This figure has more than likely increased because of the Covid-19 pandemic, too. A recent study from the Pew Research Centre found that 90% of US citizens said the internet was “essential” for them during the pandemic.

As a result, the coffee industry has also shifted online. It’s becoming increasingly important for producers, traders, and roasters to develop an online presence to effectively market and sell their coffees through ecommerce platforms.

To learn more about the rise of ecommerce in coffee, I spoke with Jolene Zehnder, Director of Sales and Operations at Mercon Specialty, Craig Russell, Managing Director and President of Mercon Specialty, and CEO of Bean Box, Matthew Berk. Read on to learn about how ecommerce has become more prominent across the sector.

You may also like our article on how digital marketing has evolved in the coffee industry.

What is ecommerce?

Ecommerce can be broadly defined as the buying and selling of goods over the internet. 

Today, almost anything can be purchased online, from cars to groceries to roasted coffee. In general, ecommerce markets can be:

• Business-to-business (B2B)
• Business-to-consumer (B2C)
• Consumer-to consumer (C2C)
• Consumer-to-business (C2B)

As automation has become more prevalent in everyday life for most people, consumers are increasingly more able to make purchases without the need to speak to another person. 

However, while it may seem like online marketplaces offer a more straightforward way to sell products, there are still challenges which businesses must contend with as far as ecommerce is concerned. 

Company websites must be user-friendly, otherwise customers may look elsewhere to purchase their goods. 

This means providing a quick and easy-to-use interface for buying products, as well as enough information on the product itself so that consumers can feel informed.

Jolene explains why ecommerce has become so popular in the coffee industry.

“Ecommerce suits the coffee industry in general,” she says. “Being able to order coffee online and arrange your delivery options means you can do everything you need to.

“You don’t need to have that face-to-face connection. Now, you can buy a car online and have it delivered to you,” she adds. “It’s the same with coffee, so I think we’re going to continue to see ecommerce evolve in the industry.”

Ecommerce in coffee

There’s no doubt that the coffee industry has grown exponentially over the past couple of decades. This includes the market for ecommerce.

According to sales figures from Amazon, coffee was the most popular food and beverage category in 2018. In that year, Amazon’s coffee sales alone totalled around US $140 million.

Considering this data was pre-pandemic, too, it’s more than likely that growth has skyrocketed since then. 

Altogether, this means that now, more than ever, coffee brands must be competitive when selling online. 

Roasters

Matthew Berk, along with his business partner, launched Bean Box around eight years ago in Seattle. Bean Box is a multi-roaster subscription service in the US.  

 “My co-founder and I had come from a software engineering background, and neither of us were coffee lovers.”

Although Matthew didn’t have much coffee knowledge at the outset, he tells me the data he received from Bean Box’s initial stages provided insights into how the demand for high-quality coffee was growing.

“The business didn’t grow in the way we wanted to, but we received a lot of data on which kinds of consumers purchase which kinds of coffees,” he tells me.

However, Matthew points out that entering the specialty coffee market can be daunting for new roasters and coffee producers.

“There are a lot of third wave coffee shops in Seattle, but I don’t have the same level of expertise as the people working in them,” he says. “I don’t know what all the trends are. 

“I still go into cafés where, unfortunately, I’m sometimes made to feel bad for knowing less about coffee,” he adds.

For roasters, selling coffee (as well as brewers and coffee equipment) online can help to educate less-informed consumers in a constructive way. Ecommerce platforms can provide all the necessary information about coffees – including tasting notes and roast profile – while still offering an efficient, streamlined user experience.

Traders & producers

Navigating ecommerce can be more difficult for those who are making commitments to purchase or sell larger amounts of coffee, such as traders or producers. These B2B marketplaces are often not as well-developed or prominent as B2C ecommerce platforms, with fewer options available in many cases.

However, Jolene says that green coffee buyers often feel more secure when sourcing through a dedicated platform, especially when it offers a high-quality service. 

To this end, she explains how Mercon provides samples to customers from its green coffee ecommerce platform.

“We send samples to them, so they get to taste the coffee before they purchase it,” she says. “This is so it’s not a blind guess of which coffees they’re purchasing. 

“We follow the same protocols when we send out green or roasted samples to customers,” she adds. “We can just remove the sales aspect if customers don’t want to talk with a salesperson.”

Jolene explains how automation is advantageous for both producers and traders.

“Ecommerce allows us to trade with smaller roasters,” she says. “If a roaster wants to buy one bag or one container, it equals the same amount of transaction time. If we can automate the process, we can actually sell coffee to more customers across the board.”

Why has ecommerce become so popular?

Coffee consumers are increasingly demanding convenience, and ecommerce is a great way for businesses to offer it.

For consumers, finding coffee that suits their taste preferences can be tough, especially when they are also looking for sustainably and ethically sourced beans. Ecommerce platforms allow consumers to purchase coffee more efficiently, while still ensuring they receive all the necessary information.

A large part of this is focused on traceability and transparency, as more and more consumers are keen to understand how and where coffee is grown.

The fact that more people are buying goods from the palm of their hand is also key. Statista estimates that by 2027, nearly 7.7 billion people around the world will have a smartphone – with the US, China, and India having the highest volume of users.

Essentially, the world is only becoming more and more digital. Selling coffee online is now a necessity for any roaster or trader, and it’s becoming increasingly important for some producers, too.

Impact of the pandemic

The Covid-19 pandemic also amplified this demand, as physical premises for many coffee businesses were forced to shutter. 

The British Coffee Association found that one in five British nationals increased their coffee intake during the pandemic. At the same time, social distancing measures forced around 92% of UK out-of-home coffee businesses to close their doors at some point in 2020. This means consumers had no other option but to turn to online coffee sales in the UK as well as in other countries.

Through ecommerce, roasters, traders, and producers now have more information about their customers’ preferences.

Matthew tells me how he was surprised to see how far Bean Box’s customer base expanded over the years, thanks to data from online sales.

“We started local in Seattle,” he says. “We then extended north up to Everett and Bellingham, then down to Olympia and eventually to Portland. 

“Now we have customers in California, Nevada, Arkansas, and all over the country,” he adds. “Within the first three months of operating, we were shipping coffees to all 50 states.”

Craig Russell explains that Mercon’s ecommerce platform has helped to “lower the barrier of entry for anybody who wants to roast and sell coffee”.  

He adds: “The business may or may not grow to the preferable size, but it can certainly get into the market and roast and sell coffee if they have a website and a place to mail coffee from.”

What does the future hold for coffee in ecommerce?

Online coffee sales are only going to grow as the world becomes increasingly digital. But how might ecommerce in coffee develop in particular?

Craig says that he thinks that Mercon’s platform will gradually adapt, and in time look to sell coffee online to roasters of any size. 

“There’s going to be a lot more development where coffee sales are going to become more self-service online, even for larger roasters,” he explains.

A full transition to online sales for large roasters can be a logistical minefield, especially when dealing with major volumes of green coffee. It can also be an extensive process, with payment plans negotiated accordingly.

Addressing challenges

“Bigger roasters may need to manage more of their needs online than previously,” Craig says. “Technology and apps allow roasters to track their shipments more closely.” 

Jolene adds: “One of the challenges I think we’ll face going forward is continued shipping delays.”

Over the course of the past two years, Covid-19 has massively disrupted shipping on a global scale. This came at a time when at-home coffee consumption was surging.

Altogether, this has meant that actors all across the entire supply chain, including roasters, traders, and producers, have all had to take greater care managing their stock levels.

“Ecommerce software needs to provide the most relevant information that we have on our coffee inventory,” Jolene adds. “If a coffee moves too quickly, the technology has to be able to adjust inventory levels before a customer buys the next batch of coffee.”

However, as these technologies become more advanced, they are likely to be far more accurate and efficient than any human. Eventually, purchasing green coffee will become easier and more flexible. 

Furthermore, coffee businesses based at origin may see the potential to improve their market access and reach more international customers. 

In an ever-growing digital marketplace, it’s essential for roasters, traders, and producers to remain competitive. Understanding how to successfully navigate the ecommerce sector will only serve to do so.

Ultimately, for the handful of coffee brands who haven’t already started moving towards ecommerce, it is soon likely to be more than an edge. In time, customers and consumers alike will come to expect it as standard.

Enjoyed this? Then read our article on ecommerce & coffee in China.

Photo credits: Mercon Specialty, Bean Box

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Please note: Mercon Specialty is a sponsor of Perfect Daily Grind.

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If the coffee industry is to tackle this problem, it needs to address the increasing need for long-term sustainable coffee sourcing. By doing so, we can support more socially and environmentally-friendly coffee production, as well as empowering smallholder farmers to improve their socioeconomic livelihoods and grow more climate-resilient coffee in the future.

So what exactly is long-term sustainable sourcing and how can it be achieved? To find out more, I spoke with three industry professionals sourcing Fairtrade coffee. Read on to learn more about their insight.

You may also like our article on what to consider when developing a sourcing programme.

What is long-term sustainable sourcing?

Sustainability has become something of a buzzword in the coffee sector over the past decade – so what do we actually mean when we talk about sustainable sourcing?

Green coffee buyers and roasters need to source green coffee, either from traders or directly from producers. In order to do so sustainably, a number of needs should be met that account for various social, economic, and environmental factors.

