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?
Well fucking said dude.
Mad love and loyalty from Acme Coffee….
Social Media (in our opinion) is becoming a place of misinformation, rage and virtue signalling.
Thanks for the well written post and please keep up the hard work. Royal deserves good things.
Well said indeed.
We all have a duty to be aware of this, and speak to how out actions play a part in this meta conversation.
Happy to be a partner with Royal on this front.
Well said. I believe that is way we Roaster would love to look at it.
Cheers, BDCR
Max Nicholas-Fulmer and Chris Kornman are right, the FOB don’t tell how much a grower is paid. I am a Colombian exporter and I know that. The relevant value to clarify this is to ask WHAT IS THE FARMGATE PAID TO GROWERS, in relation to: the Exporter’s FOB; the Importer’s Wholesale; and, the Coffee Shop Retail sale prices. The coffee industry preoccupation about transparency, sustainability, environment seems to me, incongruent and ineffective talk, in the face of the dwindling income of 25 million families producers of coffee worldwide. On 1 October 1989, the International Coffee Agreement ICA (the ICA Economic Clauses export quota and price management) negotiations collapsed. This, notwithstanding that since its inception in 1962 the ICA had “contributed significantly to strengthening the economies of the coffee producing countries and the development of international trade and cooperation” (read: rich consuming countries Paid More For Coffee to poor producing countries). Did we go backwards? Socio-Economic Multilateral Cooperation lost to the bilateral free market panacea and one-sided globalization ideas of the late 80’s. Coffee prices – before the ICA “collapse” – ranged fairly stable between 115 cnt/lb and 145 cnt/lb FOB. Not bad if compared with today NYC 106 cnt/lb. If the 115 to 145 cnt/lb of 1989 Had been adjusted to take into account the effects of inflation then, today in 2019, the coffee price would have been about $228 to $299 cnt/lb.
Thank-you for pointing this out!
First of all: Great article – great comments and great discussion. As many here point out, a discussion about transparency is exactly what is needed in this industry. However, and I feel this is overlooked by many and pointed out by Alejandro “The relevant value to clarify this is to ask WHAT IS THE FARMGATE PAID TO GROWERS, in relation to: the Exporter’s FOB; the Importer’s Wholesale; and, the Coffee Shop Retail sale prices”. The entire value chain needs to be transparent if this discussion wants to leave forums and actually make a difference. From an importers point of view I think that many forget that an offer list is basically a reflection of demand. If I share my FOB price it does not say anything about what a grower is paid but it also does not explain the roasters retail sale price.
I truly believe that the final consumer needs to be educated on why coffee cannot cost 1$/cup and that part can only be taken over by roasters / in their coffee shops. Demanding a FOB price without going further is, in my opinion, a one-sided approach to make a sustainable difference. A consumer does not know incoterms, they dont know what 180cnts/lb mean and cannot put this into context. Only if the value chain is fully transparent they can understand and make better choices which in the long run will support roasters when buying green coffees. Only then something like #paymoreforcoffee actually makes sense. As of now, a consumer does not know why 1kg of specialty coffee from Ethiopia is currently sitting at 45$ retail price even if the roaster states that the FOB price was 280cts/lb.
The greatest added value in coffee is still in the roasting process. That is also where the biggest margin is created.
Many have added that FOB prices are not the ideal solution but a great starting point. However, as the comment by Alejandro has shown, from a growers perspective, putting a spotlight on one aspect of the value chain (FOB) and also on a limited number of actors (exporters/importers) is simply not enough. Making the entire chain transparent would give growers greater bargaining power when discussing prices.
Thanks for taking the time to acknowledge the Pledge, and even more so for helping to frame the discussion around coffee pricing with a clear articulation of the degree to which detail—especially as relates to pre-FOB financial distribution, the valuation of quality and the many other variables critical to understanding whether the individuals responsible for the production of specialty coffee are achieving enough income to sustain or advance their livelihoods—is necessary.
