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This is Part Two of a conversation with freelance writer and PhD student Rachel Northrop about coffee markets. If you haven't yet listened to Part One, I strongly suggest you start there—Rachel gives a primer on how coffee is traded, and what the coffee futures market looks like.
In Part Two, we’re now looking at their application. How do coffee markets affect the actual price of coffee? Why is the commodity price for coffee far below the cost to actually produce coffee? (Coffee is traded at about a dollar per pound, but the cost to produce coffee is often two to three times that amount.)
So how is that possible? This is where we move past the theoretical and discuss the impact on coffee farmers, and the way markets are designed to potentially exploit the labor of others—often replicating colonial power structures in the process. Here’s Rachel:
Ashley: So we're in Part Two of my conversation with Rachel Northrop. Thank you for bearing with me for this long on this topic. And the last time, we talked a little bit about what a futures market looks like. And we came to some really big ideas about how coffee is traded and how a futures market is just a tool for trading and a tool for managing prices, but towards the end of our conversation, we came to the idea that the specialty market never has to pay the price of the C-market. That's almost completely independent.
I think probably one of the reasons that the C-market is so heavily tied to what specialty coffee does is that we treat markets as this monolith, like the [stock] market. So I was hoping in this part of the conversation, we could talk a little bit about what farmers are actually paid, and really look at the transactions between farmers and people who are buying coffee. So I guess let's jump into it a bit, just to go over that last point a little bit. How does the C-market price of a coffee—“what's happening on the floor in New York”—relate to what farmers are actually paid?
Rachel: Yeah, thanks for having me back to continue this conversation. [It’s] hopefully not too abstract for everyone who's listening to make that connection. And this is where again, I mentioned before that it's sometimes tricky to talk about this in satisfyingly declarative terms, because there are so many qualifications of, “Well, it can be,” or “it could be,” or “sometimes,” and that's because there are just so many different ways to trade, meaning to buy and sell something, in this case containers or bags of coffee.
I think that's a good point to start on, is that the price that the futures market discovers can be totally separate from the contracts for physical coffee. One way the two can be related is by something that's called “differentials,” meaning that you price either above or below, plus or minus the price that's on the futures market.
And again, one reason that people do that is because that's something that they can use as part of the hedging process. Those differentials essentially are a way of saying, “I know my coffee is not worth this number that's being discovered on the C-market, so here's a way of building in either a quality premium or some way to account for that difference.”
And those differentials can be as much or as little as you want them to. They can be a few cents, they can be $5. Again, that's at your discretion when you're writing those physical contracts or contracts for physical coffee. But just still having that futures market as that benchmark in there allows people to use the price of the risk management tool of hedging. If that's something they're choosing to do.
And that's where you can end up with dollar amounts that are $3, $4, or $5 a pound for coffee, but still somewhere in there have used the C-market as a part of the pricing process. And again, just because it is a shared number that everyone can see, and it provides that starting point—especially if you're hedging coffee—then you need that same shared starting point to undertake your price management, risk management hedging process.
So that's one way that the two can be related. There's actually a really great graphic. I encourage people to look into all these different resources that are out there. The Colombian Coffee Federation (the FNC), on their website, actually has a really great graphic that shows what I had people draw out for me as diagrams when I was in Colombia. There are people who offer the extension services who are great about helping producers with other questions.
And I just sat in line on the office hour days and got the people who worked as “extensionistas” to answer my questions too, including drawing out a little equation. The Colombians call it “la tablero” or “the signboard,” [which is the] price that producers see when they go to drop off their coffee at a co-op [and] how that price is calculated.
It has several components. You have to do a lot of conversions. The coffee on the futures market is traded in U.S. dollars per pound, and producers in most countries deliver their coffee in kilos and the local currency. So right there, you already have some conversions that have to take place in the units of measurement and also in the currency. So part of the price that producers are paid also has to do with local currency fluctuations that are changing due to a whole other host of factors.
