The coffee market changes all the time. Lately, concepts such as transparency and sustainability in the value chain have become quite relevant. Each operator in this chain is becoming more and more demanding in terms of knowing the origin of her products and ensuring that the trading environment is ethical and responsible.

From the moment the cherries are harvested by the farmer until the coffee arrives in consuming countries as ready-to-roast green coffee, there are many steps which vary considerably between origins and even within that origin’s different regions. This complexity in the chain makes it quite challenging to gather homogeneous data for the purpose of comparison.

1. First step in the trade: selling cherry or parchment

The starting point of the chain is cherry harvesting by the farmer.

At this moment, coffee trading starts. In some countries, such as Ethiopia, farmers sell freshly harvested cherries to wet mills.

In others, such as Colombia, farmers have their own small mills and also carry out the preparation and drying process, subsequently selling the coffee in parchment form.

Or in Brazil, for instance, after harvesting and wet milling the coffee, it’s very common to find farmers who dry mill their coffee, thus selling unclassified green beans (bica corrida) in the internal market, meaning that the coffee was not sorted by size, density nor defects.

All these different marketing channels lead to an extremely varied presentation of prices paid to farmers. In Ethiopia we have Birr per feresula, in Peru it’s Soles per quintal, wheras in Brazil farmers receive Reais per bag (60 Kg of bica corrida). And so it goes.

Comparing these numbers is almost impossible. Each set of numbers belongs to a different country, with their own currencies, weights, traded form of coffee (fresh cherry, wet parchment, dry cherry, dry parchment, unclassified green beans), production inputs, among other factors, which lead to a difficult comparison between producing countries and sometimes even within the same country.

On the other hand, in order to establish a ratio between the value received by the farmer and the FOB price (USD/ton or US ct/lb), we have to look at the exchange rate of the USD vs. the local currency (which is the one the farmer receives) on the day the farmer is paid.

2. Preparation for export, exporting costs and FOB prices

Once the coffee (dry cherry or dry parchment) is dry milled, thus obtaining unclassified green coffee beans, the lot must be prepared according to the requirements of the international buyer. At this point coffee will be classified by screen size and/or defect count. This is where the different designations we see in the green coffee trade come from, which vary according to the origin. Examples of these designations are:

• 17/18 NY2, 14/16 NY2/3, etc. in Brazil
• EP (European Preparation) in Guatemala, El Salvador, among others
• E, AA ,AB, etc. in Kenya
• Gr. 1, Gr. 2, etc. in Ethiopia

All of these designations correspond to different ways of preparing the green coffee beans for export. Depending on the buyer’s requirements, the yield factor of the bean can be higher or lower, which has an impact on the price obtained by the operator in charge of this process (be it a farmer or an exporter).

Moreover, at this stage we must take into account a number of expenses, such as bagging costs (jute bags, GrainPro bags, labour and/or machinery), bag marking, preparation of export documents, storage of the coffee lot up to the moment it leaves the warehouse and transport to the port of export.

Adding the export preparation expenses to the price paid to the farmer gives us the FOB price, FOB being the most common Incoterm used in the exporting trade, which means that the seller is responsible for all expenses related to the coffee lot until the moment the coffee crosses the ship’s rail in the port of embarkation.

In order to properly understand an FOB price, we must take into account some variables that are unique to each coffee. For instance, the transport price for a coffee lot produced 100 Km from the port of embarkation will differ from that for a lot produced 20 Km. This price will also be different if the operator responsible for exporting the coffee is an exporter working with large volumes or a farmer who produces 100 bags per year.

3. Imports and transport expenses 

Once the coffee crosses the ship’s rail, the responsibility and the risk are transfered to the buyer: the importer.

The coffee price at destination will increase due to:

• Transport costs (freight, insurance)
• Import costs (documents, customs, handling)

Once again, in order to interpret these data we must take into account some variables that impact the price of an imported container. For instance, shipping a container from Brazil to Spain costs nowadays 5000 USD, if it comes from Ethiopia, it will be less than 2000 USD.

All of these variables will lead us to the Spot price (Incoterm FCA), which corresponds to the price of the green coffee that arrived at the importer’s warehouse. 

4. Storage and green coffee sale price

Last but not least, once the coffee is in the importer’s warehouse, other factors impacting the price of green coffee come into play. USD/EUR fluctuation, insurance and storage costs (which increase the longer the coffee stays in stock), the risk of a decrease in quality due to a prolonged storage, among others, are factors that will determine the final sale price.

This long journey shows us how complex the coffee value chain is. The latter can be influenced by many factors that are not visible in the simple interpretation of more concrete data such as FOB or Spot prices, and which are often not enough to bring out the reality behind that number.

Therefore, sustainability also means that each one of us in this chain should always act ethically and responsibly, working with partners that share our values and respect the other operators in the chain, beyond a simple set of numbers whose comparison and interpretation is often very challenging.