It is true that FOB figures are a shallow and woefully inadequate measure of farmer profitability, and that they often do not correlate reliably with farmgate prices. Even when they do, there are a myriad of other considerations that must be reckoned with if the goal is to assess the long-term economic viability of any farm operation. FOB price cannot tell us how much a producer was paid, much less whether that figure is enough to provide a decent living. But there is one thing it CAN do with some degree of certainty. It can tell us that a farmer is almost certainly NOT earning enough to cover even their most basic costs of production. If an FOB price is $1.20, even the most efficient growers are almost surely losing money. At $1.60 there is a very high probability that the farmers are not making enough to constitute a minimum living wage in most contexts. If a coffee is certified organic and selling for under $2.00 there are relatively few circumstances in which the farmer—and farmworkers—behind it are gaining sufficient income from its sale to make continued cultivation a defensible life choice.
In some ways, FOB price transparency can serve as a negative litmus test. There is—sadly– quite a lot of coffee being marketed and sold worldwide as specialty, complete with an unambiguously special retail price tag, that is purchased for prices well below any reasonable baseline for what might be expected to be financially viable for producers. So while a $2.50, $3.00 or even $5.00 FOB sticker doesn’t give anyone a reliable assurance that the people most responsible for the coffee’s existence are benefiting meaningfully from its sale, a sub-$1.50 price virtually guarantees they are not. A movement that embraces the disclosure of FOB values as a means of making it a little less easy to delude consumers or brazenly misrepresent a product as carrying a positive social impact when it is patently, empirically unsustainable is headed in the right direction.
What makes FOB such an obvious place to start despite its flaws is that it is really the only place to start. As you pointed out, it is the one economic indicator in the coffee supply stream that is relatively easy to retrieve and to verify. There are contracts that can be produced and referenced. If we suspend for a minute all concerns about what FOB doesn’t mean and focus solely on what we can learn from it, it turns out there is something worthwhile.
To your point about a “willingness to consciously overpay compared to similar quality” we can readily calculate the replacement cost of a commodity of known quality. If someone is consistently and deliberately paying 50-100% more than they need to that is an indication, however minor, that there is some sort of motivation in play beyond conventional business practice and the relentless downward pressure on cost of goods that characterizes it.
Another virtue of FOB disclosure is that it brings a factual anchor into the public and industry conversations about shared value. As unreliable as it is in isolation, it is arguably much more reliable than anything we’ve got today. It is a first small step in a process that should eventually lead to more and better tools for farmers, consumers and the trade itself to wield in service of informed decision making. That’s largely the basis for the Pledge. It is inspired by a simple recognition that despite thirty-plus years of vigorous sustainability dialogue within our industry, a massive global proliferation of certification campaigns and marked progress in increasing the elasticity of the retail value of a pound of coffee there is little to no means of connecting the dots between the marketing of sustainability and the reality of it, even for those who work in the industry and have some context much less consumers. FOB price disclosure is clearly not the solution to bridging this gap, but it is hopefully a meaningful addition to the toolkit being assembled slowly and collaboratively—in an open source mode–by the subsection of the coffee industry that wants to see an acceleration re: the degree of ease with which coffee farmers committed to quality can access the growing opportunity for increased income that exists as a function of the growth in popularity of ‘specialty’ coffee consumption. Those who’ve been in the specialty coffee industry long enough and pay attention to supply stream discussions are painfully aware of how tenuous an existence most growers worldwide who rely on the production of specialty coffee for the majority of their income lead. Even those not involved in the industry can deduce something is amiss when they learn that production in most countries has been on the decline for decades.
Just wanted to take a moment to thank you for bringing attention to this experiment and driving the conversation forward. What comes of it remains to be seen, but your observation that “greater illumination could likely spur further concrete action” does a great job of capturing the intent of the Pledge.
Geoff, thanks for weighing in. Lovely to hear from you on this topic, and thanks for the well-thought nuance you’ve added to the discourse. Always appreciated.
I am hearing all of this, and understanding what I can at the moment. My question is, I hear that this is a “good first step”, and if so, what is the next step? Is this truly a building block to continue to work towards transparency? If everyone gets on board with disclosing FOB prices and becoming more aware of the FOB price of the coffee they are buying, does that then give us another platform to explore and move off of? Or does another route have to be uncovered? Just curious what the next steps may be to continue working in this direction.