So sometimes even if the C-market price doesn't move that much, coffee might be worth a lot less or a lot more in a certain origin, just because the value of that currency has changed. There's factors like that that are related to themes of global finance and relative values. But that's something that affects different countries differently at different times. And then in this Colombian FNC graphic, it also shows the way that it goes from the C-market price, and then there's a conversion to the Colombian peso, and then they subtract a few cents per pound for all the funds that they gather and manage and use for the extension services and for some of the other trainings and support and different things that they offer to the members of the FNC.
And also in Colombia, they have [what] they call the “factor ve la miento,” which is your conversion unit based on the quality of your coffee, like how many defects, how many pounds of parchment do you have to deliver to yield one exportable stack of 70 kilos? They have a calculation like a base, I believe it's 94 is the base factor that's factored into the price, and then depending on if your coffee has a higher or lower factor, your price adjusts a little bit. It really is like a calculation. So it starts with the C-market, which again is this benchmark starting point. And then from there, it calculates all those other components.
Another interesting thing is that if you're a part of a cooperative, very often you receive one price at the moment in which you deliver your coffee, but then at the end of the year, the whole cooperative as a business sees what their earnings are. Then because producers are members, meaning owners of that business, they'll then receive another as part of the end-of-the-year settlement, which works differently in different cooperatives.
Colombia is actually an interesting origin because they're offering different options for producers to do their own hedging in terms of if you decide you want to receive a certain price, now, maybe that means you do or don't receive something else later, or here are different ways to enter into agreements, to deliver a certain amount of coffee at a certain price, but make that agreement ahead of time.
So to circle back to that question that producers had asked me back in 2012 in Costa Rica and Colombia, when they say, “Where does the price come from?” Well, it does start with that New York C-market price as being the shared globally visible price, and then a series of calculations through currency conversions and through weights and measures conversions, and with different premiums added or subtracted for quality with any tax or contribution to a shared fund deducted from that, or the premiums from certifications, that's something else that can be built in there.
So that's how you get to the signboard price. But one of the questions that I had was, “Why is that number from the C-market used? Why that number? Why not start with some other benchmark?” And that's because, if you think of all of the trade of coffee happening cyclically, is that the co-ops are buying from their members, but they need to buy at a price that makes sense with what they're able to sell that coffee at, at that moment.
They have one amount of coffee coming in their doors, but they have another amount of coffee going out the door. So if the coffee that's going out the door is going out the door at one price, there's no way they can then pay a price that's double that, let's just say, for what's coming in.
And so that part was very cyclical, conceptually, hard to wrap your head around. And that's where I think it's interesting to just think about how much of the price is designed to facilitate the trade of goods versus to make life livable for either the end user or the very first producer.
Ashley: Yeah, no, that's a good point to make, that the reason that some of these benchmarks are used is because you have to continue to participate in the market. It's better to sell your coffee at a lower price than to not sell it at all. And if you're that middle person buying coffee from cooperatives, and then if you're the FNC, then selling it to larger producers, if you pay $4 a pound and then you’re only able to sell it for $2, then that makes no sense. The system breaks.
Rachel: Right, exactly. So that's sort of the connection. So really, and this is a sort of oversimplified statement, but the only reason that you need to use the globally visible trading price as the price that you pay for your raw material is because you also need to sell at that globally visible price at that same time.
Ashley: That also necessitates that people are paying at that price too, right? I mean, this would never happen because we're in a global economy, but like, if everybody decided that they weren't paying that price and they were paying $2 more, then you could say, “Oh, the market is working in this way. I can do this.” I don’t know…
Rachel: Right. Basically, yeah. It could always happen that the price moves in your favor, meaning that all of a sudden the market moves and the person who's buying coffee will pay much more than what you paid for it. If you're a cooperative in Colombia and you're buying from your members, it could happen that in those months that the coffee's in parchment and being milled and prepped for export to sample to roasters and importers and everybody, it could happen that in those months, the price jumps up by 20 cents.
