Barista Magazine

DEC 2018 - JAN 2019

Serving People Serving Coffee Since 2005

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Page 89 of 107

What is the C-Market price and why is it so low? Though we in the specialty community treat coffee as a high-value product, it is, at the end of the day, a commodity. As such, coffee is traded on the coffee commodity market, or C Market. The C-Market price—which applies to commercial-grade Arabica coffees—is estab- lished through a global commodities trading forecast and is operated by the Intercontinental Exchange, which oversees exchanges for commodities from cocoa to gold to cotton. The C is the basic price reference of several coffee origins, process- es, and grades; Arabica coffees are traded at the C price, after which differentials are added to the price based on specifi c attributes, such as country of origin or quality. For example, a "high-grown" Colom- bian Excelsio-grade coffee will receive a $0.10 high-grown Excelsio premium and a $0.20 premium for being from Colombia; if the C price is $1, the coffee will sell for $1.30 after premiums. Another tricky element of the C Market is that actors buy and sell coffee as "futures," which establishes a pre-set future date and price for a coffee purchase. Because these contracts operate in advance, they work with hypothetical deals rather than physical coffee, and they can be used by market actors to sway coffee's value on the market. "The C-Market price is infl uenced by speculation and options trading as much as by supply, demand, and perceived value of physical coffee," says Rachel Northrop, communications manager of Ally Coffee. Through this combination of factors, the C Market is extremely er- ratic. In the last 50 years, it has seen highs of nearly $3.50 per pound in the late 1970s and upwards of $3 in the early 2010s, but has also seen frequent lows hitting at or below 50 cents per pound in the early 1970s, early 1990s, and early 2000s. The recent low price of roughly $1 is, of course, not enough to sustain the livelihoods of coffee producers. The reason that current C prices have been so low of late has to do with the aforementioned supply-and-demand principle—right now there is far more supply than demand. "Following the coffee-leaf rust crisis, there was a major investment in many producing countries to renew their varieties," says Jorge Cuevas, chief coffee offi cer of Sustainable Harvest Coffee Importers. "Those trees are maturing now, all at same time. As a result, there's way more coffee being produced than being consumed." If the C price is for commodity coffee, how does it affect specialty? It stands to reason that the average person reading this magazine is well-versed in the specialty side of the industry, in which coffee roast- ers serve beautiful coffees and often have direct relationships with the producers who grow them. A specialty-focused coffee professional might wonder, then, why the C market is even relevant to specialty coffee; if roasters pay growers well over market price for coffee, what does the low C matter? The answer is multifaceted. First off, thousands of smallholder farmers around the world don't have the resources, growing condi- tions, or market access to grow and sell specialty-grade coffees. Those growers are part of the global coffee community, and for them, the C price is vitally important. (And even though it's low, they don't receive that whole price per pound, as export fees and other expenses are subtracted before they're paid.) Secondly, most specialty coffee is tied to the C Market, even if buyers purchase it above C-Market prices. When roasters and buyers agree to a contract to purchase coffee, they use the C as a base price to tie it to. "Because we participate in a global market for coffee, where there is a defi ned price for a defi ned quality of coffee, we're forced to evaluate the coffee we buy against that market," says Max Hurd, senior vice president of risk management and sourcing for Cafe Imports. Specialty buyers typically add the aforementioned differen- tials to the purchase price, as well as additional premiums for quality, certifi cations like Fair Trade and organic, or other factors. What do low prices mean to the coffee supply chain? In the quotes sprinkled on the pages of this article, we are presenting the fi rst-person perspective of coffee growers about how the crisis of low coffee prices has affected them and their communities directly. Their comments make it undeniable that the low C is posing signifi - cant challenges—most obviously because it's below farmers' cost of production. Estimates vary in producing countries around the world for how much it costs to produce a pound of coffee, but when account- ing for a range of factors including labor, supplies, and administration, the cost of production is generally regarded as being well over $1 in most countries. (Brazil is an exception, as its mechanized harvesting and fl atter coffee-growing lands lead to a lower cost of production.) The low C presents yet another complication for farmers in what is already an uphill battle producing coffee in the 21st century. The effects of climate change are causing varying weather patterns and an increase in plant disease that are wreaking havoc on production. With prices below the cost of production, farmers can barely keep their businesses going, let alone invest in the necessary improvements in their farms to make them viable in the 21st century. It's no hyperbole to say that low prices could cause many producers to walk away from coffee, raising further questions about the sustainability of coffee. "If it continues the way it is right now, it's going to get to a point where producers are going to say they're not going to do this anymore," says Emel Mosquera, lead coordinator of the COOCENTRAL cooperative in Huila, Colombia. Unfortunately for coffee producers, the low coffee prices on the C are projected to continue. Brazil is currently having a strong harvest that could result in a record 60 million bags—this glut of supply would assuredly keep the C price low. According to producer Luiz Rodrigues, owner of Fazenda California in Brazil's Paraná region, a poor harvest two years ago caused many producers to prune their trees, which is now contributing to the large harvest. "That coupled with good rains in almost all the Brazilian producing zones means 2018 will probably be the biggest harvest in Brazil's history, with 2019 also projected to be high," he says. "If you have a good coffee price, you can invest in the farm. But when it's so low, you can't invest—you have to struggle just to survive.… It would be a dream come true to be able to do business outside of the C Market." —Felix Camposeco, general manager of production, ACODIHUE cooperative; Huehuetenango, Guatemala "The producer members of Soppexxca are committed in the fight. They've diversified their income. They have a cacao program, and honey, to diverse income. It's something we learned from past crises and price drops." —Fatima Ismael, general manager of SOPPEXCCA cooperative; Jinotega, Nicaragua 90 barista magazine

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