of coffee on the commodity trading market has plummeted, and stayed low, for years. Add in the fact that the price of coffee hasn’t shifted much since the 1970s, essentially ignoring inflation entirely, and you’ve got farmers losing money every time they sell their coffee.

Combatting the Coffee Price Crisis can happen in small steps, however. One of the things Shared Source does is pay farmers in local currency, and Michelle detailed why that’s important:

Paying in local currency matters because it’s a way to remove the risk and vulnerability of currency fluctuations from those who are least able to take on additional risk (producers, duh!), and to put that risk onto those who can manage it with more tools. As far as the chain of custody goes, there’s no reason for us to negotiate in a foreign currency either — producers are responsible for their product up until the point of delivery, and they deliver their coffee either directly to the dry mill (if it’s close by to them), or to a consolidation point in a nearby town, at which point we take responsibility (and take on the expense) for transporting the coffee (in parchment) to the mill. To not pay them in their currency would be like asking someone in the US to create, sell, and send a product through the mail, and then suggest that you pay them in a foreign currency: it puts the burden of understanding and calculating whether it’s a good price on the seller (to say nothing of the hassle of exchanging the money, if it’s received in a foreign currency). I think that this is especially problematic given the inherent power dynamic between coffee producers and those who buy coffee.

What this illustrates is how a small step from importers, exporters and roasters, can make a big impact. These types of small steps can show up in a variety of different steps along the chain:

The price crisis has meant that many producers live with precarious economic futures — making and keeping commitments to purchase coffee for producers for many harvest seasons is a meaningful way to establish pricing outside of the systems that push prices down to unsustainably low levels.

There’s a key point in that statement: traditional coffee buying systems perpetually cycle back to what the commodity market is paying, and even specialty coffee focused green buyers or organizations like Fairtrade will usually set a premium against what the commodity market price is rather than independent of that market. Many smaller roasting companies, smaller importers, and smaller exporters, operate outside of this system altogether. More often than not, this type of being is referred to as “relationship” coffee, which Michelle offers a definition of:

When I refer to relationships with a coffee producer, I usually mean that it’s a producer who we’ve purchased from for more than a year in a row. To purchase several years in a row from a producer, there’s a fair amount of communication involved in maintaining that relationship (asking and learning what harvest is/was/will be like, what challenges they’ve confronted, what kind of pricing they are looking for, what their bank details are so we can pay them directly, what their processing looks like, what their finances are like). That’s pretty critical for understanding if they’ll need pre-finance, etc. Those conversations are the foundation of the relationship. 

Maintaining a conversation also seems like a small step, but it’s clear that keeping in touch with a farmer and buying from them year after year creates not only a special bond, it creates stability for a coffee farmer. If a farmer knows they can sell X amount of coffee every year to the same roaster for $X.XX per pound, that gives a template for how much can be spent producing that coffee. While many buying models lately try to assess the cost of production and pay a premium over that price, relationships can often work that thread backwards: if a farmer knows they’re guaranteed $3.50 per pound for a large lot of their coffee, it’s easier for them to make sure they can manage their costs as they enter the harvest season. It helps remove some risk for the farmer, financially, and it allows that roaster to better plan for their coffee inventory.

As for what farmers are able to actually do with that margin, well, that’s a story often told as a feel good moment by roasters to their customers: they can invest it back into their farm, which can help improve coffee quality, which can help get even more money they next year. Michelle paints a more realistic picture of what reinvesting premiums looks like:

As for whether profits are reinvested back into the farm, it definitely depends on the producer and their needs and values! Does paying for a child’s education count as farm reinvestment (many producers hope that their children will come back and manage the farm when they’re old!)? I often see producers purchase trucks with coffee profits — it’s both a farm investment (it can make moving coffee from the farm down to a collecting station much easier), and also a personal expense that could be considered achievable because of the profit from selling coffee. For producers who live and work on their farms, their personal and work expenses can overlap a lot! We talk a lot about reinvesting profits from higher prices back into farms (which I think is laudable and great!), but I don’t always love the fact that it can be so one-sided — there’s very little focus or traceability to what business owners (or their employees) in the US do with their profits, and I think it’s worth interrogating ourselves (I’m guilty of this too!) as to why we want to know what coffee producers do with their profits. I always hope that producers can live a life where they’re not expected (nor do they need to) invest all of their profits back into their farms, but rather they can use some of the money to live lives that make them more comfortable and happier (which is what so many of us in the US who earn money are able to do!). 

One hallmark for a “middle class” existence in the United States is that people can spend money on things that you want rather than having to save all your money for things that you need. By this metric, it seems that what people in the US consider a middle class existence is still pretty far off for the majority of small estate farms.

While demanding that coffee farmers are paid more for their coffee is a fairly popular sentiment amongst a wide swath of coffee professionals from various backgrounds, actually piecing together what the financial breakdown looks like for farmers can be hazy.

We may have a better understanding that a farmer can sell their coffee for $3.50/lb when their cost of production is $2.50/lb, but what understanding what $1/lb actually means for a coffee farmer is a big, layered question that there might not be an answer for just yet.

There’s still more work to be done.

Thanks for reading Big Drinks!

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Thanks to Michelle Stoler, whose answers were the backbone of this issue of Big Drinks. Michelle is a green coffee buyer who manages sales and operations for Shared Source. Also thanks to Azahar for letting Big Drinks use information from their Sustainable Coffee Buyers Guide presentation, and to Junior’s Roasted Coffee for allowing the use of information from Ask Me About Cost Of Production. Additional information and help for this issue of Big Drinks comes from Jackson O’Brien and Ashley Rodriguez.

Artwork by Ashley Elander Strandquist. You can view her illustration work here and check out her printing business here.