That would be great. And in that case, you would have bought it and then sold it at a higher price, just because that's what happened in the market. But the reason that you were using these visible, shared benchmark prices is because that would be great. If that happens in that case, you sort of don't need insurance. You know what I mean?
It's almost like thinking about, if everything goes well, then you don't need any of these protection tools, but the tools are always designed for the chance that it won't. And so that's why it's called “price risk management,” because inherent in every transaction is the risk that what you bought will be worth less when you go to sell it or the other way around now, what you need to buy will be so expensive. And the moment that you need it, that you won't be able to afford it.
Ashley: Right? So then if that happens the whole market just breaks.
Rachel: Right, that just means that no one can do the thing that they need to do. And everything sort of stops. And everyone just goes bankrupt in one season of trying to either sell or buy whatever they need. And so that's why it's called a “risk management tool.” Is that again, if everything is working great and there is no risk, then you'll always be able to sell something for higher than you paid for it.
You'll always be able to buy a product at a price that is within your company's budget. And that will end up with a bag of coffee on the shelf that consumers will buy. Like if there were no risks, then you wouldn't need any protection. You wouldn't need any management tools, but there is always inherent risk in any transaction that the price will move against you.
So all of these tools are basically using them just to protect yourself from the price moving against you. In the example, if it moves in your favor and it jumps up, you very well could have paid those producers 20 cents more for all that coffee, because at the end of the day the market changed and that was where you were able to sell it, but you can't take that risk as the person who's in the position to have to forward the coffee to the next party in the chain.
And so that's where again, the cooperatives—because they're a group—if that happens, then those proceeds are split among the members in different ways, depending on how the cooperatives are organized and which funds go directly back to the members versus which stay in a shared development account. And if you're selling to an intermediary where you're not a member of the co-op and you don't get the benefits of that, then, you know, you just missed out on that.
So to go back to your question, when we say the market, it's true that there's a ton of mini markets within the market, that you have this big coffee futures exchange again, which is this giant global price discovery mechanism. But then at the end of the day, you have people buying and selling coffee in thousands and thousands of local contexts where things like the currency or the cost of imports and transport, and all these other things, are fluctuating constantly and changing. And so what makes sense in those different little local markets looks different. So you have different ways of managing that risk.
And I think that one of the things that's tricky is that, again, this market is designed as a price risk management tool. And I do think that one of the things that is worth trying to better understand is why some people in the supply chain have more access and expertise in using that tool than others do. And I think there are other people who are in organizations who are asking that question as well.
I think in the SCA’s Price Crisis Response Initiative, that was on their list of recommendations, was expanding access to both the education and to the actual capital. This is sort of like an insurance policy. It's a great tool, but if you can't afford the insurance policy, then you can't make use of that tool.
Ashley: That's a good point. I actually just wrote that question down, [about you] mentioning the SCA. A couple of years ago, there was a big focus turned onto the C-market and the coffee price crisis.
And in the way that we've been talking about C-market pricing and how the futures trading market is kind of a tool, one tool that one can use for pricing, I was wondering, and you've answered this a little bit, but I was wondering if you can expand on it: Why do we care about the C-market? Like, why has the SCA—I mean, you can't answer for the SCA, obviously—but why do we care about this price if generally, we can step away from it really easily?
Rachel: Right, well, so that's sort of where it gets tricky, is that we can step away from it really easily, but again, it becomes really risky. If you're operating in a cash market with no regard to that standardized or that globally visible shared price, then there's a lot more risk because you can't use that tool to protect you.
And again, you have all of the exposure that if you buy—thinking as an exporter or an importer—if you're buying expensive coffee from origin and you're paying the producer whatever the producer is asking, and they're saying, “This is my cost of production. This is my margin. Here's what my coffee's worth. Take it or leave it.” And someone in the connective business buys that coffee with the hope of then selling it onward, they're 100% exposed, meaning that they have no guarantee.
They have no tool, nothing that says that they will be able to recoup and then some what they paid out for that coffee. So that is why most people in the coffee trade use the C-market-discovered price or some sort of hedging tool in some way, because there's a ton of risk otherwise.
