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Pricing Series: why roasters choose to be price takers and where to learn about the cost of green

As defining “fair prices” for coffee remains elusive, specialty roasters are targeting power imbalances in sourcing to ensure better pay for farmers. Learn why roasters are choosing to become price takers and find resources to guide your pricing decisions.

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The elephant in the room

Price is the elephant in the room of specialty coffee. It’s a mammoth. The recent market rally pushed up the price of all green but especially that of coffees under 85 points, which indicates that such qualities are tightly priced according to the c-market. Even if they are priced above the c, it doesn’t mean that the price always covers the costs of production.


Why are these coffees priced so tightly to begin with? Spoiler alert: it’s not just about the cup quality. The main reason is power dynamics. In the coffee market as a whole, buyers have too much bargaining power and can push producers to sell at their lowest possible price if they want to sell at all.  



This imbalance distorts the perceived value of coffee and creates a vicious circle. Buyers think this is how much the coffee costs and therefore that’s how much they should pay, deeming everything else above that as expensive. Sellers think it’s how much the market is willing to pay and therefore how much they should ask for, keeping prices low in the long-term and ultimately benefiting buyers.  

Roasters are targeting the power imbalance in the value chain (Photo: Drip Roasters)

Elisa Dot Botch, owner of DONA Coffee (left), and Holly Kragiopoulos, co-founder of North Star Coffee Roasters in the (Photos: DONA Coffee; North Star)

Acknowledging the buyer’s privilege

It’s no wonder that the majority of conscientious roasters out there don’t necessarily have a pricing model as such but rather choose to target the power imbalance in their sourcing model. “I would never negotiate the prices they [producers] are asking us for their coffee because I trust those prices reflect how they are going to support their business and their communities and make it a sustainable business”, says Elisa Dot Botch, owner of DONA Coffee in Switzerland.

Holly Kragiopoulos, co-founder and director of North Star Coffee Roasters in Leeds, has a similar approach. As she explains it, this perspective is centred “around the knowledge that we as coffee roasters and consumers hold the most privilege in this supply chain.” For her, “this means that our pricing strategy is based on the price that is requested by our supply partners based on the quality of the coffee we are buying and the costs involved in the production”.

Drip Roasters in Switzerland not only takes prices but also refers to Fairtrade Premium as the absolute minimum that they will guarantee to pay as a reference point. With a focus on direct relationships and returning as much profit as possible to producers, they also take prices requested by sellers. 

“Although we don't use labels at all, we use the Fairtrade minimum for washed arabica plus the Fairtrade premium as the absolute minimum price we consider paying, though it's usually a lot more, of course”, says the owner Fabian Schmid.

The roaster adds that Drip makes offers above the asking price in certain situations. "Usually, having bought a coffee before and buying it again the following year is a good time for us to think about the price and to decide if we could or should perhaps add something on top."

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Quality as a compass

As roasters and producers move further into the direct relationship route, another issue comes up. Though we know that producers have been price takers for generations, they have also always been active negotiators. Specialty roasters, on the other hand, are not. One reason for this is the fact that roasters are used to buying on the spot market, where they take the prices of an offer list. The other is the hope to be doing right by the seller by respecting a price they assume to be what sellers need to be sustainable. 

“I think many roasters are like this, especially when talking about a price from a producer (versus a price from a trader). However, I would also expect that if they don't think the price matches the quality, they would also just say no rather than going in for a negotiation”, suggests Tom Booth, Algrano’s sales manager for the UK. “It's important that producers realise that many roasters take the price at face value and give it a yes or a no.”

What Tom indicates is that though roasters are willing to take prices from producers, reversing the generational price-taking role imposed on sellers by the wider market, there is an expectation of price per quality. Currently, where buying models are not formalised by roasters, the price-for-quality approach is the closest mechanism used to guide purchases and is backed by data from the Specialty Coffee Transaction Guide.

The price-for-quality approach is the closest mechanism used to guide purchases (Photo: Algrano)

Fabian, Drip Roasters' owner, visiting Bean Voyage partners Maria and Arleen in Costa Rica (Photo: Drip Roasters)

“It just seems natural that the price is being set by the people/company who sell a product", says Fabian (Photo: Algrano)

The new price takers?

The irony of roasters becoming price takers can hardly pass unnoticed. When asked why he prefers to accept asking prices rather than developing a personal framework, Fabian responds that “it just seems natural that the price is being set by the people/company who sell a product (producer) and not by their customers (us)”. 

Fabian compares farmers and roasters, adding that “we are the ones who set the prices for the roasted coffee we sell to our customers or for the flat whites we make at our café”. So why wouldn’t producers have the right to set their own prices? “Of course, we set them to what we believe are fair prices taking into account all the costs involved as well as the market we're in. And we expect the producers to do the same when they set a price for their coffee. If we don't think the price is fair, we don't have to buy their coffee,” the roaster concludes.

This is why many roasters like Fabian prefer to not negotiate prices with farmers, even when they want to understand how they reached a number. “We like to talk about the prices and what's behind, e.g. to know which portion of a price is used for transport, taxes and other expenses etc. so we understand the pricing,” Fabian explains. “If someone drastically raises their prices compared to the previous year, we want to know the reasons and if they would raise a price by a lot without providing any reasons, we would negotiate or ultimately decide not to buy that coffee. But so far, when prices were going up, there were always reasonable explanations.”

