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.
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.
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.- 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.
Environmental sustainability consists in making responsible decisions that tend to reduce the negative impact of your business on the environment. It implies defining a line of action in the interest of protecting the natural world, with particular emphasis on preserving the ability of the environment to make human life endure.
There is a simple rule in the world of environmental sustainability, and this is: "If any waste or pollution of any kind is generated, someone further down the production chain will be affected and will have to pay for it."
“In the middle of difficulty lies opportunity" - Albert Einstein
In August of the year 2018, the price of coffee reached levels considered alarming by the majority of those who work in the coffee industry. For the first time in 12 years, the "C" price in New York fell below 100cts/lb. While it is true, the average price of the last 12 years is not much higher than 120cts/lb, this decline generated unprecedented reactions in the specialty coffee world, which we think is positive.
Kenya is probably one of the most advanced producing countries, in the study and experimentation with the genetic diversity of Arabicas, and is far ahead of important countries such as Ethiopia for example.
On our last trip to Kenya we met the great "Dr. James", who works at the "Kenya Coffee Research Institute" station in Nyeri. In this place, he explained, how they are performing grafting of Ruiru 11 with SL 28, and the importance of its result for the future of the industry.
During the 1960s, to increase the food production around the world, and meet the demands of an extremely quick expanding population, it became imperative to change the methodologies of agriculture.
These initiatives were called "The Green Revolution" and involved the use of high yielding varieties, higher fertilizers dosages, intensive and mono cropping, the development of highly toxic and life damaging pesticides, among others.
We live in a world of constant change, everything happens quickly and technological advances make us live in a permanent pursuit of new knowledge.
Certainly, the specialty coffee industry has grown exponentially in the last five years. The progress we have seen and experienced in farming, processing, logistics, roasting and brewing are undeniable and certainly admirable. But is this level of growth sustainable in the long term? Are we neglecting quality to privilege the quantity?
Since time immemorial, people have always travelled and the world has always traded their products. But it is also true that global temperature never rose so fast as in the last 35 years.
If climate change will be held in a temperature increase of 2ºC or less (Aim of the Paris Agreement 2015); By 2050 it is estimated that 40% of all Carbon Dioxide (CO2) emissions will be caused by ships and airplanes only, if not properly regulated.