And again, you could say that one risk management tool is really strong relationships and knowing who you're working with, and just being able to be confident that they won't default and that they won't dishonor and abandon their contract. And there's plenty of successful coffee companies that don't use hedging tools, that have other ways of managing their cash flow and their operations and their sourcing and everything that have found a way to be successful without using these.
So it's not to say that there's any way of doing business that is 100% required, or that is 100% off-limits, but you just have to know what the limits and possibilities are of the different tools to then decide in your case—based on either your volumes or your market or your customer base or your timelines or the competition in your area or whatever it is—piecing together which of these work to make you confident that your business will be able to trade, buy and sell at prices that don't put your company out of business, basically.
Ashley: Right, that makes sense. And it makes sense why it can seem a little esoteric for us to talk about the C-market when the majority of specialty coffee doesn't pay the C-market price—but seeing how intertwined the C-market price is with differentials or how places like the FNC have to determine how much they're selling for. Because if they buy coffee for way more, and then they can't sell at the market, then that doesn't work and it kind of keeps the whole market going. And I think it's easy to listen to this conversation at this point and be like, “Oh man, those two bitches are talking about market stuff. Like they're all posi for it.”
BUT, I think this is the part of the conversation where we move a little bit to the idea of price versus cost, and talking a little bit about how—I'm going to go ahead and say that this is not a tool that is advantageous to most farmers, I would imagine. So I wonder, this is where we can talk about the idea of, who does this tool serve, truly. So yeah, go for it.
Rachel: Yeah, correct. And one thing to mention too is that, one of the things that specialty coffee has congratulated itself on, and then also at the same time been quick to check itself on is that—and again, I'm not speaking for farmers that are capable of speaking for themselves and explaining their own situations, very articulately—but we know that most people who produce coffee do not produce 100% specialty.
In fact, we could maybe change those percentages a lot when you're saying that most, if not all, producers produce only a certain percentage that is specialty and [for] the rest of their coffee, they are subject to local prices, whether it's what the cooperative is paying or what another private buyer is paying to move the rest of their harvest.
And there's also plenty of people who have much more expertise than I do explaining how, if you take out all the best stuff and put that in a small pile, then the remaining pile will actually be, you know, lower-quality. And that will be subject to maybe the C-market price minus something, because the overall quality of what's left is now lower.
So you have all of those things to consider. So even if we—meaning we as individuals, or we as a company or as a sector of the industry—are paying prices that are much higher, it's always the question of, for what percentage or for what amount, and then, “What's happening with the rest of the coffee?”
So all coffee is coffee. And so yes, we can segment out specialty coffee and maybe have one type of contract for one volume of it, but then what happens to the rest of it? And what does that mean for everyone involved?
And again, this gets sticky where there's no easy answer. That's why, I repeat, I'm not making any suggestions or telling anyone what they should or can do, but just offering different ways to look at this from a 20,000-foot systemic perspective and some of these conceptual things. And so even if an individual company is not trading coffee, buying and selling it at a price that's based on the C-market price, it's very likely that people in their supply chain do have to sell a fraction, if not the majority of their harvest, at that price.
Ashley: Right, and that's a good point to make too, because we can remove ourselves entirely from the C-market in a way. Mentally we can say, “Oh, we're paying this much for this coffee.”
But like you mentioned, if you're only buying, let's say it's specialty, so 20%—because anything above an 80 is considered specialty, so I'm just gonna use those numbers, even though that might not be accurate. But if you're only buying 20% of a harvest at a higher price, as you mentioned, you're taking away from the quality potential of that other 80%, and it's probably sold at an even lower price. So it's interesting just to make sure that those correlations between specialty and the C-market are really strong, because even though we're able to divorce ourselves from it sometimes, they're always interrelated and they're always interconnected.