It’s estimated that smallholders produce up to 70 to 80% of the global coffee supply – making them an essential part of a sustainable coffee industry. However, many of them currently don’t earn a living income, which leaves them and their families economically vulnerable.

What’s more, despite the current high C price, the coffee market has historically been volatile. As recently as 2018, the market price fluctuated around US $1/lb – undoubtedly leading many smallholders into further poverty.

Without the financial capability to invest in farm management, some farmers are forced to abandon coffee production altogether in search of more profitable cash crops. And with climate change increasingly threatening the future of the coffee industry, safeguarding coffee production has never been so important.

As a means of doing so, a large part of sustainable coffee sourcing can be encapsulated in the concept of “relationship coffee”. This is when producers, traders, and roasters all work closely together to build strong, mutually-beneficial partnerships. 

In the long term, this can lead to working relationships that not only guarantee roasters a certain volume and level of quality, but also reassures farmers that their coffee will be purchased for a set number of years.

Amy Oroko is the Sustainability Manager for Glasgow roaster Matthew Algie, which has partnered with Fairtrade UK for the past 25 years.

“We focus on developing longer-term relationships with our core, large-volume suppliers – it’s not uncommon for us to have been working with them for at least 10 years,” she tells me.

Ultimately, the longer that producers can closely work with traders and roasters, the more open communication can be. For instance, roasters can let producers know which coffees are the most popular with consumers, while farmers can be upfront about the support they might need to keep growing these coffees.

Certifications can be a significant component of direct trade models. One example is Fairtrade, which consults with major supply chain stakeholders (including co-operatives, governments, and the private sector) when setting or revising its social, economic, and environmental standards in the coffee sector.

“Direct trade and certifications aren’t mutually exclusive, but rather an opportunity to harness the best of both worlds,” Amy says. “They allow supply chain actors to benefit from certifications and long-term relationships with producers.”

Priscilla Daniel is a senior coffee trader and Q Grader at DRWakefield. The green coffee trader was the first in the UK to receive a Fairtrade certification.

“Sustainability is integral not only to the coffee we source, but to our business as a whole,” she explains. “Certifications are an important part of that – around 30% of our coffee is Fairtrade-certified.”

Why is long-term sourcing important?

It goes without saying that there are a number of benefits to sustainable long-term coffee sourcing – including ensuring farmers receive more money for their coffee.

A large part of the Fairtrade model is focused on ensuring companies pay the Fairtrade Minimum Price and Fairtrade Premium to improve the socioeconomic livelihoods of smallholder coffee producers around the world. 

The two price models work differently. While the former guarantees a minimum price for their Fairtrade coffee during market fluctuations, the latter allows them to earn US 20 cents/lb on top of the price paid for the coffee. In turn, at least 25% of the Fairtrade Premium is invested in training and support to improve coffee quality, productivity, and sustainability.

Carlos Renato Alvarenga is the president of Cafésul, a Brazilian co-operative with more than 180 members that has been Fairtrade-certified since 2008.

“One of the pillars of the Fairtrade certification is that it guarantees the Fairtrade Minimum Price for our producers,” he says. “This can cover their production costs and also provide them with enough income to improve quality of life for them and their families.” 

Carlos goes on to explain how the Fairtrade Minimum Price guarantee works.

“The guarantee can be used whenever the market price falls below a certain value, so the buyer cannot purchase coffee below this minimum price,” he says. “This protects farmers from negative market fluctuations.

“When the market is above minimum price, producers receive market price and a premium based on the quality of the coffee,” he adds.

And with the coffee market prices fluctuating significantly over the past year or so, stabilising farmers’ income has never been as important.

“Having the Fairtrade Minimum Price guarantee in-built into your supply chain is particularly important when coffee prices are low,” Amy tells me. “Previously, some producers struggled with farm profitability. 

“The guarantee reassures that the co-operatives we work with are receiving a fairer price,” she adds. “The traceability of payments is also important.”

With more and more consumers demanding more sustainable coffee, factors like traceability and transparency are becoming increasingly necessary for roasters and traders to adhere to.

Alongside this, improving coffee quality is also an essential part of growing consumer demand.

“Further education and investment allows producers to improve coffee quality, which helps them to receive Fairtrade Premium Prices,” Priscilla explains. “Fairtrade certification can allow farmers to receive more stable income in the long term.

“Some Fairtrade-certified coffees score 87 points or higher,” she adds. “Moreover, they can be fully traced back [to the individual farmer or co-op].”

How do sustainable sourcing models work?

In order for sustainable coffee sourcing models to be effective in the long-term, all of the major industry stakeholders must benefit. When considering smallholder producers and roasters, for example, this can mean improving the socioeconomic livelihoods of the former while ensuring the latter receives high-quality, environmentally-friendly coffee.

Carlos tells me about a number of Fairtrade initiatives at Cafésul which align with sustainable sourcing.

“Our Fairtrade-certified Small Producer Organisations (OPPs) develop projects which help our smallholder farmers to increase coffee quality and yields,” he says. “OPPs provide technical assistance on how to grow more productive, climate-resilient varieties.

“The organisations also support farmers in transitioning to organic coffee production, as well as guidance on sustainable farm management techniques,” he adds.

However, it’s also important to ensure farmers and co-ops have the autonomy to invest where they see fit.

“Receiving the Fairtrade Premium price allows co-operatives to make democratic decisions on how the money is spent,” Amy tells me. “For instance, our partner co-ops spend around 25% of the Premium price on improving productivity and quality.

“The Capucas co-operative invested in new sustainable facilities, such as solar dryers and processing equipment,” she adds.

Priscilla also elaborates on how other co-ops are able to invest in quality and productivity through long-term sustainable sourcing.

“Since 2012, we have worked with Fairtrade-certified co-op Coope Tarrazú because of the quality of its coffee,” she says. “The farmers chose to invest the Fairtrade Premium on building a road which connected the farms to main roads, [so they could transport their coffee to export].”

Having access to international markets can be challenging, especially for smallholder farmers. Sustainable sourcing models, however, can help connect farmers to more markets.

“For farmers who are part of a Fairtrade-certified co-operative, the sourcing model can provide them with access to both domestic and global markets,” Carlos explains. “As they sell coffee collectively, producers can sometimes have more bargaining power [to potentially receive higher prices].”

But in order to achieve more sustainability in coffee production, social factors need to be taken into account, such as improving gender equity and supporting indigenous coffee-growing communities.

“DRWakefield works with Café Femenino which supports women coffee growers,” Priscilla says. “To be involved in the programme, the coffee needs to be Fairtrade-certified.

“We also work with Cencoic in Cauca, Colombia – an indigeneous group which is part of the Cosurca co-operative,” she adds. “We developed a programme with them which helped to improve the traceability of their coffee.”

Understanding the benefits of long-term sourcing

Despite the obvious advantages to sustainable long-term sourcing models, there are still many challenges that producers face in the coffee industry.

“One of the biggest challenges is labour,” Amy says. “Even on smaller farms, producers rely on seasonal workers for specific tasks like coffee picking.

“Furthermore, programmes like the one developed by Asocafé in Bolivia help producers deal with issues around pest and disease management,” she adds. “Fairtrade was able to source funding to increase the scale and impact of the project.”

The impact of pests and disease can be exacerbated by climate change – which is already having a detrimental impact on the coffee industry. It’s estimated that four of the top five coffee-growing countries will experience a reduction in the size of the land suitable for growing coffee by 2050.

“At Capucas, a co-operative in Western Honduras which Matthew Algie has worked with for more than ten years, producers invested their Fairtrade Premium Price on seedling development,” Amy explains. 

“This helped to cultivate new varieties which are more climate-resilient – particularly important during the recovery from damage caused by a coffee leaf rust outbreak a few years ago.”

Making sure coffee production is sustainable extends beyond the farmers, too.

“Around 100 million people are involved in smallholder coffee production,” Priscilla tells me. “Through the Fairtrade Premium Price, they are able to invest in what many of us would consider necessities, such as roads, schools, access to fresh water, and good healthcare.”

Carlos also mentions how long-term sustainable sourcing can support coffee-growing communities more widely.

“The Fairtrade Premium price of each bag of coffee that our OPPs sell is used to invest in social and environmental projects, as well as improving coffee quality and productivity,” he explains. 

“Examples of these projects include selling locally-made goods to support underprivileged communities, donating equipment to local hospitals, protecting water reserves, constructing wastewater treatment facilities, and donating school supplies to the children of co-op members.”

Finally, Amy tells me that consumers can also benefit from long-term sustainable sourcing.

“It’s important for consumers that they know where their coffee comes from,” she says. “Our commitment to sourcing Fairtrade-certified coffee also gives our suppliers confidence to continue investing in the coffee.

“[Certifications require independent] audits, which ensure that documents are correct and up to date and that farmers are following strict standards,” she adds. “It creates a powerful connection with our suppliers.”

When implemented properly, long-term sustainable sourcing models can support stakeholders across the supply chain, and improve outcomes for everyone. It also provides producers, traders, roasters, and consumers alike to set realistic expectations when they buy coffee – whether green or roasted. 

Ultimately, sustainable sourcing helps to build long-term, mutually-beneficial working relationships, which can also improve environmental efforts at origin and better support smallholder producers to earn a living income.