As Drip’s approach reveals, there are tools available to help roasters navigate the pricing conundrum even when roasters don’t (yet) feel comfortable defining a pricing model. Below is a shortlist, in no way exhaustive, of resources and tools to support your roastery as you inform your pricing decisions. 

Consider this: sourcing strategy

Before delving into the pricing of green, you should visit your mission as a company. How roasters source coffee and determine prices should be informed by the mission of the organisation. North Star Coffee Roasters, for example, has an approach to pricing that is closely aligned with their sourcing strategy: prioritising micro-entrepreneurs, taking responsibility to learn, and building long-lasting relationships that are dependable and fully collaborative. This philosophy, in turn, informs their take on pricing models: trust the prices requested by the partners independent of the c-market. 

How you want to build your supply chain can also inform your pricing. You may build long-term relationships with producers to support the sustainability of the farm businesses and to agree on fixed (or relatively less volatile) prices. “As a small business, price stability is important to us so we prioritise long term partnerships where possible in the hope that forward contracting and increasing the volume of the coffee we are able to buy can help pricing to become consistent,” says Holly. 

According to the green buyer, sourcing strategies like this can help companies stand out amongst their competitors. “I think our sourcing approach has helped us immensely in being able to build some really engaged partnerships”, she starts. “Not only has it helped us access some fantastic coffees, but it has also helped us build a real community amongst our wholesale customers who become united around these partnerships and the people involved. Our customer retention is pretty fantastic and I think it is not only down to the service we offer but also to the value we can add to their experience of coffee,” she adds.

Top questions to answer when building a sourcing strategy
  • How impactful will our purchase be here to the producer and farmworkers?
  • If farmworkers are employed during the harvest season, how is their well-being taken into account in any accommodation/meals provided, and in their working conditions?
  • Are principles of agroforestry used to produce coffee in an environmentally responsible manner?
  • Is there potential to grow a long term relationship, increasing our impact over time?
  • What are the most pressing needs/issues for this producer?
  • How can we best support?
  • Will the coffee fill a certain gap on our offer list either through flavour profile or impact area?
  • Does the coffee have the potential to delight our customers?
  • What will this partnership contribute to the outcomes we are striving for?

Tools to inform your pricing strategy

Economics of the Coffee Supply Chain

Specialty Coffee Association’s illustrative outlook on the Economics of the Coffee Supply Chain provides an overview of the breakdown of coffee prices. It is based on its benchmarking study from 2017 and provides a bird’s-eye view of the costs incurred at different levels of the supply chain. This outlook can provide a benchmark as you build up a retail price for your coffee based on proposed farmgate prices, or vice versa to inform your green coffee prices. 

Specialty Coffee Transaction Guide

The Specialty Coffee Transaction Guide (SCTG) is an annual report that analyses over 50,000 coffee contracts of roughly 100 coffee importers, exporters and roasters globally to set benchmarks for differentiated coffees. The report maps specialty coffee prices for different qualities and volumes across varying producing countries. With three years of data, it helps buyers and producers in price discovery. It is important to note, however, that the tool currently provides price data at the FOB level. 

Tip

Download the 2021 report and calculate the median price for a given quality and volume. Check the median price for the score and volume you want to buy in Table 5 and add or subtract the FOB difference per country as seen in Figure 7. The result will give you a good reference point for the industry as a whole. 

Cost of production studies

In 2019, Caravela Coffee published a report on the costs of production across 7 Latin American countries. In their report, they established a hypothetical model to calculate the average costs of production for each of the seven countries: farm size of 3 hectares, same technology, yield, etc. Based on their calculation, the costs of production for Ecuador, for example, were USD 2.04/lb. For Mexico, it was USD 1.07/lb green equivalent (farm gate costs of production). 

The Coffee Institute of Costa Rica (ICAFE) also publishes the average costs of production per farm in Costa Rica annually. Their report divides farms into three groups (low, medium and highly productive) to compare costs. The institute also provides detailed data on costs of renovation and processing. 

Other resources on costs of production



Living income index

While it seems like a straightforward concept to understand in theory, diversity in living conditions, infrastructure, and other social norms and cultures make living income one of the most challenging indexes to establish. In their recent publication “Verified Living Income”, Cladwell et al., elucidated the challenges in data availability and collection, especially regarding the “challenging nature” of labour and long-term investment in coffee plants to be taken into costs of production.

There are a handful of initiatives on living income, from Fairtrade to Rainforest Alliance applying the methodology to their initiatives. The Living Income Community of Practice’s and especially its Resource page comes in handy as they compile multiple sources of data and publications on one page.

The True Price of Climate-Smart Coffee paper

True pricing is a way of quantifying and monetizing sustainability. According to the Solidaridad Network, the True Price is the market price of a product plus the social and environmental costs. In their 2019 report, they analyse data from 60 smallholder coffee farmers in Cauca, Colombia, to understand the real costs and benefits of climate-smart agricultural (CSA) techniques. 

Sustain Coffee’s resources library


Sustain Coffee is an online resource library for the specialty coffee industry. Founded by Will Garde, the library is categorized under environmental and social topics such as climate change, water management, soil management, policy and certifications as well as gender equity. It gathers academic papers and industry-level publications, not to mention various tools such as the Business Carbon Footprint Calculator.

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. Bean Voyage is the Grand Prize Winner of the Facebook Social Entrepreneurship Award 2018, UN Youth Report's 50 Gaming Changing Plan and also Emma Watson's Gender Equality Scholarship.

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. Previously, she led organisations working on youth empowerment, early childhood education, and human rights. She holds an MSc in Public Policy and a B.A. in Economics.

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