Rachel: Yeah, so this is something I'll just offer as my own observation again, from my research. It's really interesting to look at the history of these markets. So there actually used to be a lot more futures markets than there are today, meaning separate exchanges. So oh gosh, I don't have these exact notes in front of me, but the history was the New York Cotton Exchange existed first, and then there was the New York Coffee Exchange, and then it became, I believe it was, coffee and cotton merged. And then you had coffee, cotton, cocoa, and sugar in one exchange in New York.
So we see mergers and acquisitions happening in lots of industries. And that's actually also happened with the futures exchanges themselves. And to me, that seems really interesting, that you had these exchanges that were private entities operating in different parts of the country. We used to have grain exchanges in Kansas City and I think there was even one MidAmerica Exchange. There were a couple of different ones in Chicago.
And then today you're really left with the New York Stock Exchange and the Intercontinental Exchange [ICE], which trades products that used to be on different exchanges around the country. And then you're left with the Chicago Mercantile Exchange, which is in Chicago and still trades large volumes of grains and other, I believe, currency. And there's a lot of financial futures and things.
So you've had this consolidation of these exchanges. What's interesting about the Intercontinental Exchange is that the exchange itself is a publicly traded company. So the Intercontinental Exchange actually owns the New York Stock Exchange, but it's also a company listed on the New York Stock Exchange. And then Intercontinental Exchange is also now merged with the market in London that trades robusta coffee which used to be called the Liffe, London International Financial Futures Exchange.
And so to me, that's where it gets really interesting. If a company is publicly traded then it must be profitable. That's sort of in its bylaws and its raison d’être. So the exchange itself, even though they, as individuals, don't trade, or they as an entity don't participate in their own exchange, the fact that the Intercontinental Exchange is a very, very large and very profitable business that is also publicly traded, that to me is interesting.
And again, that's where it gets really tricky, because we're talking about coffee and we're talking about contracts to buy 10, 20, 100 bags of green coffee. But the exchange that we're trading on is just part of this global financial system at a level of scale that's kind of impossible to think about.
Ashley: Yeah, I mean, maybe I'm wrong on this, but it seems like this is a system that's been designed to work for a certain group of people.
Rachel: Yeah, and I think it was maybe not designed that way. Maybe it was, maybe it wasn't the original intention when a group of traders founded it in New York in the 1800s. But what has happened, whether or not that was the intention, is the fact that these exchanges have merged and there's very few of them and this is the only place you can trade coffee.
So it’s effectively also a monopoly. That's where it gets into this interesting cyclical argument of, you need everyone in one place if you want the price discovery to be the most accurate. But if everyone's in one place, that's a monopoly—this is the only exchange that you can trade coffee futures on.
Actually I shouldn't say that. That's not true. I do believe there's a domestic one in Brazil and there either are or can be or have been other local exchanges in producing countries. But in terms of global coffee contracts, both arabica and robusta are now traded effectively on the Intercontinental Exchange.
So I think that if you're looking at that sense, absolutely coffee is traded in an environment that serves people with massive amounts of capital who are helping each other move and grow those massive amounts of capital. And people who are operating in the futures market not for hedging reasons—and they call these commercial versus non-commercial traders. That's something else. There's different reports where you can see the number of positions that different participants in the futures market have taken.
The Global Coffee Platform had a really great webinar back in November where the CEO of ICE came on and explained the arabica futures contract in a really easy-to-understand, straightforward way.
So you can see that the exchange is a business and it's part of these much larger businesses, and the people who are participating in the exchange for speculative purposes are trading everything. They're not just trading coffee. If you're a speculator, you're speculating, you've got a whole portfolio of different futures, contracts, options, contracts, you know, stocks, bonds, currency, whatever, the whole nine yards, and [the futures exchange] is just a small component of that.
So again, that's part of why the people who enter for speculative purposes are not intending to ever take delivery of a received delivery of green coffee, but they're also not paying attention to coffee exclusively. It's part of this whole giant financial ecosystem. I do think that that's also something else that makes it hard to parse out the price of coffee [as something that feels] unique or in a vacuum, is that a lot of people who are trading are trading lots of things. So people who are trading contracts for speculative purposes won't just look at the value of one thing. They'll also look at relative values or some movements over time.