Enjoyed this? Then read our article on how private label roasting can drive sustainability.

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However, there is no official definition of direct trade, which leaves the model somewhat open to interpretation. There is also no specific “direct trade” certification for coffee – and as such, the definition of it can be used rather loosely in the coffee industry.

That said, a number of certification programmes in the coffee sector establish some ethical and environmental requirements that are not mandatory for direct trade, but certainly associated with them. So where does that leave us? 

To learn more about the relationship between direct trade and certifications in the coffee industry, I spoke with two coffee professionals who work with private certification initiatives. Read on to find out what they had to say.

You may also like our article on what “direct trade” really means.

What are certification programmes?

In the coffee industry, certifications are generally used to prove that a specific coffee was grown or purchased in an environmentally, socially, or financially sustainable way. 

This could mean producers adhering to specific farming practices which respect the local environment, or green coffee buyers proving that all of their lots have been purchased at or above a “fair” market rate. 

There are many certification programmes in the coffee sector. Some of the most popular include:

• Fairtrade
• USDA Organic
• 4C
• UTZ
• Rainforest Alliance

For instance, Rainforest Alliance works with more than 400,000 certified coffee producers in Latin America, Asia, and Africa, with a major focus on sustainability and climate resilience in coffee production. 

Through its certification programme, the organisation helps to train coffee producers in regenerative agriculture and climate-smart farming practices. In addition to this, Rainforest Alliance helps to connect smallholder farmers to international markets. 

However, the certification doesn’t necessarily guarantee a minimum price paid for coffee. Instead, it assists farmers in improving coffee quality and yields so that they can sustainably receive more money – improving their livelihoods in the long term.

The UTZ certification, meanwhile, was launched in 2002 before joining Rainforest Alliance in 2018. UTZ also focuses on sustainable farming practices to provide more opportunities for coffee producers around the world.

In order to receive an UTZ certification, producers need to comply with strict requirements. These include safe and healthy working conditions, environmental protection schemes, and no forced or child labour practices.

Certification programmes in direct trade

Although there is no formal certification for direct trade, certain certification programmes are often involved or found prominently when the model is used. 

This is largely because direct trade is most popular among those who both grow and buy high-quality coffee produced in transparent and traceable ways. As such, the producers growing these lots and the buyers who purchase them are often already compliant with the various requirements for a number of certifications.

In theory, direct trade also promotes clearer lines of communication between buyer and producer to shorten the distance between the two. This is a concept often referred to as “relationship coffee”, which is where roasters and coffee farmers work together and build long-term, mutually-beneficial working partnerships. 

Through this clear communication, buyers can tell farmers more about what they might need to do to meet specific certification requirements. In turn, this can open the coffee up to a wider market.

However, as it stands, there is no widespread formal certification exclusively to guarantee that a coffee has been bought through direct trade.

Exploring private certification programmes

While many of the certification programmes in today’s coffee industry are well-established, there is a growing number of private certifications in the coffee sector.

Humberto Florezi Filho is the CEO of Falcafé in Brazil – a green coffee trader which operates in more than 70 countries. The company has its own certification, Falcafé Certified, which is a private programme used to certify high-quality coffee sold through direct trade.

“One of the biggest determining reasons we created our Falcafé Certified programme was because our buyers required more transparency,” Humberto explains. “Minimising the distance between the producer and the consumer is becoming increasingly necessary for any coffee business.”

He explains that when used properly, private certification programmes can support smallholder producers to become more profitable and drive up their income.

“Falcafé Certified largely benefits smallholder producers whose coffee is the main source of income for them and their families,” he says. “These farmers are more likely to need support to be able to market their coffee [and receive fair prices].”

Humberto also points out that quality is a crucial factor, and says that private certification programmes can actually help to increase quality.

“One of the ways that we help to improve coffee quality in the regions where we operate is through our quality contests, which involve farmers in the states of São Paulo and Minas Gerais,” he tells me. 

“Throughout each year, we assess the best coffees in both regions. We are currently in the seventh year of our quality contest, and through these competitions we have achieved continuous improvements in coffee quality by encouraging farmers to implement more sustainable farming practices,” Humberto adds.

Humberto also notes that data collection and access to technology can also support producers involved in these private certification programmes.

“Falcafé Certified offers detailed technical reports on each coffee, including an analysis of the processing method and any issues that may have led to a drop in quality,” Humberto explains.

How do certification programmes benefit roasters?

Generally speaking, certification programmes have a number of simple, clear benefits for roasters. Environmental and social certifications can communicate to the roasters’ customers that a coffee has been grown in an ethical and responsible way, and therefore can access a wider market. 

Consumers are becoming more discerning than ever about the products they buy, and increasingly look for a number of labels which indicate just how sustainable a coffee is.

These certifications can also give roasters a certain amount of trust in their suppliers, giving them a good foundation on which to build a long-term trading relationship. This gives them stability, which can also benefit the producer in the long term – it may mean, for instance, that they can commit to buying a certain coffee year-on-year.

But what about private certification programmes like Falcafé Certified?

Jiwook “Henry” Kim is a green bean buyer for Coffea, a roaster and direct trade importer in South Korea. The company uses the Falcafé Certified programme to purchase coffee. He says that as well as providing sustainability, he uses it as a guarantee of a certain minimum quality level.

“When we choose a producer partner, we always visit their farm and office first before committing to buying any coffee so that we can establish a relationship,” Henry explains. “We are located far away from coffee farms, so it is important to establish trust.

“It’s about clear communication, not just selling or buying products,” he adds. “Over the past two years, Coffea won several awards from the Brazilian Specialty Coffee Association. In 2020, we won in the ‘farm’ category for our coffee from Fazenda Santa Izabel-MG.”

Connecting with producers

Bridging the gap across the supply chain is becoming an increasingly prominent topic in the coffee industry.

Humberto tells me that to this end, Falcafé’s Neighbours and Friends programme helps to connect roasters with farmers.

“Through the programme, we offer smallholder producers the opportunity to market their coffees in a more accessible way,” he says. “But our work goes even further than this.

“As part of the Neighbours and Friends programme, we assess quality based on a number of criteria, including coffee variety, farm management methods, and processing techniques,” he adds. “By doing so, we can disseminate our knowledge with other local producers, in addition to encouraging them to adopt more sustainable agricultural practices.”

Humberto explains that for a growing number of specialty coffee consumers, it is becoming more and more important to learn about the story and the farmer behind each coffee.

“We tell the story of each producer and share the value of their work by taking photos and videos of their farms,” Humberto explains. “Falcafé also shares information with each producer on where their coffee ends up, and sometimes we are able to share feedback from buyers after they have tasted the coffee.

“With this level of transparency, we can reduce the distance between roasters and producers, and help to showcase the [characteristics of Brazilian coffees], which are of particular interest to consumers especially,” Humberto adds.

Henry also reiterates the importance of information sharing between roasters and farmers.

“Communication is even more important these days; both roasters and producers are experiencing issues related to the pandemic and the impact of climate change,” he says. “For example, [because of the frost in Brazil in July 2021, Coffea took earlier measures earlier to prepare for the situation.”

When implemented effectively, certification programmes and direct trade models can have a number of benefits for producers, roasters, and consumers. Shortening the gap between stakeholders in the coffee industry allows for clearer communication and gives everyone the chance to set expectations.

And while it’s clear that direct trade has never been formalised with an industry certification in previous years, private certification schemes are stepping in to fill that gap. Whether or not they’ll become more prominent in the years ahead remains to be seen. 

Enjoyed this? Then read our article on overcoming logistical hurdles to strengthen direct trade relationships.

Photo credits: Falcafé, Coffea

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However, while it doesn’t degrade at anywhere near the same timeframe as roasted coffee, green coffee does lose quality as time wears on. This is why storing it properly is important, as it makes sure roasters can keep their green beans fresher for longer. 

But what happens when the next fresh crop arrives, and there is still some of last year’s left over? What can we do with it?

This is known as past crop coffee. As freshness becomes a growing priority in the coffee sector, it has largely been ignored by specialty coffee roasters across the world, as it doesn’t have the same complexity and nuance as in-season green coffee. 

But does it still have potential? Can it still taste good? And is there a way for roasters and producers to utilise it while still offering high-quality coffee that consumers will reliably enjoy? To answer these questions, I spoke to two coffee industry experts. Read on to find out what they said.

You may also like our article on growing sustainability in the coffee supply chain.

What is past crop coffee?

Joe Marrocco is VP of Coffee Sourcing and Product Development at FairWave Coffee Collective. He explains that technically, coffee can be defined as a past crop as soon as the fresh crop becomes available. 

For example, if an importer receives an Ethiopia Yirgacheffe coffee in their inventory in April 2020, this coffee would be considered a fresh crop until April 2021 when the next year’s harvest lands. The Ethiopia Yirgacheffe that was received in April 2020 would then be considered a “past crop” coffee.

However, Joe adds that many roasters may mistakenly refer to a coffee as past crop simply because it is “past its prime” and presenting aged flavours.

“There can be a big communication breakdown when it comes to determining what is past crop and what is fresh crop,” he explains.

