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Pre-contracting helped this roaster secure coffee from Brazil and Costa Rica at the best price

Quarter Horse Coffee in the UK is pre-contracting more and more. By acting fast, they avoided the price rally in 2021 following the Brazilian frost. They also secured one of the few lots available to source directly from Costa Rica in 2022 despite the country’s lower production, which led to most coffees selling out in a heartbeat.

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As the effects of the climate emergency are felt all across the world, many coffee-producing countries, from Costa Rica to Ethiopia, have been producing smaller volumes, whether because of warmer temperatures or changes in rainfall patterns. Add a volatile c-market and increased competition for coffee at origin, and roasters can no longer take the availability of their favourite beans for granted. 
 
In June and July 2021, Brazil suffered the most severe frosts to affect the country’s coffee-producing regions in half a decade. As a result, the competition intensified in the second half of 2021 and affected all other origins. By December that year, cooperatives in Costa Rica said they were already selling out their predicted volumes and that was before samples had even become available for tasting in Europe. 
 
The same problem happened in other Central American countries, like Guatemala and El Salvador. Prices for green were going up and, as a result, roasters decided to wait to contract in the hope that the c-market would go down. However, as big buyers had pressures to fulfil their contracts, waiting proved to be the wrong decision. Coffee from those regions quickly sold out. For roasters wanting to maintain consistency in their offering, as well as developing ongoing relationships with producers, this posed a significant problem. 

Farms affected by the frost in Cerrado, Minas Gerais, Brazil (Photo: EMATER-MG)

Nathan: "Pre-contracting helped to protect us from the initial price rise" (Photo: Quarter Horse)

Pre-contract to stay ahead

 
By talking to producers and the Algrano team, some roasters were aware of what was happening and managed to be one step ahead. One of them was Quarter House Coffee Roastery in Birmingham, UK. Founded in 2012 by Ameeta and Nathan Retzer, Quarter Horse moved from Oxford to Ameeta’s hometown of Birmingham in 2015 to open their own roastery and “showcase what’s new, what’s exciting, and what’s tasting great,” explains Nathan. “We believe the way to do that is to work more directly with smaller producers.”
 
Quarter Horse has been working with Algrano for around a year and a half, and now purchases almost 80% of their coffee through the platform. When Algrano launched the pre-contracting service in 2021, the roastery didn’t waste time. They first ordered coffees from Brazil ahead of the season. Then, they secured their orders from Ethiopia and Central America before the samples were ready - and the coffees, sold out. 

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Nathan and Ameeta, the founders of Quarter Horse Coffee (Photo: Quarter Horse)

Fixing prices early for the best value beans

 
To deliver exciting single-origin coffees and great blends, Quarter Horse has been buying more green beans via direct trade and building relationships with farmers and collectives over the past five years. As the roastery handles many offerings, planning ahead helps it streamline the ordering process and ensures that coffees that are popular with customers are available every year.

The Brazilian frosts in 2021 raised prices dramatically, as up to 90% of some crop areas were damaged. However, Quarter Horse had already agreed on prices before they spiked by pre-contracting. “Although price is not our main motivation in working with small farmers, we appreciated the fact that pre-contracting helped to protect us from the initial price rise,” says Nathan. “As we’re working more directly, it’s also easier to see how particular crises are affecting all farmers equally, which provides more clarity on their situation.”

Understanding the producer’s side


Cooperatives and other aggregators buy coffee over an extended period of time at different rates and according to their own pricing policies. This means that the prices paid for coffees of different farms that are blended together can vary drastically and this variation is accounted for in the final asking price by averaging the purchase rates.
 
Aggregators also predict the crop volumes for the year before the harvest and are always looking to pre-contract a certain percentage very early in the season to access financing. This gives them leverage as banks ask to see contracts as proof that they will be able to honour their loans. Once this percentage is reached, aggregators wait until they have more coffee in hand before they start offering again.
 
Roasters who contracted coffee early in the season and/or before the rally of late 2021 secured their lots at better prices because these coffees had already been purchased by aggregators earlier in the year when both market prices and production costs were lower. Single farms were also able to sell at lower rates then because the price of fertiliser, fuel and labour only went up later on.

Founded in 2012, Quarter Horse aims to showcase what is new and exciting. “We believe the way to do that is to work more directly with smaller producers.” (Photos: Quarter Horse)

Securing beans for a signature blend 

 
Quarter Horse’s positive experience with securing beans from Brazil led them to move fast and pre-contract beans from Coopeagri, a cooperative in Costa Rica, later on. The coffee had been a key building block in the roastery’s signature espresso blend, Dark Horse, and Nathan wanted to secure the same beans again at the best price possible. “As we would be building our espresso around those beans for the next six months, I wanted to be sure we didn’t miss out because there’s a finite number of bags available,” he explains.  
 
For both the Brazilian and Costa Rica pre-contracts, the process was smooth and easy. Nathan had the option of arranging the pre-contract order through Algrano or by contacting the farmer directly. As the service is based on SAS Replace terms (Subject to Approval of Sample, Replace: if a sample is not approved, the coffee will be replaced with another lot) he received a couple of pre-shipment samples during the middle of the harvest and as the coffee was being milled and graded. “The pre-shipment samples were tasting great,” remembers Nathan. “We’ll get a landed sample too when the coffee arrives, so I’ll be able to check the quality, but I’m confident it’ll be fantastic.” 

Quarter Horse was one of a few roasters who managed to secure coffee directly from Costa Rica on Algrano in 2022. Supply was so low and competition so high that only those 

who were tuned in to the country’s situation - informed by Algrano on Harvest Reports and newsletters - were successful. Nathan didn’t have to act that fast, though. In 2021, he contracted the coffee in late March. In 2022, he did it in early January. And, considering that the coffee in question was already marketed at considerably higher prices than those of the c-market, he managed to secure the same FOB price.

 

The benefits of looking forward

 
For Nathan, one of the biggest benefits of pre-contracting is the ability to accurately plan financial forecasts. By pre-contracting, Quarter Horse was able to adjust its prices and inform its customers ahead of time in order to absorb the fact that most green coffee across the globe is more expensive this year, protecting the roastery’s margins. And there’s also the flexibility of being able to use it in different ways, to secure large amounts of a building block for a signature blend, or a small amount of a rare single-origin. “We’re also pre-contracting a couple of bags of Rwandan coffee that is more expensive and will be sold as a single-origin roast,” he says. “That one is really delicious and I don’t want to miss out on it.”
 
“Pre-contracting helps me plan, and it helps the farmer plan too,” he concludes. “It’s working really well for us, and we plan to keep buying more and more coffee that way.” 

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