And so you have coffee as just one product among this whole array of futures that people can trade. And that's where some of the critiques that I think are valid of the futures market is that there has become very little to no correlation or association between a futures contract and what they call the “underlying fundamental,” which means the physical coffee itself.
Ashley: Right, which is wild!
Rachel: Yeah, so the whole idea of futures contracts, which makes them, I think, much more fascinating and different from stocks, is that when you own stocks—let's say you own stock in Apple. You don't therefore own a certain number of iPhones.
You can't ever exchange or trade your share of Apple for stuff, you know? But in futures contracts you can, and the exchange actually has warehouses with coffee. Again, this is a very small percentage of how the coffee trade operates, but if you wanted to [as] “buyer and seller of last resort,” you could buy coffee from the exchange, or you could sell your coffee to the exchange, provided that it meets the specs of the standardized contracts that they have, and that it's in the right warehouse and port and from countries of origin that they consider, they call them “deliverable growths.”
And so that, I think, makes it really fascinating. But at the end of the day, that mechanism still exists, that those contracts can be converted into a physical unit. They have a value that directly corresponds and sometimes in some cases can and does literally correspond to delivering and receiving coffee.
And that's something very different from most other financial instruments out there. So I do think that's part of the argument that people have made, or are trying to make, or are in the process of making, is that if you have a futures contract that is tied to an underlying fundamental that still is deliverable or receivable from one of these contracts, then maybe there should be more of a connection between the price of that contract and of that physical good.
But then on the other hand, there are production contexts that have efficiency because whether it's different environmental conditions or different technologies for harvesting, planting, and fertilizing the varietals that are grown, there are people that can produce coffee at prices around $1 or $1.50 or $2, whatever it is. There's a whole range of where a coffee producer can be profitable.
That also makes it tricky, because who's to say that if it's profitable for one person at this price to sell coffee, just because it's not profitable for everyone, does that invalidate the fact that it does work for somebody? And that’s, again, where differentials come in, is that one of the things that they can do is to try to absorb or account for that difference.
Ashley: Yeah, it's interesting to try to break down the difference between price and cost, because it's clear, obviously, that—and you've laid this out really beautifully—is that the cost of coffee, the cost to produce coffee, is not the same as the price of coffee. Those are two totally separate things. But then when you look at the cost of coffee, that's also not a fixed number based on what you were saying earlier, with environmental factors or in Brazil [which is] a highly efficient country, the cost of coffee is way lower than somewhere else where there isn't as much technology implemented.
So thinking about those two numbers in totally different ways I think is really helpful to understand where the price of coffee comes from, or some of the factors that come into play, because I think we still, again, look at it as this monolith of like, “Everything works in this one particular way. There's one market. Price means this. Cost means that.”
Rachel: Yeah, and when I mentioned in our [earlier, pre-podcast] conversation the idea of cost came up because a lot of the writing that I've done is about climate and coffee and agroforestry and different systems for sustainable production. And part of what's happening now is that in different sectors (whether it's agriculture or finance), there are people who are trying to put a price on carbon.
Which means that “we” as a global community are trying to calculate and put a number on things in the past where we have not put a number, meaning how much carbon is emitted, or how many metric tons of greenhouse gas are emitted from certain activities or are admitted from different land-use changes and things.
And so that thought, even though that seems super separate from the process of pricing coffee and price discovery on a futures market, is we're in this really interesting global moment where we're about to create a brand new market for something that has never had a price—that being emissions and greenhouse gas and carbon credits and cap-and-trade and all those different terms that are out there now in buzzwords now.
And actually the Intercontinental Exchange (ICE) just added a new climate change futures contract that has to do with exactly that. And so there's about to be a trade for actual carbon credits, but before they even get through pricing the carbon credits themselves, there's ways to trade futures against these things.