It’s therefore important for roasters to be mindful of harvest dates listed on importers’ offerings sheets. Furthermore, they need to have an understanding of the seasonality of different origins, as this will indicate age more clearly.

In recent years, past crop coffees have become more and more plentiful. During the Covid-19 pandemic, delays at ports and changes to purchasing commitments meant that more coffee than ever sat in warehouses and containers for extended periods of time.

How do they taste?

In many cases, buyers shy away from past crop coffees because of the perception that their flavour changes, specifically causing a drop in quality and the emergence of undesirable flavour notes.

Most of the time, this ageing occurs because of oxidation, specifically where lipids are concerned. This changes the aroma and flavour compounds within the green bean.

However, while past crop coffees are generally associated with a decline in flavour and quality, this can vary depending on exactly how its profile has changed.

“If the coffee holds up in some ways, you might not see too big a price change,” Joe explains.

Ian Fretheim is the director of sensory analysis at Cafe Imports, a specialty coffee importer based in Minneapolis, USA. He explains that he has been conducting ongoing research on the sensory profile of past crop coffee.

Ian explains that in particular, one of the most important aspects of his research has focused on the water activity in green coffee over time. Water activity (a metric that is increasingly used over moisture level) is a measurement of how something called the “vapour pressure” in green coffee stacks up against the vapour pressure in pure water.

Effectively, it is a measurement of how much water in each green bean is “free” and available to take part in chemical activity.

“One of the big things that comes out of water activity, in terms of downside risk for specialty coffee, is that high water activity gives the beans an increased rate of lipid oxidation,” Ian explains. “The end result is that you can get a prematurely agey-tasting coffee.”

Lipid oxidation leads to the formation of chemical compounds that can cause off-flavours. According to Ian, one of the primary chemical compounds developed when the lipids in green coffee oxidise is trans-2-nonenal. This is a compound that is often associated with flavours like wood, cardboard, cucumber, and unripe melon.

While the chemical compounds that create positive flavours are still present, Ian says the addition of these “negative” or undesirable compounds is what creates an “agey” flavour. The rate at which they do so will also depend on a number of factors, such as varying water activity levels and storage.

Ian also notes that not all past crop coffees have these agey flavours. 

“We have tasted coffees from Ethiopia, Costa Rica, and Guatemala that have crossed the one-year mark and are definitely past crop, but are still cupping very well,” he says.

Roasting past crop coffee

More recently, Ian tells me his team have been looking into different roasting strategies that can be used to account for or even correct the agey flavours associated with past crop coffee. 

Among other things, he recommends that roasters learn about the various compounds that affect coffee flavour, as well as the temperatures at which these compounds boil or melt.

With this information, Ian says roasters can technically “roast out” these negative compounds. However, he notes that this may mean roasting out desirable chemical compounds, too, and says that it’s all about balance.

“There is a sweet spot,” he suggests. “It’s where you have pushed through a lot of the agey flavour, but you haven’t quite begun carbonising or burning up the coffee’s structure.” 

Ultimately, this means past crop coffees generally perform better with darker roast profiles. However, Ian says that how dark you go will depend on the coffee in question, and notes that preserving any remaining desirable flavours is important.

“You want to keep bitterness to a minimum while preserving acidity and preserving as much sugar as possible,” he suggests. “If you are a good enough roaster, you will still be able to deliver a very elegant cup of coffee.”

Past crop coffee: a fair reputation?

Generally speaking, coffees “become” past crop when they are still in the hands of exporters and importers. 

If there is a market for them, it can be advantageous for roasters catering to customers who prefer darker roasts, where those undesirable flavours will be less present. They can also be great for blending, where other coffees will help to mask any agey notes.

In addition, if the coffee itself is traceable, certified, and sustainable, it will often be a great way to buy ethically-sourced coffee at a more competitive rate. 

However, in order to help maximise the potential of past crop coffee, Joe tells me that the coffee industry must address the stigma surrounding the term. 

“I think that a lot of companies in the higher end of specialty coffee look at past crop as a dirty term,” he explains. “Past crop coffees are not inherently bad, and there are plenty of places where a past crop coffee can be very useful. I believe that a really good roaster can take a past crop coffee and make it taste excellent.”

However, for roasters who only offer light roasts, or those who wish to highlight fresh coffees at their flavour peaks, there is no quick fix for hiding these negative, agey flavour compounds without going further into the roast. 

“Maybe you’re not going to do a super light, micro lot style roast,” adds Joe. “However, you can present past crop coffees to a different audience. You can make them a lot more approachable both in roast and flavour profile, as well as in price.”

From my discussions with Joe and Ian, it’s clear that while the connotation is fair, past crop coffee doesn’t always have to taste inherently agey. 

And even if these flavours are present, there are ways to soften or eliminate them during the roasting process, meaning there’s still plenty of utility, despite the lack of freshness. 

For roasters, while they understandably may not be the first port of call, past crop lots can be an affordable way to find a new blender coffee or a high-scoring dark roast. Either way, you’ll never know until you try.

Enjoyed this? Then read our article on how to protect green coffee from excessive water activity.

Photo credits: Cafe Imports

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This state of emergency saw the introduction of roadblocks, curfews, heightened security checks, and militarised takeovers in certain parts of the country. But what does this mean for the country’s coffee sector?

If civil war in Ethiopia worsens, continued disruption understandably has the potential to significantly affect the country’s coffee industry. Furthermore, considering that coffee accounts for over 30% of the country’s total exports, any disturbance to the supply chain could be detrimental to Ethiopia’s overall income.

To learn more about how the conflict might affect the country’s coffee industry, I spoke to three coffee professionals – two of which are based in Addis Ababa. Read on to find out more.

You may also like our article on how Covid-19 has affected Ethiopian coffee.

Why is there a civil war in Ethiopia?

Civil war in Ethiopia has been ongoing for over a year, but what are its root causes?

The situation is complex, but the war stems from tension between current running Prime Minister Abiy Ahmed and the Tigray People’s Liberation Front (TPLF). On 6 May 2021, the Ethiopian government designated the TPLF as a terrorist organisation.

The TPLF, meanwhile, identifies as a left-wing armed liberation movement, representing the Tigrayan people and the centuries of marginalisation they have experienced at the hands of previous governments. It is not globally recognised as a terrorist organisation (by countries such as the US for instance).

After defeating the country’s Marxist government in 1991, the TPLF formed a coalition and ruled the country for over 20 years. However, when Abiy Ahmed took office in 2018, his party attempted to defund the TPLF. This caused the group to retreat to the northern region of Tigray.

Tensions reached boiling point between the TPLF and Abiy Ahmed’s government in September 2020. After national elections were cancelled due to Covid-19, the TPLF requested that the National Election Board of Ethiopia organise a regional election for Tigray, but this was denied.

The Tigray region defied these orders and held the election anyway, further straining the relationship between the TPLF and the government. 

In November 2020, it was reported that the TPLF attacked a federal military base. This was the first of many ongoing attacks between the two parties.

The majority of the conflict has been taking place in the Tigray region, which has been catastrophic for the region’s population.

Cydney Ross is the Ethiopia Country Manager for green coffee trader Tropiq.

“The conflict has displaced an estimated 2.2 million people in Ethiopia,” she says. “Many have fled to refugee camps within Ethiopia and in neighbouring countries.”

In mid-November 2021, the BBC reported that at least 400,000 people were threatened by famine in Tigray. This number has likely increased as the civil unrest has continued.

Will Corby is the Head of Coffee for Pact Coffee, a roaster based in London, UK.

“There are reports of people who are of Tigrayan descent being rounded up across the country and disappearing overnight, which is a very worrying situation,” he says.

In addition to this, there has been evidence of unlawful killings, sexual violence, and torture from both the TPLF and the Ethiopian government’s militia – leaving parts of the Tigray region in turmoil. 

Lawyers representing Tigrayan citizens have also filed complaints of human rights violations against the Ethiopian government. In response, for the first time ever, the African Union’s human rights commission has said it will investigate the Ethiopian military.

And while Abiy Ahmed made statements in early February about peacefully resolving the conflict, progress seems to have been somewhat stifled.

In recent months, reports of the conflict spilling over into the neighbouring northeastern Afar and northwestern Amhara regions are becoming more common. Furthermore, a number of violent attacks on Eritrean refugees took place in late February.

Is the civil war affecting production and exports?

There’s no doubt that the current situation affects the safety of the Ethiopian people. However, it is also potentially disastrous for Ethiopia’s economy.

On 2 November 2021, US President Joe Biden ordered that Ethiopia be removed from the African Growth and Opportunity Act (AGOA) after rising reports of conflict.

“This is usually the first sign that a nation is putting pressure on a country to prevent or slow down conflict, and move towards negotiations or resolutions,” Will explains.

While removal from the AGOA has no adverse impact on exports from Ethiopia to the USA, any potential limitations on Ethiopia’s trade systems could have an impact on its coffee industry.

“Coffee is the biggest driver of foreign currency in Ethiopia,” Cydney tells me. “The war has been expensive and the country needs foreign currency to sustain its economic growth.”

However, Cydney notes that at present, the civil war has had little effect on both production and exports – mainly for geographical reasons.

“The majority of the conflict is in the north of the country, and fortunately most of the coffee-growing areas are in the southwest,” she says. 

