Costs - Engrano Coffee Roasters

Per 1^st March we increased the prices of our coffees from Ecuador, as you may have noticed. We received the new harvest in late January this year and as always we had to first run some test roasts before we could offer the coffees to you in March. And I can tell you: we are in love with the tastes of this new harvest. However, as we were testing and tasting, we were also doing the math to be able to keep the prices for our dear costumers as low as possible while still having paid the farmers the prices they asked for since for this new harvest we paid the farmers in Ecuador considerably more for their coffees compared to previous years. But why did the farmers increased their prices?

As you may know, Brazil is the world’s largest coffee producer. In 2020 Brazil first suffered the worst drought in nearly a century, which significantly reduced the coffee yield. Following this, certain regions of Brazil were hit by a cold snap with sub-zero temperatures and this was really bad as frost completely kills coffee plants. As a result the yield was reduced again. With less coffee produced by Brazil there was more demand than offer in the coffee world which lead to the first increase in prices in 2021.

Then Colombia, the third largest coffee producer also had problems. Starting at the end of 2019 for a period of 4 months there were protests and a national strike that prevented part of the harvest to be collected, transported and sold. Even though Colombia has 2 coffee harvests per year, the strike from November to February coincided with the main harvest for most coffee regions which is from September to December. And similar to Brazil, it leads to a shortage of coffee on offer which leads to an increase of prices. One year later, Colombia experienced the effect of the climate phenomena called La Niña, which is not favourable for coffee growing as it comes with rain and cold weather. The consequence was that the latest harvest from Colombia was 11% lower than the harvest of the year before.

Landslides in coffee farms in Colombia after La Niña

Additionally, Brazil, Colombia, Ecuador and other coffee producing countries suffered with the implications from the Covid-19 pandemic in terms of sick workers and limitations to hire workforce due to travel restrictions. Additionally, there were increased cargo costs and a shipping bottleneck due to reduced shipping container availability, port strikes and restrictions. This all translated into another increase of prices for green coffee.

And finally, since we pay both our farmers and all transport costs in dollars we had to take into account the fact that by late 2021 the dollar was stronger against the euro than the year before.

So all together it is a combination of several unfavourable price increasing effects coming together at the same time that makes the price of coffee increase quite suddenly. One could say it’s the perfect coffee storm, and there is not much we can do about it apart from appreciating our daily cup of coffee even more.

In the past few weeks I have been thinking a lot, for different reasons, about coffee and money, or money related to coffee. First and most important of all because I ordered new coffee from Ecuador a few weeks ago . Last August I visited Ecuador where I visited coffee farms and tried the coffee from the 2013 harvest and as a result of that I placed an order. After returning to The Netherlands I paid for the coffee and now I am waiting for it to arrive.
While waiting for the coffee I went on holidays and had the opportunity to taste wonderful coffees and to check prices of coffees sold abroad. Directly after returning from holiday (that is, last week) while still suffering from jet lag I had to fill in the tax forms for this quarter. And finally, last Thursday I read in the newspaper about a guy who was visiting Cameroon and saw many well maintained coffee plantations. But when he ordered coffee in a restaurant he got instant coffee. He asked the waiter if he had tasted that coffee, but the waiter had never tried coffee at all, because coffee is expensive in Cameroon. Apparently they export all their coffee to Europe and then import back from Europe instant coffee at a high price. Not really fair.

So, the money issue related to coffee has been going around and that got me thinking what is actually the right price for coffee?
We all want to enjoy a good cup of coffee, either early in the morning at home or after work at a cozy coffee place. And we dont want to pay a fortune for it. But we also want to pay the right price. Coffee, as wine, olive oil and some other delicacies undergo a long process from the plant to our table. In Ecuador, our coffee is grown at small farms where it is harvest and processed by hand before the coffee is transported from the mountains or from the Galapagos island to Guayaquil, the main port of Ecuador. Our coffee is then threshed in small machines just before exporting it to NL. After I receive it, I check and clean the coffee by hand, roast it, pack it, sometimes grind it and send it to dear costumers. As you can see there is a lot of time, care and handwork involved. In each step people working for our coffee deserve a fair income according to their effort.

Prices change with offer and demand. In Japan, coffee is now a fashion item and coffee beans are therefore expensive. In May this year the price for a kilogram of Latin American roasted beans in a chain store was around 40 euros. At a similar store in Australia the price (in October) was around 20 euros per kilo. Considering that seen from Latin America both countries are across the Pacific Ocean the variation of price is huge! It must be said that in both countries the price of coffee is higher than in for instance Europe and the US in general. A major reason for that is transport: where there are regular and frequent shipping routes from Latin America to both Europe and the US with some healthy competition that reduces the transport costs, crossing the Pacific there are not and so transport costs are higher.

Transport costs are clearly a major factor in the price of coffee. Over the last year or so the price of green coffee has dropped significantly and several of our customers where wondering why this doesn’t lead to lower prices for roasted coffee. Well, unfortunately it is not so simple. First of all, most sellers of roasted coffee (including ourselves) still have stock that was bought for the higher price, so until that stock is sold not much will happen. Secondly, the coffee price is only a relative small part of the total price of a kilo of roasted coffee – somewhere around 20% of the price. So if the price of green coffee drops with 50%, the price of roasted coffee only drops with 10%. And thirdly, the price of transport has increased over the last 2 years mostly due to higher fuel surcharges and higher port fees. So basically we don’t want the price of green coffee to drop, we would like the price of transport to drop! Because right now there is the rather unsatisfying situations that we, as coffee lovers, have to pay more for our kilo of roasted coffee, while the coffee farmer actually gets less….

Cheers
Lupita

Category: Costs

The perfect coffee storm

The price is right