So again, just to bring this all back to cost and price, I think that very often there are costs that are not necessarily dollar costs that are either not taken into account or not fully taken into account in the process of putting a value or price on something.
So in the past, looking at land-use change, or looking at emissions and greenhouse gas output, carbon footprint, [was all] maybe not taken into account in calculating the cost of doing business in a certain industry or in a certain way, or in a certain location. But if you suddenly decide that that cost matters enough to put a dollar amount on it, then the prices for things might change, or you might have a new thing that needs to be priced.
And so I think that's part of what's interesting in coffee, is that we as an industry are finally paying the full cost, meaning that at different points in history—and here's why I'll make a nod to the episode that you recorded with Maggy [Nyamumbo], where she talks about the colonial and the slave labor history that's involved in coffee—and for basically the first majority, the first half, more than half, or even through the present day, so much of the labor that goes into coffee production is either not accounted for at all or is only partially accounted.
So I call that “un-or-undercompensated labor.” And so, if the way that you're calculating a cost, which then helps you calculate your price for the physical trade of something, if that initial cost calculation doesn't account for paying a living wage to every person who does a job related to that product, then of course the price that you're discovering for the physical contract won't reflect the full cost.
And that is part of what skews the price that's discovered in the futures markets. So I think that the coffee industry has lots of great examples of where everyone in a production context is being fully compensated at or above a living wage. And I think those are wonderful, and there's more and more of [those examples] happening. But I think it's almost daunting to think that maybe even the price that we pay as consumers for so many things, whether it's clothes or food, that those prices do not account for the full cost, whether it's of different environmental impacts or of the full labor along an entire production chain.
And so that's where it brings it back to the consumer side, or to us. And that's why I think I have a hard time thinking about price just about coffee, because the same concepts apply to literally every other food stuff or final product that is available anywhere. If you want to know how we get the price of coffee, then that makes me want to know: How did we get the price of anything, like bread or eggs or milk or local fruits and vegetables with the clothes and the sneakers and cars? And these mechanisms of calculation go into all of it.
We're recording this during COVID-19, so as we see different things happen globally that are traceable and related to climate change and land-use change and our interaction with the environment and its interaction with us. If we start to have different methods for calculating costs, like really doubling down and saying, “Okay, how much does it cost to deforest this swath of land to then plant our food on? Like really, how much does it cost, not just in the dollar amount of planting it, but in the future problems that we're causing ourselves by emitting that much carbon from that land-use change?”
So as we change our calculation methods, I think that's also an opportunity to change our pricing methods, but then all of that comes back to us as consumers. And are we ready to spend more of our income on food, spend more of our income on clothes, if those prices change? So I think that's something else I always try to keep in mind with thinking about price and thinking about value is, if you value something, then that means that you understand that, “It's okay that I'm spending a greater percentage of the money that I have on something, because the true cost of it, or the full cost of all the different human labor that went into it, and all the different environmental sacrifices that went into it, has this much higher dollar amount. Am I ready individually to pay for that? Can I pay for that? What else has to happen in my life to possibly revalue some things?”
So yeah, I think it's tricky. There's a lot to be critical about, for sure, in having a futures exchange at the center of the pricing process for common goods. But then on the other hand, if we don't have that pricing process at the center and the cost of everything goes up significantly, are we still just as happy to abandon it? It's sort of like this cycle that we didn't ask to be a part of, but here we are.
And that brings us back to a lot of products going back to what I mentioned in our first conversation, about being interested in the locavore movements and what you can eat that's grown within a reasonable radius of where you live. And I think that there's some separate conversations that can be had about things that do have a local alternative versus coffee as a product, because it has to have a supply chain because it's growing conditions are limited.
Ashley: That's an interesting distinction there. When you circle back on all of this, it actually can come back to, “What can we consume locally? How do we make that chain between the person who makes the thing and the person who consumes the thing smaller, so there's not as much market interference?” I guess you would say.