Great stuff!
Everywhere in life we draw arbitrary lines but to dwell on the arbitrariness of it all is a waste of time. Likewise, to be transparent about unfair business transactions does not somehow make them less exploitive. I can only offer a different arbitrary line to which you could pledge your allegiance. Pay no less than $3.50 FOB for any coffee you market as specialty coffee. Of course this pledge has all the same flaws as the other good intentioned ideas. Especially, if you pay $3.50 FOB for an 85 point SCA scoring coffee and have no idea how the proceeds were divided among the supply chain actors. But what if you know and trust your exporter and that exporter makes a pledge to return $2.00 of the $3.50 FOB to growers who also do the post-harvest work. And what if you know and trust your growers and those growers pledges to pay at least $10 a day for their farm and harvest labor.
Thanks to all for the replies. It is exactly this type of discourse that is needed. There is a fine balance which needs to be struck between using transparency as a marketing term (such that it generates sufficient public support to make it relevant), and then turning said support into positive market disruption. It has worked to a certain degree in the diamond business but there is a whole other set of challenges in a bulk commodity industry. Consumer sentiment has to come along for the ride, but it is the industry which must drive it. I do think Geoff and Lowell are both onto something, though. If a coffee scores 86 but what you paid has a “$1” as the first digit, can we really call it specialty?
In recent months, due in large part to an uptick in awareness, and a sense of urgency about the impact of low coffee prices on all producers, we have seen more visible dialogue about this topic. This is critical for our industry.
In our opinion, all conversations about pricing transparency are inherently good. Even when some of the points seem negative or critical, they drive us to question and clarify issues that have been too opaque for far too long. This opacity has limited the opportunities for producers to participate in the increasing valuations that specialty coffees have been generating for the past 30+ years.
In the Specialty Coffee Transaction Guide, we push the transparency agenda by reporting on FOB prices in order to re-center specialty coffee market conversations about price and away from commodity price references that do not speak to differentiated coffees. These FOB prices do not indicate how a farmer is specifically remunerated for the coffees that she sells. However, we believe firmly that broad familiarity with these prices fuels further questions (for both buyers and sellers). We also believe that the FOB prices that we report are miles better than the one price reference that is ever in the market … the ‘C’ price. Thus, this first step toward broader pricing transparency should lead to more appropriate pricing expectations and greater trade route efficiencies.
As producers begin to see consistent FOB prices for coffees that align with the quality and quantities they have to sell, they can become motivated to better understand the various transformations that stand between FOB and the farm gate. In our experiences socializing the Transaction Guide within coffee-producing communities, one of the more pointed (and motivating) questions that we get is: What is done to our coffee after it leaves the farm to command the FOB prices that you report and how can we ensure we, as farmers, get a growing portion of that price?
As part of our commitment to transparency and the benefits it will bring, we are moving past the simple “report and run” mindset that worries so many progressive commentators. This commitment takes us to different origin countries to work with producers as they ask (and demand answers to) the important questions that pricing transparency inspires.
It also inspires us to participate in action-oriented research projects. For example, this year we plan to look at two countries in order to clarify the many translations and costs on the way from farm gate to FOB. As this work develops, the FOB prices published in the Transaction Guide will better resonate with different producers who work in different currencies and with different units of measure. Producers will be able to review posted FOB prices and then determine what they mean in their own contexts. This will allow them as sellers to genuinely aspire to higher prices, seeking (where necessary and possible) different commercial partners who will pay them, or charge them, more appropriate prices.
We strongly believe that information is power. In this respect, we are fully committed to pricing transparency and thrilled that so many roasters, importers and exporters are willing to be forthcoming with their pricing data. Currently, FOB prices represent the path of least resistance; they are widely available and written into most coffee contracts. So, we happily use them as the foundation for our work. However, we also believe that we need to work even harder to level the playing field when it comes to interpretation and data-driven decision making. Instead of focusing on how different buyers feel, or are viewed, as they disclose their prices, we choose to focus on how sellers can change their expectations and behaviors to claim the better prices that (in our minds) they have already earned.