Kenean Dukamo is the export manager for Ethiopian green coffee producer and exporter Daye Bensa. He confirms that the conflict has not yet affected the process of harvesting coffee.

“Daye Bensa focuses mainly on the Sidamo region,” Kenean says. “The coffee harvest took place as normal there.”

However, Cydney highlights that restrictions from the government’s declared state of emergency have slowed down the supply chain. She says that this has led to shortages for some exporters, the effects of which won’t be realised further down the supply chain for some time.

Cydney says: “As coffee is often harvested in the morning, aggregated in the afternoon, and delivered at night, the 8pm curfew in the Oromia region made it nearly impossible for trucks delivering cherries to make it to stations.

“Even though these restrictions were eventually lifted, we are still forecasting a shortage of washed coffees because of the curfew.”

Furthermore, financial restrictions imposed by the government have been making life significantly harder for not just coffee producers, but the entire population.

In December 2021, the country’s inflation rate rose to the highest level seen in a decade – a staggering 35%. This naturally led to food costs increasing by some 41.6%, including meat, fish, vegetables, and coffee.

“The increased cost of living is one of the reasons why the cherry price significantly jumped this year,” Cydney says. “There has been a 70% to 100% increase in the price of cherry per kilogram.”

Higher prices, as well as national banks imposing daily withdrawal limits and freezing collateral-based loans, made it extremely difficult for some producers to trade coffee.

Furthermore, from late November until early January, many exporters had no access to their loans. Typically, during this period, most washed coffee is harvested and then processed.

Because loan access was restricted, a huge amount of coffee was not harvested, and stayed on the trees or was subsequently converted from washed to natural out of necessity. The estimates are that this could decrease the overall quality of Ethiopian washed coffee for this harvest.

“As a result, you need a lot of cash in order to purchase cherries, and producers often rely on financing from banks to produce coffee,” Kenean adds. “The Ethiopian government lifted restrictions on freezing loans for bigger exporters and producer organisations, but there are still some limitations. It’s not as flexible as it used to be.”

Exporters have also faced a number of other, more recent issues. In January, a new directive from the Ethiopian government drastically reduced the amount of foreign currency exporters could use from export sales. Instead of 50%, exporters can now only use 20% to 25% of their foreign currency, making it impossible to ship for contracts that they had signed back In November and December.

In addition, regulation from the National Bank of Ethiopia has forced many exporters to mix lower-grade coffee into higher-grade contracts to limit losses.

Could coffee exports be affected in the future?

Despite the escalating conflict in Ethiopia, coffee exports are continuing as normal thus far. Bloomberg reported in November 2021 that exports amounted to 86,000 tonnes during the three months to October. This was a 77% increase on estimates from the Ethiopia Tea and Coffee Authority.

“We received the latest six-month report from the Ethiopian Coffee and Tea Authority stating exports amounted to 150,000 tonnes over the past six months,” Kenean tells me. “This has generated over US $600 million.”

However, it’s unknown whether there could be long-term repercussions for Ethiopia’s coffee industry. Previous examples of civil unrest in other coffee-producing countries have seen a ripple effect that was felt more in the medium and long-term.

For example, in April 2021, a planned tax reform in Colombia led to a series of protests that caused several road and port blockages throughout May and June. The protests occurred during the middle of the country’s coffee harvest, leaving some producers holding coffee on farms for up to two months.

Furthermore, research on the ongoing conflict in Burundi found that exposure to “individual-level violence” resulted in lower coffee production volumes. 

Since gaining independence in 1962, Burundi has been prone to civil unrest – resulting in at least over a million people being displaced and hundreds of thousands of deaths.

A study published in the African Journal of Agricultural and Resource Economics concluded that Burundian households which experienced conflict violence were up to 18% less likely to grow coffee. This was the case even as long as four years after the conflict had taken place.

“If there is a shortage of Ethiopian coffees, or a disruption to the supply chain, there would certainly be increased coffee prices all across the supply chain,” Cydney tells me.

However, it’s important to note that the civil unrest in Ethiopia is a uniquely complex situation. This makes it difficult to predict its effects on the country’s coffee industry and the wider market.

For now, the immediate economic impact of the civil war continues to be the most noticeable.

“It was nearly impossible for co-operatives and smaller exporters to access bank loans this season,” Cydney explains. “There is simply not enough cash available to support all the players in the coffee export market.

“It will be difficult for commercial coffee exporters to remain competitive in the global market this year.”

Supporting Ethiopia during the conflict

For roasters and green coffee buyers, navigating how to support Ethiopian coffee farmers can be challenging.

“When reports of war crimes in the Tigray region were emerging, I approached Pact’s board and expressed my concerns over our existing commitments to purchase Ethiopian coffee,” Will says.

“From my position, I didn’t feel like it was the best thing to do at the time,” he continues. “I was concerned that the income generated from coffee sales could be used by the government to fund the ongoing conflict.”

The BBC reported in August 2021 that Ethiopia’s military expenditure would hit over US $500 million by the end of the year. It’s safe to assume that this figure will steadily increase as the conflict continues.

However, Will also notes that there would be negative consequences for producers if green coffee buyers were to cancel their purchases.

“There are millions of people who rely on coffee for their income, so to retract all purchases of Ethiopian coffee would be exceptionally damaging to these people and the country’s economy as a whole.

“Unlike most coffee-producing countries we work with, Pact doesn’t have fixed long-term relationships with specific Ethiopian farmers,” he tells me. “However, for roasters who do, it can be challenging.”

Cydney emphasises that continuing to purchase Ethiopian coffee is vital to keep the industry moving forward.

“Coffee supports the livelihoods of approximately 25 million people in Ethiopia and any decline in market demand could potentially lead to an economic recession or even higher inflation,” she says.

The conflict in Ethiopia is a continuing source of major uncertainty for the entire country, not just its coffee sector. However, considering coffee exports are a key component of the Ethiopian economy, it’s important that the wider coffee industry continues to raise awareness and show its support.

If you work directly with a partner in Ethiopia, the best thing to do is ask whether or not the conflict is affecting them. If it is, ask how you can help. It may be as simple as a little more patience at a difficult time, but it can go a long way.

Enjoyed this? Then read our article analysing the impact of the Colombian civil unrest on the country’s coffee sector.

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The trade of green coffee between producing countries is nothing new. It’s an interesting phenomenon which accounts for everything from internal demand to specific industry needs. But few import quite as much as Ecuador. Why?

I spoke with two regional coffee experts to get a better idea of why Ecuador imports so much green coffee, what is being done with it, and what this means for the country’s coffee industry and its producers. Read on to learn more.

You may also like our article exploring Ecuador’s specialty coffee scene.

An overview of Ecuador’s coffee industry

In 2019/20, Ecuador produced roughly 500,000 60kg bags of coffee, representing only a slight decrease in production from 2018/19. 

However, its import and export figures are far more significant. For instance, from October 2020 to February 2021 alone, Ecuador exported roughly 198,000 60kg bags of coffee. In the 2018/19 crop year, it re-exported 572,000 60kg bags of soluble coffee, mostly to Germany and Russia.

Tomas Bodniza is a coffee quality technician from Ecuador. He explains that most of these re-exports are soluble coffee, which is a profitable opportunity for Ecuadorian brands.

He explains that Ecuador mainly grows coffee in the highlands of the Andes, but production is by no means limited to the mountains. 

“Ecuador produces coffee mainly across four regions,” he explains. “The Sierra is the one region that mainly focuses on producing specialty coffees, including Typica, Caturra, Bourbon, Typica Mejorado, and even SL-28.”

Meanwhile, he says, the Amazon and coastal regions are better known for robusta, especially in the areas of Los Rios, Santo Domingo de Los Tsachilas, Sucumbios, and Orellana.

He adds: “In Ecuador, you also have low-altitude arabica in Manabí, which is on the Ecuadorian coast, and Morona Santiago in the Amazons.”

These regions are occupied by some 75,000 coffee producers, who altogether cultivate 85,000ha of arabica and 110,000ha of robusta. 

Ecuadorian specialty coffee is often characterised by its moderate acidity, juicy body, and notes of citrus. However, Tomas says that commercial and soluble coffee are understandably much bigger businesses. 

“The market for soluble is much bigger than anything else,” he says. “Ecuadorian coffee is particularly present in Russia, which is a significant buyer of our soluble coffee.”

Production vs importing

Throughout Ecuador’s history, coffee prices have historically not been favourable for coffee farmers. Low profitability, other more appealing crops, and high costs of production have led to a decrease in production. Just ten years ago, in 2012, Ecuadorian production volumes were significantly higher – closer to 650,000 60kg bags.

Things only worsened when the Ecuadorian economy was dollarised in the early 2000s. The country’s ties to the economy of the US have meant that goods prices and wages have increased. This means the cost of labour has become more expensive for coffee farms.

“Depending on the area, the cost of labour can be around US $20 per day per coffee collector,” explains Tomas.

In turn, this means that Ecuadorian coffee is more expensive for traders and roasters to buy, without the reputation for quality that many other origins enjoy. As such, many Ecuadorian coffee producers struggle to be competitive in the international market.

This is one reason why many coffee professionals in Ecuador have instead started to import green coffee to resolve supply issues.

