 A supply shock is an unexpected event that suddenly changes the supply of a product or raw material, resulting in an unforeseen change in price. Supply shocks can be negative, resulting in a decrease in supply; or positive, which produces an increase in supply; however, they are often negative. Assuming that aggregate demand does not change, a negative supply shock causes the price of a product to rise, while a positive supply shock reduces it.
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Coffee has reached record prices since 2014 this week. But how does this price increase affect coffee farmers and roasters?  What is the "C" price of coffee?
The coffee commodities market, also known as the "C" Market, is where brokers at the New York Stock Exchange determine the future price of coffee contracts globally every day. By buying or selling these futures contracts, brokers place bets on the expected future value of a certain commodity. Therefore, projections about the future supply and demand of coffee will make possible multiple variations in its price in the present. Cupping coffees without having any origin info, would be nonsense, right? We can't understand a coffee if we do not know its origin and to really know an origin, we must first try to understand its culture, read its history, listen to its music and observe the state of its political system. There's no other way.  It is the same with many other situations in life, everything is a consequence of something anterior, a reaction of a previous action. This "Newtonian" plot is everywhere, and no matter how hard we try to untangle it, hits our unsophisticated sense of perception like an apple falling on one’s head, preventing us from understanding its full scope and impact. To be or not to be ... The diversity of possible cup profiles is practically infinite, as coffee is a living product, many times we find flavours, aromas or sensations that we cannot associate with past experiences. And this is particularly true with experimental processed lots.  But from a professional and objective point of view, are all coffees with experimental processes good coffees? Not long ago I was listening on a podcast, to a "celebrity" of the specialty coffee industry, saying that the most difficult country where to work was Kenya. This seemed nonsense to me, because without a doubt, for anyone who has worked in Africa for a sufficient period of time, will say that the most difficult origin to work is undoubtedly Ethiopia, with light years of difference. And with this I am not saying that Kenya is all peaches and cream, because is not, but what I mean is that Ethiopia is too complex.  It should be noted that with this article, I do not intend to establish a cultural superiority on the part of the West to the detriment of the third world, as it is commonly called. I firmly believe that there is no culture superior to another, however they are all different, each with its positive side and its flaws. I do not agree with the kind of superiority that some feel when they come to Africa "advising" how to live, what is the best solution to problems, and even how to grow and process coffee. Africa must find its own solutions! Information is power, as they say. Long long long time ago, the purchase decision in any transaction was based on the comparison of the final price of a product (commodity) offered by several suppliers (competitors). These competitors were very reluctant to share their price lists, and clients spent long hours collecting those lists in order to have all the necessary information to make the right choice. But the world has changed, today with a single click we can compare prices of an unlimited number of products and suppliers, so price lists have become old and public, rather than a secret element of strategic negotiation. Today what is most important is the value of the product, not its price.  We work hard to add value in coffee. If your product does not make any difference from the rest of the coffees in the market, it becomes a commodity. The price of a commodity is established as the point of equilibrium of supply and demand of future contracts. Price fluctuation (that is, the movement of the supply and demand curves) is affected by such a large number of variables that they are uncontrollable. For example, if there is a frost in Brazil, Sumatran coffees rise in price; And if there is an excess of production in Brazil, Sumatran coffees will lower their price; In both cases, without the Sumatran coffee farmer having moved a single finger.
Every coffee farm in the world, even the most reputable one, will produce good, medium and bad quality beans. Therefore, separating the better, bigger and denser beans from those lighter and defective, is key to maximize the financial result of the producer.  In Kenya, after a certain lot has been processed, it will be delivered to the Marketing Agent (MA) in parchment by the producer or cooperative. The MA then, will mill and grade the lot by shape and size, and give this lot an unique "Outturn Number" (ON), before delivering a sample to the Nairobi Coffee Exchange. This ON will be crucial to provide transparency and traceability to the system. Just a few days ago, I walked into a coffee shop and bought a 250gr bag of Kenyan coffee for €20 approx. While I'm happy to pay that kind of money for a very good Kenya in a bag full of tasty promises, when I got home I found only disappointment. It is an open secret within the specialty industry, that Kenyan coffees have been in a low the last couple of years, and probably it is one of the most controversial topics right now. As you may know, Kenya is one of the most prized origins within the specialty coffee world, it is sought by importers and roasters from all over the world as an origin of outstanding quality, intense sweetness, citrus/winey acidities and velvety bodies.  We would normally cup 500+ samples from Kenya each season, between origin and lab cuppings. Maybe the right number is something closer to 1,000 samples, between February and March each year since 2016. This year the quantity was lower for obvious reasons. And while it's common knowledge among coffee connoisseurs from around the world, that there has been a disruption in the quality of this great origin, we can discuss on the causes or how much it has been affected, but I don’t think anybody that understand well the Kenyan coffee industry, can deny there is a problem.
1. What is memory?
Memory is the process through which we obtain, store, retain and access information. Human beings are capable of perceiving reality through experiences, which we classify and store. This process allow us to survive, cause if we were not able to access past experiences to decode the new ones, we would be living each day in a constant chaotic state of wonder, terror, happiness or stress. Memory in simple words, simplifies our life and balances our central nervous system. 1.- The birth of a new reality.
With this article, we begin a new series of educational content, this time focusing on one of the biggest and probably most controversial topic in the coffee industry: PRICE. All of us who work here know that our industry is in an unprecedented crisis in various fields; Ethical, Environmental, Genetics and Socioeconomic. We know that the prices we pay to coffee growers (with only few exceptions) is well below their production costs. And when we pay excellent prices for quality, for example in Kenya; we know that most of this revenue does not reach farmers, because there are so many hands, so much corruption and so much bureaucracy in the industry, that most of the benefit is lost in the darkness of a network of connections that we do not fully understand. |
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