Royal Coffee has been an exemplary importer in so many ways for so long, not just when it comes to full FOB transparency and transparency all around. After a few years in this industry, we have never had a bad experience with Royal, and after speaking with so many producers and exporters and shipping companies — there are stories abound how folks have been taken advantage off in so many ways, but I’ve never heard a bad word about Royal! So, Max, thank you for being one of us! And, yes, there is still much work to be done to continue from FOB transparency to full supply-chain transparency.
Outside of our bubble, even our small niche of Specialty Coffee is still full of shenanigans, for example, importers who don’t pay Cash Against Documents (CAD) but rather stretch out their payments until after they have received, warehoused and finally sold the coffee to their customers, the roasters. In the greater world of all of coffee (not just specialty coffee), the ways folks in the importing countries (formerly the colonizers) take advantage of the exporting producers and countries (formerly the colonies) haven’t really changed dramatically since colonial times.
FOB price transparency is a first step. The Specialty Coffee Transaction Guide (https://www.transactionguide.coffee/home/en) is another significant step. It will take a few generations to achieve more equity in (Specialty) Coffee, equity that has never existed before. Only if we make significant progress towards that goal will there be even coffee for us to talk about, as the current set up, by and large, is not sustainable.
Thanks for taking the time to acknowledge the pledge. Many buyers who signed the pledge work with Royal and appreciate the company’s willingness to operate transparently. I think we are aligned on a lot here (the idea that transparency is not a bad thing, even if what FOB tells us is limited), but your post raises some skepticism about the pledge and what it and transparency can achieve. Many others have chimed in but I would like to add my humble perspective as a coffee buyer for Counter Culture and a coffee professional who has held many positions over the course of her career.
Firstly, I understand the Speciality Coffee Transaction Guide and the pledge to be inextricably intertwined. The former intends to aggregate data in order to create better benchmarks for pricing speciality coffee. The latter intends to identify a common methodology to talk about said prices (which coffee price to report, other contextual details to include, a commitment to report prices on a wholistic and not selective level, etc). The Transaction Guide is what’s important and the pledge allows us to build a guide with integrity. What could a guide accomplish? It could be more useful reference (than the C) for our engagement with each other and consumers and steer our conversations towards the true value of speciality coffee. These benchmarks will make it easier for people not to overpay for coffee, but simply to pay for it. In my mind, the fundamental problem with the C (plus differentials) being specialty’s price benchmark is that it’s too easy for us to think what you said out loud: that we sometimes overpay for coffee. That kind of thinking does us all a great disservice.
We should all beware of simple solutions. You argue, and I agree, that the pledge will only succeed if it goes deeper. I only counter that every conversation, and every person’s understanding, has to start somewhere. I remember my first trip to Ethiopia in 2014, 12 years after I had started working in coffee. I remember realizing everything I thought I knew about coffee supply chains was a little different from what I was seeing and experiencing on that trip. It was easy for me to think that my naivitae was a result of stupidity and I’m so glad the people I traveled with gave me the opposite feeling by encouraging all my questions, even as they nudged me towards asking better ones over time. In every job I’ve ever held in coffee, from barista to trainer to quality analyst to buyer, I’ve always felt like I’m just scratching the surface of what there is to learn. I worry about sending the message that no one can ever catch up. I want us to support expertise at all levels of the supply chain and transparency is a step towards that. Pledging to peel back one layer of price understanding is not a one day, one purchase movement: it’s meant to make buyers and sellers accountable to be thoughtful at every level.
Thanks for reading.
Thanks Katie, and everyone else once again, for chiming in here. Your perspective is invaluable. I did want to clarify the point about overpaying. In making it, I am not speaking to any sort of intrinsic worth or the true value of all the work that goes into creating a coffee; rather, I am talking strictly in terms of comparing costs using what is currently the only widely accepted metric in our industry: quality (i.e, cup score).