Miguel Rendón Fontaine is the CEO of Escoffee. He agrees with Tomas, and says that dollarisation has had an adverse effect on the country’s coffee industry.

“Unlike other Latin American producing countries, our dollarised economy naturally caused a big increase in the price of goods and services, such as harvest labour costs.

“Because of this, many producers need to have a strong focus on quality to match the high costs that will be associated with producing these coffees.”

This isn’t the only issue that Ecuadorian coffee production faces, however. There is also a growing generational gap – something which is increasingly affecting many coffee producing countries around the world.

The average age of a coffee producer sits around 60 years old, and younger generations are not succeeding them. Many young Ecuadorians choose to opt out of the coffee sector entirely in favour of other more profitable industries, or to leave the country altogether to work overseas. 

This means knowledge about coffee production is becoming rarer and rarer in Ecuador.

Finally, Tomas says that for many, it’s simply a question of opportunity. “The cost to import green coffee is significantly lower than growing high-quality coffee here in Ecuador,” he says.

Ultimately, these factors altogether mean that importing and re-exporting green coffee has become incredibly attractive over the past few years. 

In nearly all cases, this large-scale business model is made profitable through the processing of green coffee into soluble coffee. But why is this so popular in Ecuador specifically? And how is it done?

Rebranding imported coffee

Much of the coffee Ecuador imports is processed into soluble coffee and re-exported elsewhere around the world to major consuming countries. But how is this achieved?

Well, in 2007, Ecuador passed “Regimen 21”, which allows for the temporary admission of raw products for “inward processing”. 

For the coffee industry, this means companies are able to import green coffee from elsewhere on the condition that they will be processed into another product (i.e. soluble coffee) and then exported.

As well as being cheaper to import than to grow, this process is also incredibly efficient, and there is plenty of international demand.

“Regimen 21 allows importing under a figure in which the product enters the country for improvement,” explains Tomas. “This is the transformation and re-export of the transformed product.”

He adds that as far as he knows, the soluble coffee industry is the only industry using this law to its advantage.

“It has allowed the industry to be even more competitive,” he says. “It means they make huge savings in taxes when importing.

“It also grows their market, too. This way, Ecuadorian coffee companies can attract clients who produce lower-quality coffee from other Latin American origins. They then transform their coffee and then re-export it. 

“This ultimately creates a service, rather than a product: Ecuadorian coffee brands transform coffee and make it soluble.”

Miguel also explains that part of this process is effectively a “rebranding”. Regimen 21 allows products that enter from elsewhere to be exported and labelled as Ecuadorian, provided some form of inward processing takes place in the country itself.

As a result, he tells me that the majority of the green coffee imported into Ecuador is from Vietnam, Brazil, and Colombia. 

“In turn, these coffees are processed as soluble coffees and then re-exported as a nationally branded instant coffee from Ecuador,” he adds.

Issues with this model

While this might seem like an excellent opportunity for coffee companies, experts have posited some drawbacks. Firstly, Tomas says there has been a decline in the productivity of the domestic coffee sector.

“It puts some producers at a disadvantage,” he explains. “Especially those who are focused on producing high-quality coffees.”

There is also the issue of Ecuador’s reputation as a coffee producer, too. While the country’s production volumes have declined since dollarisation in the 2000s, there is still scope for it to recover in the future if there is a major economic shift.

However, there is the argument that exporting lower-quality non-Ecuadorian coffee which has been relabelled could lead to negative connotations about quality. This could be a barrier for the country’s coffee production sector in the future.

Coffee producing countries trade green coffee for a number of reasons. However, Ecuador’s case, thanks in no small part to its huge soluble market and Regimen 21, is clearly unique.

For those in the Ecuadorian coffee industry who are struggling to profit because of the high cost of production, it makes perfect sense to look elsewhere for a new source of income. The processing of green coffee into soluble instant seems to be the current solution, but time will tell whether this has an irreversible effect on the country’s wider coffee industry.

Enjoyed this? Then read our article on five reasons why specialty coffee is taking off in Ecuador.

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Alongside the restrictions posed by the pandemic, shipping prices are now increasing, and there is a lack of workers at various crucial stages. This has led to rising costs and delayed shipments for actors all across the sector – from traders to roasters and more.

To learn more, I spoke to two industry experts at Ally Coffee: Danilo Vitor and Ricardo Pereira. They told me about how the logistical issues in the coffee sector have affected their company and those they work closely with. Read on to learn more.

You might also like this article on coffee tasting exercises that will improve your palate.

How is coffee shipped?

After coffee has been harvested, processed, dried, milled, graded, and stored, it is then considered ready to transport.

The beans are loaded into shipping containers, transported to the port, and loaded into a container on a cargo ship.

Once these ships arrive at their destination, the containers are unloaded. The coffee then makes its way to warehouses where it waits to be sold on to roasters.

This process takes weeks to months, and throughout it, the entire supply chain relies on a number of logistics professionals. 

These people orchestrate the ins and outs of everything – from container hire and shipping to road transport and loading goods – to make sure the coffee gets where it needs to on time.

So, what are the current challenges?

Danilo Vitor is the Logistics Manager at Ally Coffee, a specialty coffee importer headquartered in South Carolina, USA. He tells me that these issues have been brewing for some time – as far back as the beginning of the pandemic.

“It started at the beginning of the pandemic, when people were demanding a lot of goods,” Danilo says. “When people heard about Covid-19, people went to the supermarket and bought everything en masse, causing sales ratios to surge before businesses liquidated inventories.

“Then, industries started closing because of the virus. But, as the economy recovered and demand increased, businesses were not able to bring inventories fully back to pre-pandemic levels, causing inventory ratios to fall and a wide supply chain disruption.”

Alongside the medium and long-term effects of the pandemic, there was also the impact of Ever Given: a ship which blocked the Suez Canal for six days and halted a huge portion of global trade.

Danilo says that altogether, these factors have disrupted the status quo of the coffee supply chain.

“Logistics works in a specific way, especially for the coffee sector,” he explains. “Over the last 20 years, you could expect a shipment to arrive at a certain time, and it would.”

But Covid-19 has had another, more specific impact other than simply slowing shipment times and causing unusual spikes and falls in supply and demand.

Danilo explains that around the world, governments supported their citizens to stay at home through the pandemic to reduce the spread of Covid-19.

This meant that many workers in global logistics either stopped working or worked under restrictions which minimised their capacity to move goods. 

This worker shortage is still going on, and is another obstacle to overcome if we are to repair the logistics of the coffee supply chain. For instance, Danilo says that because of a lack of drivers, containers are still left to sit at ports today.

How does this affect the coffee sector?

With a shortage of workers, spikes in demand, and related delays, the shipping containers that would regularly be in circulation are now “falling behind”. This means that they are often not available for fresh shipments of green coffee when they should be.

The difficulties in finding space to store and handle goods, which includes the shortage of readily available shipping containers, means that cargo space is becoming more and more costly.

Danilo says: “As the containers aren’t returning to their origin, this means that when you do find space on a cargo ship, there often isn’t a container available. The whole situation has meant companies have started to increase freight costs. 

“Before, we used to pay US $1,600 for ocean freight from Santos, Brazil to New York, USA. Now the same route is about US $7,000 to $10,000.”

He also adds that for coffee in particular, the odds can be stacked against traders and exporters.

“Coffee is not attractive to shipping lines because it’s a heavy commodity,” Danilo explains. “It takes more fuel to move heavy stuff, which costs more money. In comparison to electronics, which are lighter, it isn’t as cost-effective for shipping companies to move our goods.”

This means that in many cases coffee producers have been unable to move their harvest out of the country. In turn, this means importers are unable to meet the regular demand for coffee they had expected.

In addition, there appear to be no alternatives. Finding other ways of transporting coffee internationally is difficult, as the cost of air freight is even more expensive than the current inflated cost of space on a cargo ship.

How have roasters and importers adapted?

Ricardo Pereira, as well as being the COO of Ally Coffee, has years of experience in the coffee industry. 

In the face of shipment delays and surging logistics costs, Ricardo says the biggest change he’s seen has been with roasters choosing different coffees. 

Today, with no set date for when these issues will be resolved, many are being more conservative and careful with their planning, and prioritising longevity.

“The thing is, we don’t know when this is all going to end,” Ricardo says. “So, for now, it’s all about planning, securing whatever supply you can for the near future, and hoping that this will turn around next year.

By working with importers, roasters can leverage an understanding of the global coffee trade that they don’t have. This is especially pertinent during a logistics crisis like the one we currently face.

Ricardo says that throughout these logistics issues, Ally has supported their partners by providing them with expert advice. He tells me that some of their customers were initially wary, but now they realise it was key.

“I remember when this logistics nightmare started, and we began warning some of our clients,” he says. “Some people thought that we were trying to upsell. Instead, we wanted to help them protect their business from potential shortages.”

Now that these shortages are becoming more and more commonplace, Ricardo says that much of Ally’s focus has shifted to helping roaster partners plan for the future. He says the business welcomes any coffee businesses who might be unsure of their next steps.

“It’s time for roasters to look into their needs,” he says. “Be real and don’t overcompensate. Don’t overforecast. Everyone needs to look at the demand they have for the next few months, and work together with their importers to understand their needs. 

