WHAT'S GOING ON IN ETHIOPIA?
We are not going to tell you that everything is hunky-dory in Ethiopia, that everything is perfect, that the coffee farmers are happy, or that the future is bright, because that is certainly not true. While there have been improvements in the humanitarian situation caused by the war, the economic and climatic situation is only getting worse. Temperatures are rising and rainfall is falling in a pattern that could lead to a 25% drop in production by 2030, and inflation is hitting hard, reaching 34% per annum last December.
For a coffee importer, (I think we all share the same opinion) Ethiopia is the most challenging origin, but at the same time the most rewarding in terms of travel experience and coffee quality. Quality is part of the establishment, from a genetic and terroir perspective Ethiopia is always expected to have unique, complex and intense cup profiles, but there are problems related to human intervention that do not allow these high expectations to be realised.
Our industry often forgets how important small farmers are to the work we all do every day. We can verify this every time we meet at events like the last World of Coffee in Milan, where the focus is mostly on competitions, machinery, influencers, but apparently no one realizes that without small coffee growers none of this would be possible, and they keep being ignored as they have been for 400 years.
The current times are stormy, for no one in the world it should be a mystery that climate change is affecting our lives in a radical way. To no one either, it should be a mystery that inflation is hitting the pockets of the world's poorest people, and this particularly impacts coffee farmers who, despite record coffee prices, have not seen their income levels improve. Finally, due to the war in Ukraine, the shortage of fertilizers could cause a deficit of almost 20% in coffee production in 2022, in addition to the food crisis that it is already affecting various parts of Africa.
ETHIOPIA: Origin update 2022
Coffee is a biennial cycle crop, which means that coffee trees have high productivity in one harvest and low production in the next, due to the plant's need for recomposition. This phenomenon has a greater influence on coffee of the Arabica species, and a greater economic impact on those origins that have only one harvest a year, as is the case in Ethiopia.
During the 2022 harvest in Ethiopia, production was affected by a negative biennial cycle, where flowering decreased due to the need of the plant to recompose itself after a very productive period last harvest 2021.
Things are changing for the better in Kenya, the average price of coffee cherries has increased from USD 0.45 per kg of cherry in 2016/2017 to USD 0.80 per kg of cherry in the year 2020/2021, a 78% grow! But what has happened in the year 2021/2022?
According to information from the Nairobi Coffee Exchange (NCI), coffee production increased by 64% in the 2021/2022 harvest, compared to the previous year, and income increased by 90% in the same period. This is the result of a lower supply to the global market, because in Brazil, the harsh weather conditions caused up to 20% of the entire harvest to be lost in the last season. And in Ethiopia, the world's fifth largest producer, agricultural activities have been interrupted by the conflict between the government and the militia in the Tigray region.
HOW IS THIS 2022 COMING?
Uncertain! It would probably be the answer that most of us would have as a first option, but fortunately, we are seeing the light at the end of the tunnel in various aspects that disturbed us in 2021. We have divided them into three main themes and we relate them to what unite us, which is specialty coffee.
THE LOGISTIC DILEMMA
This month we have received many messages from roasters asking when the new coffees we have selected in Peru and Indonesia will be arriving to our Barcelona warehouse. And the answer is not easy to articulate.
We have recently read that due to the logistical problems that conflict the world these days, the American multinational Amazon is innovating in its logistics supply chain by reforming twin-engine aircraft to adapt them for cargo and leasing container ships to be able to fulfil their orders and avoid the traffic jams that we are seeing in all the ports of the five continents since last year.
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.
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.
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.
THE TRUE COST OF COFFEE
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.