The C market is not going anywhere. Even the combined might of the entire specialty industry is not going to change the fact that most coffees will continue to be priced on differentials. And many of those coffees are actually going to be pretty good when judged by our current quality standards. As long as cup score is the sole metric we use, if you want to pay more for coffee, you are going to be “overpaying” in that sense.
Now, I hardly think this is a bad thing. In fact, I am arguing that overpaying can and should become one of the guiding business principles of our various companies. When combined with true transparency and buy-in from all links in the chain this may actually set the stage for a transformative movement that consumers can identify with and support long-term.
If you’ll permit me just a moment of digression, this is where both the Fair Trade movement and the Third Wave have failed. Fair Trade fails where it thinks big but ultimately can only deliver limited solutions given how shallow any third-party certification scheme is necessarily going to be. The Third Wave falls victim to solving the relatively easy problem of “what is my company paying for this really amazing coffee, and how do I use that information to sell more of it” when the hard problem of “how do coffee farmers and pickers everywhere make more money” is rather blissfully ignored. These are, of course, broad generalizations.
In summation, an industry reliant on cheap labor and low prices which uses cup quality as the main arbiter of worth needs to dramatically reevaluate what makes a coffee “good” in the first place. Transparency is one step towards this more evolved understanding of virtue, and for that reason, we support it.
Thanks for your reply, Max.
Though I agree that nothing is ever as black and white as a hashtag or pledge would make it seem, I do worry about us making the perfect the enemy of the good. There are real reasons to advocate for one way of buying coffee over another, even if they all come with caveats. I think Fair Trade has been hurt from efficacy in part because we attacked it from all sides: we thought it didn’t go far enough and hated that it had the attention of consumers. If all the possible Fair Trade had been actually traded/bought as such (and no one said the price had to be static, it was a starting point) then the market could perhaps be in a better place, but it is not. Anyways, the real reason I’m rambling about Fair Trade is because it reminds me of the power that this sliver of the specialty sector does have. Most trends in coffee, good and bad, have come from our companies and our convictions that we market to the public. Single origin pour over bars? Nitro cold brew? In-house certification schemes? All of this came from our segment of the industry and moved up. So, I disagree that speciality coffee will always need to use the C market as a basis for pricing and that differentials will not die. If consumers get used to the idea that a sustainable business needs to be transparent about the prices (FOB) they pay for coffee, and if the Pledge creates a common code that demands 100% transparency, there will be no room for implication about who is and who isn’t taking advantage of a low market.
We can be pundits here or we can be leaders. Royal is demonstrating leadership with a commitment to transparency and by engaging in the conversation. The roasting companies starting to collect and donate their price data to the Specialty Coffee Transaction Guide are creating new benchmarks for prices. If we can get our companies and others to continue this conversation publically, with their customers, we might have a chance at understanding and improving what we are doing, rather than just continuing to tell ourselves stories about the way things are.
Thanks again, Katie, for the considered response. I could not agree more that it is beyond time to move past “telling ourselves stories” and towards more concrete actions. That is truly our entire motivation behind this thread and our acknowledgement of The Pledge and price transparency movements in general.
Regarding the C market, my point is not that the specialty industry will forever be shackled to it; rather, that it will still exist and determine the pricing for the vast majority of the world’s Arabica entirely independent of anything the specialty sector does or doesn’t do. The approach of the past 10-15 years of paying high prices for the highest scoring and most marketed 10% of coffees has run to its logical conclusion: the disparity between the volumes and prices on offer at specialty auctions and via traditional C Market based channels has never been wider. It is time for a far more wholistic approach that acknowledges the failings of a system based entirely on cup score and treats monetary returns to farmer and picker as a value-add, regardless of where their coffee falls in the quality pantheon.
I think we are largely in agreement, that where our power lies is in influencing consumer sentiment towards these more ethical choices. This is going to be a long, hard battle and it needs to be taken with eyes wide open to past mistakes and the siren song of easy labels. We must not let “Transparency” become the next “Shade Grown” or “Direct Trade.”
Thanks again to all who have chimed in here. We look forward to the next steps.