“Ask questions like: ‘what do I need to cover my bases for the next six months to a year?’ We’re always working with people asking things like that. Our focus is on doing what roasters need and taking care of them during this challenging time.”

Looking ahead at logistics in 2022

The Covid-19 pandemic has sent ripples through the global coffee sector, and some of its medium and long-term effects are still only starting to emerge. 

Logistics issues seem to be here to stay for at least the next few months, which means more difficulties for roasters and green coffee buyers to navigate.

“Specialists in logistics and freight forwarders seem to think we won’t see any big improvement until the end of 2022,” Ricardo tells me.

Danilo, meanwhile, emphasises that there is still a long road to recovery for the logistics industry following these challenges. 

He says: “Restarting the economy after a pandemic and a recession has not been and will not be simple.

“Hundreds of thousands of small and large businesses have to reopen, millions of laid-off workers have to find new employers, and manufacturers have to bring back production lines that idled during the pandemic. Such changes take time.”

Ultimately, it’s refreshing to see that this uncertainty is being met with resilience by thousands of coffee businesses around the world. 

By forging strong relationships with their partners at home and overseas, roasters, coffee shops, and traders alike are all preparing for a future beyond these issues.

Found this interesting? Read our article on how Covid-19 will affect the coffee trade in the long term.

Photo credits: Ally Coffee

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You would probably stay in the business, and would probably want to increase your sales as much as possible. 

But what if this boost in profitability was short-lived? What if your business went from moderately profitable to loss-making in the same space of time? Would you quit and move to something else? 

What if you had just begun, not yet paid off your initial investment, and had no resources or expertise to start something new? How long would you endure the loss and scarcity?

In my last article on price elasticity of demand, we focused on how consumers and others react to price changes. This time, we’re looking at the opposite end of the supply chain, to analyse how coffee farmers and others on the production side react to price fluctuation. Read on to find out.

You might also like our article on what would happen if coffee became more expensive.

Price elasticity of supply

Simply put, price elasticity of supply is how much supply is offered onto or taken off of the market by sellers in response to a change in price. 

It is generally positive, meaning that as the price rises, sellers offer more. Conversely, as the price falls, sellers generally offer less. 

However, it’s important to remember that supply can sometimes be “sticky”. This means that it can’t simply be turned off and on immediately in response to price fluctuations.

In the coffee sector, when the price is high and farmers produce more, the supply rises. However, during the periods of constant demand that follow, the additional volume on the market puts downward pressure on price.

Conversely, when the price is low, less coffee is produced and offered by farmers. Under the same conditions, that reduction in supply (scarcity) would put upward pressure on price.

Are price movements natural? Should we accept them?

In mainstream microeconomics, we generally take for granted that this concept always works perfectly, and that markets unconditionally self-regulate. 

However, the markets do sometimes fail to do so, which has an impact on the entire supply chain – but is especially uncomfortable for those exposed to the greatest risk, typically farmers.

If price fluctuations are simply the market’s way of regulating itself, it’s tempting to accept that they are normal, natural, and necessary events that keep the market healthy. 

However, while the price of coffee does change in search of equilibrium between supply and demand, this process is often violent and traumatic for many. 

Those who are most affected are producers, who are on average the most economically vulnerable, and least able to protect themselves from fluctuation. 

Additionally, price movements aren’t always enough to reach equilibrium of supply and demand, especially in periods of low prices. This has to do with the price elasticity of supply.

So what actually happens in the coffee sector?

In the case of tree crops, like coffee, markets can fail to self-regulate, or do it so slowly that the resulting effect is different or even the opposite to what would be considered rational behavior.

When the price is high, more supply is offered. When it is low, less supply is offered. Supply rises and falls in response to price (among other things), which fluctuates for many possible reasons. This theoretically represents equilibrium.

In theory, this makes sense. But in practice, it looks very different. 

When the price of coffee is high, farmers often seek to produce more by planting more. However, this rational response to a price movement does not increase supply immediately. There is no downward pressure on price until the new trees produce and their crop goes to market, which can be as long as three to five years later. 

By that time, the market may have swung back down, and the influx of new coffee will put more downward pressure on a price that may already be low. Those who planted in response to the spike will have lost out.

This is precisely what happened through the 1980s, when there was an influx of new coffee that had been planted following the 1975 frost in Brazil.

The inverse is also the case when prices fall, as the only way to bring them up is to reduce supply. Since planting and cultivating coffee trees is a significant investment with a delayed return, and coffee trees have a relatively long life, producers are unlikely to cut them down. 

Losing their investment because of one or two seasons of low prices would be short-term thinking. Instead, producers will hold out and hope to make back their investment in subsequent seasons.

There are several other reasons that producers, especially smallholders, would be unlikely to attempt to reduce the supply of coffee on the market, even when prices are low. 

• For instance, they may be in debt from planting these unprofitable coffee trees, lacking capital to transition to something more profitable. 
  • Even if they do have the capital, there may not be any alternative crops that they could grow and sell profitably. 
  • If there are, coffee producers may not have the knowhow to plant and process them. 
• Many coffee-producing regions are isolated and economically dependent on coffee, and lack any other opportunities for income. 

So, while the market should theoretically regulate itself, this may be delayed while millions of vulnerable families suffer, before eventually supply reduces to a supposed equilibrium level.

Incentives & opportunity cost

When prices are low, there is an incentive to reduce production. 

A significant reduction (e.g. repurposing existing coffee-growing land) only happens only when the production and sale of coffee represents an opportunity cost. 

When profits fall below the potential profits of doing or growing something else, we refer to the difference as the “opportunity cost”. This is the forgone profits of not doing that other more profitable thing. 

However, since significant resources are generally invested in a coffee plot, that opportunity cost often needs to be significant enough for producers to decide to abandon it and plant something else. 

When there are few or no alternative crops to plant or off-farm opportunities, the price elasticity of supply would be very low, meaning that producers will be unlikely to reduce supply voluntarily. The opportunity cost would also be very low if there is nothing else they could be doing instead. 

This means that if the coffee price falls and remains painfully low, the market may not actually experience a supply reduction sufficient to bring it back up again for a long time. During this period, it would operate in a state of disequilibrium.

By some estimations, the global coffee market has, in fact, operated for extended periods under conditions of oversupply, such as those that followed frosts in Brazil in 1975 and 1994

In contrast, there are times when prices are high and coffee presents are a more attractive opportunity than what is currently planted. The decision to plant coffee may be a simple one if the current planting is an annual crop like carrots, beans, or maize. A situation like this favours the overproduction of tree crops versus annual crops.

What about quality & premiums?

In addition to the decision to produce more or less coffee, we also have to consider the type or quality of coffee which price increases incentivise. 

When the sale price is low, producers have a greater need to seek price premiums, such as those offered for higher grades or differentiated quality.

At the same time, buyers have outsized purchasing power, because they can get coffee far below their maximum budget. Because they have the ability to offer premiums which producers desperately need to stay afloat, buyers can demand more from producers in exchange.

On the other hand, when prices are high, buyers have less capacity to offer premiums. This is because they must pay prices closer to their maximum budget in order to acquire coffee. 

Furthermore, in this situation, producers are better equipped to make ends meet without premiums. Therefore, buyers have much less leverage to demand high quality and special processing methods from producers. 

We saw this phenomenon in Colombia for months after the civil unrest in May 2021. A large portion of producers have begun selling wet parchment into the commodity market at the commodity price. However, by doing so, they have been earning in many cases much more than they earned for specialty coffee 12 months prior.

Speculation & hedging

At this point, we need to understand that these price fluctuations are not exclusively based on the supply of and demand for coffee. Instead, they are influenced by the coffee’s futures contract, which largely reflects technical speculation. 

Most studies have shown that the futures price doesn’t necessarily move counter to physical fundamentals. Instead, they posit that these responses are exaggerated – meaning that the highs are higher and the lows are lower than they would be otherwise.

Why does this matter? Well, it’s complicated, but to put it simply, this means the supply of real coffee isn’t always completely responding to the demand for coffee. Instead, it’s responding to the demand for coffee futures contracts – the vast majority of which will not become physical purchases.

Likewise, the demand for real coffee doesn’t only respond to the supply of coffee, but instead the supply of coffee futures contracts.

Let’s say that the price elasticity of supply is such that a 10% increase in the market price (based on the futures price) eventually causes a 10% increase in global supply.

However, hypothetically, technical speculation, not shortage of physical coffee, is responsible for half of that price swing. 

In that case, a 5% increase in supply would be enough to cover the shortage. So, instead of simply filling a need, this reaction creates an oversupply. This eventually causes prices to crash. In time, technical speculation then jumps on board and exacerbates that downward swing. 

In summary, exaggerated market signals cause exaggerated reactions from market actors, which results in even greater volatility. This is the lifeblood of short-term speculation.

In the coffee sector, price changes create incentives that theoretically ensure that the quantity supplied equals the quantity demanded. 

How much sellers increase or decrease the quantity they offer the market in response to price changes is the price elasticity of supply. This depends on many factors, but is complicated by the fact that coffee, as a tree crop, responds painfully slowly to market signals. 

Each shift presents an opportunity for some and adversity for others. However, some actors are better positioned to take advantage of opportunities and more able to protect themselves from adversity. Furthermore, this compounds over time with every market rally and every crash.

