A central topic that not only concerns our partners but also us on a daily basis is the current tense situation in the coffee industry. We would like to take the time to take a closer look at this current and very relevant topic. In our first article, we already showed you the factors that are currently influencing the market and coffee prices. In this article, we address perhaps the best question: “Who earns from the crisis?”. Let’s illuminate the supply chain step by step.
Unfortunately, it’s not the farmers who are making money from the crisis. The climate has new ugly surprises in store every year. Covid-19 has cost many lives, the cost of living has risen, and has exploded at the latest with the start of the Ukraine war. Their existence is severely threatened. Many leave the profession of coffee growing and look for something more secure. Not even the “high” prices motivate enough. Stories about people who have become rich through coffee cultivation do not circulate in the origin. On the contrary, in countries like Honduras, the difficulties in coffee cultivation fuel dangerous migration to the United States. Even now in times of supposedly great coffee prices. High-priced microlots are in much less demand, which is why the “race-to-bottom” is in full swing again. Quality doesn’t matter again, coffee has to be cheap again. Advances in knowledge are lost. Much worse, confidence in the progress promised by the specialty industry is lost. Peru is expected to export 259% more coffee to Colombia this year than it did in 2021. Why coffee is exported from Peru to Colombia? Colombia also has a poor crop year after several cold spells, but contracts need to be serviced. Higher differentials of Colombian milds on the world market create potential for arbitrage returns. As a result, Colombian companies are buying more green coffee in Peru this year. Unfortunately, the JNC and the CPCC, as Peru’s national coffee organizations, were not able to prevent this, as the government apparatus is paralyzed in the political turmoil surrounding the far-left President Castillo. To all roasters: How transparent are actually your Colombian cooperative coffees? It’s quite possible that there will be Peruvian or other green coffee in them in 2022/2023.
Export companies / cooperatives
Export companies are also going through difficult times, especially cooperatives, and especially smaller cooperatives. Fixed-price contracts are turning out to be loss-making for them. The large trading houses have been able to respond much more quickly to the situation. In origin, they function only as a buying agency. There is no partnership, no support, no certification and even less direct trade. Everyone is allowed to come and sell coffee, but that’s all. For farmers who are hungry and thirsty, who want to send their children to school, who want to pay for medical treatment, there is no loyalty to their cooperative. If the trading houses pay more than the cooperatives, then they sell to the trading houses. It is difficult for the cooperatives to obtain coffee and to service their contracts.
Shipping companies and fuel industry
Finally we have them! The winners of the crisis exist. They are those who invested in the fuel industry and shipping companies in time. BP made a profit of 46 USD per barrel in Q2 2022. PROFIT! PER BARREL! Unbelievable (note: a barrel just cost 106.16 USD). Together, the five oil majors Shell, Exxon, Total, Chevron and BP gained more than $60 billion in the second quarter of 2022. Citizens and politicians alike are outraged. But the united courage to intervene is somehow missing, in the USA and in Europe. The oligarchs in the East, the oil multinationals in the West. The winning shareholders are widely dispersed, maybe you too win a little via EFT funds for retirement. All the shipped goods pay for that too via skyrocketing container prices. Of course, there’s still chaos in the ports. But if profits like this are being raked in, who’s paying for it? It’s everyone who pays for shipped goods. And the seas are being shipped for all they’re worth. Our entire shopping basket was moved across the globe by ships (winner #2) using fuel (winner #1).
Import companies are groaning. Coffee has become scarce and expensive, and as if that were not enough, we as European importers now have to put down a historically large number of euros for one USD. Smaller importers in particular have bought coffee for a year in advance, when the Ukraine war did not yet seem foreseeable. In the current situation, more expensive specialty coffees may become store-bought. Roasters who for years relied on transparency, direct trade and “local first” are stealthily switching back to the big trading houses to get cheaper prices. They enjoy more flexibility due to the whipsaw effect. This is hitting smaller import companies that have not yet built up reserves hard.
Roasters have to explain this whole mess to the consumers. A great many roasting companies have sprung up in recent years, which has made the market increasingly dynamic. With dwindling purchasing power, it is now becoming even more competitive. How many consumers will switch from standard to specialty coffee when the cost of living skyrockets? In the crisis, demand behavior changes, which is also felt by roasting companies. The quality offered can now sometimes be difficult to meet one’s own demands. At the same time, it is important to stand out from the big coffee companies. This situation also offers an opportunity, namely to make the company more efficient through rationalization and to remain true to the values of specialty coffee.
Coffee drinkers also lose out from the crisis. They get less good coffee and have to pay more money for it. Consumers generally have a great responsibility, which often points to the whole world. Meeting this responsibility has become more difficult in times of crisis, but also more important. We can now show our loyalty to values and to the companies that represent them.
Find out what farmers are saying about the current situation here.