But then again, coffee is one of those things that we can't do that with, but what I've seen, being really helpful in the coffee supply stream is this idea that the more that coffee is consumed within the country it's produced, the more that farmers are paid for it. So I wonder, where does that leave us? And I know you also mentioned, we're recording this during COVID-19, so this really could be a hard reset moment for us too.
Rachel: Yeah, and I think that's a great point. A lot of producers that I know, and those that I don't, it's all over the internet and also from people I've heard from directly, of producers setting up roasting operations and opening cafes and realizing they have this wonderful, delicious coffee. Well, of course the first people you want to share it with are the people closest to you, meaning your friends and families and neighbors and communities.
And so I think that's an exciting trend. If the more great coffee stays closer to where it was produced, if that means that, again, those of us that are importing it to other places, maybe we have to value it differently, I think that's totally fair. And I do think that this is an interesting moment of, like you said, a hard stop, or at least a pause on a lot of the coffee industry.
And it's difficult for many people, and it's difficult to try to wrap our heads around, in terms of hospitality and community and how we create that. And the experience of drinking coffee is something that's social, but we're socially distant and limited at this moment.
And I think it's a really great opportunity to step back again and consider some of what we talked about in this conversation and the previous one, that coffee is coffee. And so we've sort of created some distinctions and some divisions of specialty as being one thing and then non-specialty or commercial commodity coffee being something else. But just remembering that it all happens on the same continuum. The [COO] of Ally Coffee, where I work as the content manager in addition to my other freelance writing jobs, the COO there is Ricardo Pereira, and he mentioned in a recent interview this idea that we have more people brewing coffee at home now than probably ever before.
And so it's actually a really interesting moment to see what is a comfort coffee [for people]? What do they gravitate towards, or what resonates with them in this time of uncertainty and perhaps fear, worry, sometimes sickness, sometimes apprehension and all these different things that people are dealing with? Is there a way to deliver coffee that brings joy and connection and community to the consumers and the people who drink it, the clients who drink it and the families and homes where it's being brewed and prepared, but then also honors that full cost and that full price at origin?
Is there a way to strike a balance between something that satisfies both? And maybe part of that balance means honoring blended coffees or darker roasted coffees or coffees that are just satisfying in some immediate familiar way without going through that work of segmenting them off and differentiating them as specialty. And doing that and buying from producers, either their whole harvest or different portions of the production of a different farm or co-op or community, and what that might mean for them also during a time of uncertainty. So I do think that if we know that at the center of this pricing process and price discovery process is a tool that is very abstract and complex that you know, it certainly has its merits, but it certainly has its flaws.
And just being conscious of how we can connect with consumers through offering [other options]. I love blended coffees. I love medium-to-dark-roast coffee. I grew up in New Hampshire and we have some delicious dark roasts up there in the winter. That's the biggest treat, to just snuggle up with a cup of coffee that's chocolaty, almost smoky, nutty. And for me that's something that I associate with lots of great memories and people and connections and stuff.
And I think I'm not alone in having that experience. I think there's a lot of opportunity in creating connection and value in different ways with different types of coffee than maybe the specialty coffee industry has been fully open to in the past, but in this new reality that we're all living through right now, I think there's hopefully a lot of time to look at some of this stuff from these bigger-perspective, bigger-picture angles, and to maybe have a realization that we might not have had in the frenzy of everything that we were doing before.
Ashley: This has been maybe one of the most illuminating conversations I've ever had. I learned so much, and I appreciate you being so instructive and so clear and answering my pestering questions when I didn't understand what you were saying. So thank you Rachel so much for sharing your time. I really appreciate it.
Rachel: Thank you. Thank you so much for braving the abstractions and everything. And I hope for everyone listening that again, this was something that not just answered some questions, but opened some new questions. And again, I encourage everyone to try to do their own research and read lots of stuff and dig into whatever you can find out there.
Part One of this episode is available here.
Thanks for listening, please share with your friends, and leave a comment. This two-part episode is the last of our December Rewind series. See you in 2022!
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