This year we decided to travel to Mexico a little earlier than planned. Typically we would head down later in the season—in March or April, as the harvest begins to wind down and we have a wider range of coffees to cup, including much of the higher-altitude coffees and microlots that come later in the season. This year, however, we felt we needed to be there earlier to better understand the economics of peak harvest season and to lock in some selections in what has proven to be a particularly challenging year for coffee buying. With the C-market at a ten-year high and the global supply chain in flux, we were hearing from in-country partners, not only in Mexico but around the world, that our prices were going to increase dramatically this year.
At Little City, we’ve always prided ourselves on our direct-trade model, and we prefer to negotiate directly with growers and other origin partners to establish pricing outside the C-market, the global coffee exchange where the trade of both physical coffee and coffee futures determines the daily market price of green coffee. Though not all coffee is traded on the C-market, it can and does have a major impact on nearly every facet of the industry and greatly affects how coffee is traded worldwide.
Our model is pretty straightforward. We offer a price—typically well above market value—in exchange for a certain volume and quality. Expectations are clear on all sides, and each party feels comfortable that they can deliver on their end of the bargain. Whether the market goes up or down, our deal is unaffected, and everyone walks away happy (and hopefully profitable). In the long term this creates trust and stability and protects all of us from the drastic swings and unpredictable nature of the C-market. Easy breezy, right? Well, sure, when the market is low.
This year has been a different story. In Mexico, smallholder growers often sell their coffee cherries to millers and exporters who will perform the drying and processing, then prepare the coffee for sale to importers and roasters. Careful picking and sorting of the ripe cherries, those that will go into the highest-priced blends, can often yield high premiums for the grower, meaning that quality is a sure-fire way to increase value. However, with the huge and relatively fast spike in the C-market, growers can currently receive the same price or more for lower-quality or less meticulously sorted coffee than in the past several years. This means lower labor costs, higher yields, and more money to the grower, but ultimately a reduction in the price to quality ratio.
Now don’t get me wrong, I am all for higher prices for coffee growers and have long believed that in order to close the equity gap, people in consuming countries—roasters, cafes, and coffee drinkers—should pay more. But our origin partners are worried that this price boost is temporary and that ultimately it will be a setback to the more sustainable trade models that we have worked to build over time.
In Veracruz, for example, one of our export partners has expressed concern that many of his long-term grower partners have left in favor of local brokers and bigger exporters willing to pay higher prices for lower quality. This leaves them scrambling to find enough coffee at the price and quality they need to fill existing contracts, creating cash flow and a host of other issues. As growers themselves, they agree that the current prices are good, but feel that continued drastic fluctuations in the market will create instability, which is ultimately bad for any market. They worry about what will happen when the market goes the other way and the big buyers start paying less—or disappear completely. (Low prices often mean plenty of supply elsewhere.)
This trip to Mexico felt a little different from past origin trips. Apart from the usual objectives of visiting with partners, learning about the harvest and post-harvest processing, and cupping fresh samples, there was a bigger-picture focus that became very clear this time around. We need to learn more about the economic realities of the coffee trade so we can better understand how they impact our needs and the needs of our partners. It was a challenging trip filled with difficult conversations and a strong reminder of the main reason we travel to origin year after year: to build and solidify our relationships. Regardless of where the market stands or how our business models change, there is no replacement for communication, and trust and that is ultimately how we create long-term, sustainable models of success for all involved.