By Max Nicholas-Fulmer with Chris Kornman
It started last week: a sudden and noticeable uptick in clients asking for FOB prices on coffees they’d already bought from Royal, some over a year old. It did not take long for our crack trading staff to surmise this might have something to do with The Pledge, a nascent movement among a small but rapidly growing group of roasters towards price transparency back to the FOB level.
A quick refresher if Incoterms don’t naturally roll off your tongue: FOB means Free-on-Board, and it determines where the ownership transfer of cargo takes place. In this case, once the container has crossed the threshold of the steamship, ownership transfers from the exporting party to the importing party. It is at this point that an importer like Royal Coffee would take possession of the coffee. This means paying for it, insuring it, and making sure that everything is arranged for a smooth importation process through to its final destination.
A movement towards transparency and greater awareness of how pricing in our industry works should always be welcomed. We at Royal have already committed to providing full FOB transparency to any client for any coffee they’ve bought from us; however, I would be remiss if at this point if I did not add a few provisos.
FOB prices are an arbitrary, facile marker. Facile in the sense that the vast majority of export/import contracts in the coffee business are set up on FOB terms, and thus are easily retrievable. Arbitrary in that they literally don’t tell you anything beyond what the exporter was paid. This is essentially just one link further down the chain from the roaster/importer contract. If what we really care about is everyone in the chain earning a sustainable income from coffee, FOB transparency is only the first cautious, easy step in that direction.
As articles on Sprudge and Daily Coffee News have pointed out—and The Pledge writers themselves acknowledge—FOB transparency alone does not accomplish the above goal. Even full transparency throughout the entire process, all the way back to what the people who pick the coffee are paid, does not, in and of itself, address the fundamental income inequalities in the coffee industry.
It’s a good first step, as greater illumination could likely spur further concrete action, but as of now, The Pledge is only addressing FOB prices, full stop.
It is here that the situation gets far more complex. While industry movements like The Pledge, or the recent tagline #PayMoreForCoffee, so often fueled by the multiplier effect of social media, should be lauded for their good intentions, it is crucial we not skip over the all-important nuances, “for want of a pithy tweet or solipsistic Instagram post,” as our colleague Candice Madison sagely noted.
FOB prices don’t tell you anything about how much a producer was paid. But for that matter, what a producer was paid is often not comparable across different coffees or even within the same country, nor is it the sole barometer for quality expectations. A farmer selling ripe cherry and a farmer selling dried parchment are totally different scenarios with far different infrastructure, expertise, and labor requirements. Fully understanding these dynamics within even a single origin takes a lot of time and research and can’t be easily summed up in 280 characters or less. I have been traveling to Ethiopia since I was in the third grade and I think that my understanding of the internal market there, while advanced, is still just scratching the surface as far as the issues raised above are concerned.
As for the quality:price dynamic, the relationship between FOB prices and overall cup score is tenuous at best. It is very easy to overpay, and likewise great coffee can often sadly be found for relatively cheap. Any green buyer can think of examples of coffees selling at $2.50 FOB where similar quality could be had for a dollar per pound less elsewhere. The higher the price, the wider the discrepancy tends to get. Part of this price transparency revolution, if it is to be at all transformative, has to be a willingness to consciously overpay compared to similar quality 84/85 cup score macrolots. This is where #PayMoreForCoffee gets it right, but if those higher prices aren’t accompanied by a deeper understanding of where that money is actually going, and a goal that it accrue to areas associated with tangible quality improvements, it won’t do much but to further entrench the current dichotomies between supplier and buyer.
The Pledge — and transparency movements like it — will succeed if they motivate coffee buyers to dig far deeper than their stated goals and self-imposed limitations. These zeitgeists are just the opening paragraph in a fluent, living conversation on the topic of true sustainability and the longevity of coffee. We need to keep having that conversation, but if we only ever get through the first few sentences, what progress can we say we’ve made?