DOWNLOAD: Get your green coffee direct sourcing calendar 2024-25

Break Down FOB Data and Learn if Your Farmers are Getting Fair Prices for Their Coffee

To understand how much farmers get paid based on FOB data, roasters need to know the structure of their supply chain. Check the breakdown and calculate the farm gate to FOB ratio.

Sign up to source green coffee

Making sense of the data you have

Are coffee farmers receiving a fair price based on what you pay for green coffee? As more green coffee providers make their FOB (Free on Board) prices public, more roasters realise that the FOB doesn’t say much about how much producers get paid

When asked, providers often say that “it depends on context”. They’re not lying. The context of purchase varies widely between countries and types of sellers (i.e. estates, cooperatives, private exporters). It doesn’t mean we can’t start getting our heads around it.

So what is the context? In this article, we’ll draw from real examples to unpack the structure behind the FOB price in different scenarios, from an estate in Brazil to smallholders in Costa Rica and Ghana. You'll be able to start deconstructing the available information and understanding if a price is fair for farmers or not. 

With a lack of data on farm gate prices, FOB is our starting point (Photo: Algrano)

Why FOB is the industry standard

FOB means that the coffee is the responsibility of the exporter until it is loaded into the shipping vessel (Photo: Capeca)

FOB is one of the internationally recognised terms of trade or incoterms and stands for Free on Board. Incoterms specify the responsibilities of each actor in the supply chain - from who manages and pays for the shipment, insurance, documentation, customs clearance, and more. 

FOB means that the coffee is the responsibility of the exporter until it is loaded into the shipping vessel. This also means exporters cover all the costs and carry all the associated risks up until this point. 

This incoterm is adopted in most green coffee contracts and is the benchmark for price comparison in the global commodities trade.

As the ratio between farm gate (the price farmers get paid) and FOB varies - and because there is no industry-wide data - Free on Board prices are pointers for buyers on how much producers get paid and the impact they have at the origin.

Important: t’s not wrong to assume a higher FOB means a greater farm gate but it’s not always right either. Sometimes the two are linked. Other times, not.

New to Algrano? Join the movement!

Power up producers! Source direct from more than 18 countries and change the way coffee is traded.

The breakdown: how are FOB prices calculated?

The FOB price is calculated by adding the farm gate cost of green to all other costs from farm to the container. These include:

  1. Payment to coffee producers in whatever form the coffee was delivered (i.e. fully prepared to export, unsorted, parchment or cherries)
  2. Processing costs (at wet or dry mills when the coffee was bought in parchment or cherries)
  3. Sorting for defects and size screening at dry mills
  4. Packaging (Grainpro or similar, jute bags, and printing)
  5. Domestic transportation to a warehouse and later to the port
  6. Handling of the bags at the warehouse and port (loading and unloading)
  7. Customs clearance paperwork and taxes charged by each country for exporting 

In the simplest format, people refer to the following formula:

FOB price = farm gate price + Exporting Costs + Taxes 

The composition of farm gate prices also varies according to how the supply chain is structured in a country or region. The more autonomous producers are (i.e. having their wet processing facilities, dry milling, sorting machines, etc), the more they can deliver coffee closer to exportable grade, fetching a higher ratio of the FOB.

The cost of the raw material is only one of many costs involved in FOB calculation (Photo: Gasharu Coffee)

Farm gate to FOB ratio: examples

The case of Ghana

In many African countries, such as Rwanda and Ethiopia, farmers traditionally sell coffee as cherries. In Ghana, on the other hand, farmers normally sell parchment. “It is the exporter's responsibility to de-hull the coffee, sort the beans, and get them ready for exportation,” says Emi-beth Aku Quantson, CEO and founder of Kawa Moka.

At the time of speaking in July 2022, Emi-beth shared that the average farm gate price paid to producers for 65kg of parchment robusta is 350 Ghanaian cedi (≅US$ 42.00). For one bag of exportable green coffee, Emi-beth needs two bags of parchment as 20% is removed (foreign matter, defects, screen size).

It costs her 1,000 cedis (≅US$ 120.00) to get one good 60 kg bag of green, including 30-50 cedis (≅US$ 3.60 - 6.00) for picking, and 60 cedis (≅US$ 7.25) for transport.

All in all, Kawa Moka’s FOB price composition is 75% farm gate (including processing up to parchment at the farm), 15% transport, 5% documents (inspection, certification, sealing, etc.) and 5% for the exporter. She adds that “5% for the exporter is not always possible as it all depends on the final price paid by buyers. Robusta from West Africa is always a hard bargain”.

