Might Specialty Coffee Finally Be Cut Adrift from its Market Moorings?

There’s a lot going on in the world of coffee but the headline right now is this: The internationally traded prices for coffee have fallen dramatically over the past few months while at the same time, the outlook for the continued production of higher quality coffees has grown increasingly bleak — in fact, the two phenomenon are eerily, ironically linked…

People who are involved in the specialty sector of the coffee business, including me, have been asking each other, “Why isn’t the market higher?” Then, after acknowledging that the market is not about “specialty,” or, rather, “us”  the questioning then turns to, “Why aren’t differentials (the premiums paid for certain ‘better quality’ coffees vs the actual market price) higher?”

With the production of higher quality coffees becoming less and less of the world’s total production the supply/demand factors surrounding those coffees have less and less impact on the overall market. This is especially so as the output in countries with the lowest production costs (notably Brazil and Vietnam) have increased.

There may be a silver lining in all of this for the producers of the world’s best coffees — if they can overcome the production challenges they currently face. Like fine cult wineries, they may begin to build their own markets for their particular estate branded coffees rather than rely upon a commodity market that places only minimal value on significantly better quality coffees.  Market conditions are telling us that the sooner that the commodity producers and the specialty producers can part ways, in fact, the happier both will be.

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This is not to vilify “commodity producers” — not everyone has the time, attention — the need to obtain a truly great cup of coffee — and not everyone wants to thoughtfully enjoy their coffee’s taste as if it were a rare, cult wine.  There is room for both producers in today’s overall marketplace.

The comparison to wine goes further. There are wines on the market today for every taste and budget. This diversity has served to expand, not diminish, the world’s total consumption; just as, for example, the wine producers of Bordeaux used to simply make their wines, put it in barrels and send it to London (primarily) where it was then bottled and branded, today’s specialty coffee farmers can look forward to establishing themselves, as they’ve already been doing for the past thirty-plus years, as the owners of their own brands built on the quality and consistency of their own production.

The opportunity here is for the specialty coffee farmer to become truly artisanal and take ownership and responsibility for what he/she does…like the Bordeaux wineries decided they were better off putting their own wine in their own bottles and taking full responsibility and credit for what they were producing.…

Some salient facts:

1) Market prices are down, yet, across Central America, concerns about the devastating effects of a fungal disease < coffee rust > that attacks coffee trees and drastically reduces their production, are being felt by farmers and farm workers up and down the isthmus. Fifty percent of the land planted in Central America to coffee is being effected and this accounts for over five percent of the world’s total harvest. Of that amount a little less than half (about 2.5 million bags) was lost to the rust fungus last year. The critical thing here is that while this number is small, a rounding error in terms of Brazil’s total production of at least fifty-plus million bags, but a much larger percentage of the world’s total production of good-to-great coffee produced with the increasingly rare “washed” method. Next year, the projected loss will be more than double.

2) Add to that, generally, climatologists and agronomists have identified Coffee arabica as a candidate for being a botanical “canary in the mineshaft” as it may be particularly vulnerable to the effects of climate change.  No, this species of coffee, (the only one that can produce the beans necessary for a truly good cup of coffee) won’t become extinct, completely, at least; but it’s ability to produce commercially viable crops in the regions where it is currently grown, might be.

3) And yet, in the press, and in trade circulars, it is being gleefully and credulously recounted that “Gourmet Coffee” and “Specialty Coffee” are being consumed at an ever-increasing pace.  What this really may point to is that it is taking less coffee to generate more dollar volume in sales. Single-serve systems, for example, net out to a per-pound cost of over thirty dollars a pound for a typical “coffee drink.” If a cup of coffee is ordered in a food service environment it generates even more revenue per pound of coffee.

4) Perhaps what the coffee market is telling us by approaching near-term historic lows, (it hit another low as I was writing this, in fact) is that without the high quality coffees in the mix the market IS, overall and in fact, worth less.

Meanwhile the fate of a really good coffee may hang in the balance.  As growing conditions become less and less hospitable for producing truly excellent coffees they will become increasingly scarce and farmers will be less motivated to produce them unless their customers are willing to pay significantly higher prices than they are today (for the coffee itself, not the convenience of a single serve system or that of having someone else making it for you.

AND/OR if you want to be in the business of selling really good coffee, and most of the coffee industry doesn’t, (not that there’s anything wrong with that) then you’re going to have to get really good at demonstrating to people that genuinely good coffee is worth a lot more than it used to be. And that is that. The divide between “good” coffee and “commercially viable” coffee will widen both in terms of price and quality in the cup.  It will become increasingly important for roasters and sellers of good coffee to be able to clearly articulate and demonstrate the difference and give their customers the opportunity to connect what they’re paying for with what they’re getting in return.

Here it is again, a little more languorously rendered:  The world’s near term capacity to produce great coffees is plummeting and the overall market isn’t flinching in the least – it is almost as if the news is welcome, and I am sure it is by some market participants.

A volatile market is a great place to make money if you’re selling schlock because the ups and downs give you more room to play with quality. STABLE markets give folks with an argument about the Quality/Price = Value relationship an opportunity to win the day.  Schlock purveyors are happier than pigs in poop when the market bottoms out as most of them are smart enough to know that in high markets they can always buy crappier coffee and in lower markets the crappy coffee will still be there (at lower prices ) and their sappy, sentimental “quality-driven” competitors will be stuck with longer-term supply contracts because they were worrying about maintaining consistent supplies of better (at least) quality coffees .

Roasters with a commitment to Quality: Stand your Ground (but not with a firearm, please, unless it’s a coffee roaster) — the customers you keep are the ones you want — REACH OUT to them in every way you can, talk to them about quality and the work it takes to produce a great cup of coffee. Many specialty coffee roasters are hearing from the retail and wholesale customers that they expect coffee prices to decrease since the market has fallen — ENGAGE with those customers, explain to them with great tasting coffee and your experience, or LOSE them.

Coffee Drinkers who want to see their favorite “Specialty Roasters” survive: Keep paying a premium for the coffee you love (if you’re able and if the quality remains) even though you’ll likely not pay more in pennies per pound, the PREMIUM you pay will probably widen. You WILL be tempted; DON’T succumb (or the quality surcharge you’ll have to pay later will be even higher).