How farmers sell coffee influences the farm gate to FOB ratio (Photo: Algrano)

Brazilian farmers get roughly 85% of the FOB price (Photo: Gustavo Costa Rodrigues, EMBRAPA)

The Brazilian bica corrida

The context is very different in Brazil. There, “the most common path would be the farm (even smallholders) processing the coffee until what we call the bica corrida stage (unsorted green beans),” shares Allan Botrel of the cooperative Sancoffee in Minas Gerais. “All post-harvest, wet milling and even initial hulling take place at the farm, and that coffee is traded in green (rather than cherries or parchment) in domestic markets, with prices expressed in local currency BRL [Brazilian real] per 60kg bags,” he adds. 

As a result, in calculating FOB prices in Brazil, one would add the sorting costs, transport, customs and other logistics and export charges to the farm gate. The farm gate to FOB ratio depends on the grade of the coffee and the market conditions but Allan estimates that roughly 85% is farm gate, 10% goes to logistics, and 5% goes to the exporter’s service margin. “In our case also covers all the marketing and promotional activities on behalf of the farms.”

The Costa Rican rieles

In Costa Rica, green coffee is sold in rieles. This is the farm gate price for export-ready green coffee per quintal (46kg). Rieles are later converted to American dollars per pound. Normally, producers (or mills) are responsible for the coffee until it’s hulled and sorted. In many cases, mills pay for packaging and transport to the exporters’ warehouse where bags are loaded onto containers. The rieles cover all costs until the warehouse.

Looking at Bean Voyage’s transactions for the 2021-22 harvest in Costa Rica, 88.08% of the FOB prices was farm gate (rieles) on average. Export costs add up to 10.44% including paperwork and the exporter margin to cover sampling and processes. The remaining 1.5% account for mandatory ICAFE (Coffee Institute of Costa Rica) taxes. Compared to Ghana and Brazil, the farm gate to FOB ratio here is higher because the producers assume a further step in the supply chain by sorting their beans. 

In Costa Rica, where farmers sell sorted beans, they get nearly 90% of the FOB (Photo: Bean Voyage)

Payment structure, currency and financing

Cooperative members get paid upfront and might receive a bonus after the sale (Photo: Conebosque)

Cooperative members

Whilst a single farmer or estate trading directly and exporting have a vertically integrated and linear cost calculation, a member of a cooperative/association displays a different cost structure. They are normally paid before the final price is set according to local rates for cherries or parchment (and often by volume, weight and quality).

After the sale, cooperatives may reward farmers through a second payment or bonus. It’s important to say that as farmers are paid based on day rates, the final price is based on the average farm gate. Unless a cooperative shares information for each farmer, farm gate data will also be an average.

Exchange rate 

Though FOB prices are set in American dollars per pound for arabica (and American dollars per metric ton for robusta), the local trade is likely to happen in local currencies. As a result, the exchange rate will also impact the farm gate price

This is particularly relevant for coffees scoring 80-83 points, which are priced competitively and close to the C-market. For these coffees, sellers expect to make gains on the exchange rate but that’s not always possible. 

Interest rates

Most (if not all) producers and organisations need to pre-finance the harvest to pay for workers and/or coffee. The rates they get in their countries (and producing countries tend to have much higher interest rates than Europe) can influence the final price.

Direct trade farmers that export their coffee to foreign buyers have at least three months or more between harvest and payment. At this time, interest is being accrued. Time is money (literally) and the wait for sampling and ordering can lead producers to accumulate costs. 

More often than not, farmers selling direct also sell part of their crop locally to cover operational costs faster. “My family and I collect coffee cherries 6 days a week during the harvest season. From Monday to Friday, we bring home the cherries we harvested to process them and sell them as parchment. For the harvest on Saturday, however, we sell them in cherries to get cash on the spot and pay for the following week’s picking,” says smallholder Ana Rosa Marañon in Veracruz, Mexico. 

Farmers who export normally also sell part of their crop locally to get paid faster (Photo: Gasharu Coffee)

Final words...

Given payment timelines and interest rates, it’s important to ask your coffee providers the following questions to understand the impact of your sourcing practices: 

  • What is the payment flow and how long does it take? 
  • Are producers being pre-financed? What’s the interest rate?
  • What are the payment terms for producers? 
  • How long are producers holding the coffee in a warehouse? 
  • How are risks spread across the supply chain?

In a supply chain as complex as coffee and whilst sector-wide benchmarks don’t exist, the best thing roasters can do is to understand the set-ups of the producers they work with.

Sourcing direct opens the communication channels roasters need to get more traceability and precise information so that everyone can evaluate the impact of their sourcing practices and prices paid. Looking at one's own supply chain can help buyers build a solid sourcing strategy with real impact and guide future decisions.

This article was written by Sunghee Tark. She is the co-founder & Chief Executive Officer of Bean Voyage, a feminist organisation that provides smallholder womxn coffee producers with training on sustainable coffee production and access to markets. 

Sunghee is responsible for market outreach, programming and strategic planning. She is an SCA's LEAD Scholar, Re:co Fellow, SOCAP Fellow, Byron Fellow, and Davis Scholar. 

Follow us