Want to learn more about the coffee supply chain? Take a look at Karl’s course on PDG Education.

Photo credits: Karl Wienhold

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Market analysts predicted that approximately 5.2 million containers (otherwise referred to as twenty-foot equivalent units, or TEUS) would be manufactured in 2021. However, in spite of this, there have been mounting reports of container shortages since the beginning of the year.

These shortages don’t just lead to lost or delayed shipments, however; they also cause freight prices to soar because of increasing competition for container space. But how does this affect the coffee sector?

To learn more, I spoke to Sam MacCuaig, a trader at Keynote Coffee in Bristol, UK and a Perfect Daily Grind contributor. He provided us with some insights as to how the freight crisis is disrupting the coffee supply chain. Read on to learn more.

You may also like our article on how to navigate the coffee supply chain through Covid-19.

Shipping container shortages & the pandemic

The pandemic has had a devastating impact on global trade. There are reports that over 97,000 businesses in the US have permanently closed due to the economic challenges of the past two years.

When stay-at-home orders forced businesses to temporarily cease operating and consumers to remain indoors, both supply and demand fell dramatically.

“Thanks to Covid-19, the freight industry collapsed and shipping companies reduced their capacities,” Sam explains.

“Let’s say that you needed a million units of shipping capacity prior to Covid-19. At the start of the pandemic, everything closed down, so global capacity shifted to around half of the demand, which would be 500,000 units.”

However, with global vaccination rollouts bolstering economic growth, both supply and demand are steadily increasing to near pre-pandemic levels.

Sam tells me: “When the economy bounced back from Covid-19, businesses needed to replenish stocks that they allowed to run down.

“They haven’t been stocking the inventory or shipping anything because industries halted, so they reduced their inventories,” he states. “Now that supply chains are moving again, they need to order three times as much as they normally would to build up their stock levels.”

This has resulted in significantly more competition for container space on cargo ships. Stronger demand means there is less available space on the ships, as well as fewer containers themselves.

How does this affect global industry?

Shipping delays have a range of devastating effects on global supply chains – including in the coffee sector.

In late March 2021, a 400 metre-long cargo ship by the name of Ever Given blocked the Suez Canal for almost a week. It was carrying some 18,300 containers at the time. However, its unintentional blockade also delayed the movement of 369 other ships, which were unable to pass through the canal.

Around 12% of global trade passes along the Suez Canal each day. This led experts to estimate that businesses operating via the canal were collectively losing up to US $15 million per day because of the blockage.

The combination of increasing shipping demand and reduced freight capacity has resulted in numerous reports of shipment delays and bottlenecks.

In the US, it is estimated that 4 out of 10 shipping containers enter the country via two ports in California, before being distributed across the country. 

The BBC reported that in September 2021, some 73 ships were waiting to unload in Los Angeles – one of the highest waiting figures ever recorded. The article goes on to add that before the pandemic, no more than one ship would typically be waiting to unload at any given time.

Sam explains that because social distancing measures forced ports to close, significant delays are now not uncommon. 

“It can take up to two weeks longer to unload a ship and to get haulage out of the port,” he says. “In Brazil, you would normally be able to get a booking on a ship within a week. Now it takes a minimum of six weeks.”

There are also continuous reports of empty containers stockpiling at ports in some countries.

“It’s more cost-effective for companies to send empty containers back to Asia to fill up with goods and send them back than it is to just do the normal route,” he says. “As a result, the containers aren’t where people need them to be.”

Why does this lead to higher prices?

Coffee prices hit a seven-year high in July and October this year. Just a few weeks ago, they topped that to hit the highest price since 2012.

This actually began earlier in the year with a sudden frost in major coffee-producing regions of Brazil, the world’s largest coffee producer. In Brazil, temperatures dropped as low as -1.2°C (29°F) in July – causing irreversible damage to coffee plants which could affect the global supply for years to come. 

Estimates of the losses range from 2.5 to 5.5 million bags, a significant volume for the global market. This, alongside the forecasted long-term impact, resulted in prices closing above US $2/lb at the end of July 2021.

However, these extreme weather events are compounded by logistical issues and container shortages, which have also affected the frequency of exports. According to the Brazilian exports association, Cecafé, the country’s coffee production in May 2021 fell by 20%. 

The most expensive routes are the ones that are the most in demand: generally from Asia or increasingly Brazil,” Sam explains.

Bloomberg reported in July that the price of a single shipping container travelling from Brazil to the US had hit figures around US $4,000. In contrast, before the pandemic, one container would cost around US $2,000.

Other reports suggest that containers travelling from Shanghai to the Netherlands were being sold for US $10,000 – more than a 540% increase.

“Essentially, companies are hiking up prices,” Sam explains. “They’re prioritising the lines where they receive the most cash. It’s a bidding war. 

“It means that shipping lines often roll over on contracts. You might have a booking for a container to leave Brazil at a certain date, but if another company comes along and offers an extra US $2,000 per container, your shipment will just be pushed back.”

How does this affect the wider coffee supply chain?

Those buying and importing coffee in major consuming countries are among those directly affected by these rising freight costs. 

“Ultimately, the price has to get passed along the supply chain,” Sam says. “The roaster pays in the end.”

However, consumers also have to be prepared for increased costs. A recent article by Reuters said that consumer prices may not increase at large chains, such as Starbucks, but prices of supermarket coffee may start to rise if logistical problems persist. 

This is because large-scale chains tend to buy coffee much further in advance, which means their stocks are less likely to run out in the short term. However, for smaller specialty coffee roasters with less of a capacity for logistics, this is shaping up to be a serious concern. 

According to Bloomberg, reports in March 2021 indicated that US coffee stockpiles had reached six-year lows in the face of rising demand. 

However, it’s not just major consuming countries that are feeling the impact. Sam says that container shortages and delays are also preventing producers from shipping coffee and receiving payment.

“If these logistics issues do prove to be long-term problems, it’s going to put price pressure on at origin level as well,” he says. “This is because it’s another variable to control through risk management.

“For instance, in Vietnam, there are cheap coffee offers with plenty of demand, but spots are expensive. Their coffee is massively in demand, but producers are struggling to sell it.”

What are the long-term implications?

This freight crisis isn’t expected to end anytime soon, with market analysts anticipating that shipping prices will remain high throughout 2022.

In the long term, delays will reduce coffee quality, which could have a serious impact for specialty coffee.

“It’s problematic for the specialty coffee supply chain because the green coffee needs to stay fresh,” Sam explains. “The longer it takes to get coffee out of the country, the more concern there will be about maintaining quality.” 

In general, green coffee can stay fresh for up to a year, but roasters should ideally receive green coffee within a few months to maximise freshness.

Sam adds that if shipping problems persist, larger coffee companies will also start to feel more of the financial repercussions. 

“Logistics issues present a real problem for commercial coffee traders. The more commercial your coffee business is, the more problematic logistics issues are, because margins are slimmer.”

He adds that the uncertainty surrounding when shipments will arrive may also drastically affect stock levels, and lead to more spot buying (where roasters purchase coffee with no prior commitments).

“You can’t plan for the timings of shipments, which is a real issue for consistency. If you’re a medium-sized specialty coffee roaster, you might plan to have one shipment arrive in December, one in May, and one in September, spread out evenly through the year.

“But if you’re not holding enough inventory to cover your stock for another three or four months while you wait for coffee to arrive, you will have to spot buy coffee.”

At scale, spot buying can be disadvantageous for both roasters and producers. Spot coffee tends to be less fresh, but costs more. Furthermore, without contractual agreements, farmers are in a weaker position. For a financially sustainable coffee industry, the stability provided by prearranged contracts is key.

These ever-growing logistics problems are a concern for the coffee industry, but there are ways for the entire supply chain to handle them effectively. 

Continuous communication from everyone across the supply chain is essential. It’s more difficult than ever to provide a timescale for your customers, but constant updates go a long way towards maintaining healthy trade relationships.

While it seems that these container shortages and shipping delays will be persistent for another few months at least, staying as prepared as possible will help the coffee industry remain resilient and adaptable across the board.

Enjoyed this? Then read our article on why frost in Brazil is causing global coffee prices to increase

Photo credits: Diego Catto on Unsplash, Battlecreek Coffee Roasters on Unsplash

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At the same time, in the past decade, we’ve seen some growth in internal consumption across coffee-producing countries, most notably in Brazil following a 15-year project led by ABIC. There’s also more and more discussion about how increasing internal consumption can make the coffee sector more sustainable.

This discussion is particularly relevant to Indonesia. The country is the fourth-largest coffee producer in the world, and has historically exported most of its crop. But Indonesia finds itself in a difficult situation: its coffee exports have been steadily declining since 2013.

To understand more about why this is happening and what it means, I spoke to Win Hasnawi from Qertoev Coffee, Jeffrey Neilson from The University of Sydney, and Benji Salim from The Q Coffee Trading. Read on to find out what they told me.

You might also like our article on manual brewing in Indonesia.

Coffee production in Indonesia

Despite the huge production volumes, coffee is rarely grown as a single crop in Indonesia. It’s usually grown alongside other crops such as oranges and tobacco, for instance. 

This means that Indonesian farmers can quickly switch to other crops if coffee fails or is not financially sustainable (and also that they can quickly switch to growing coffee if other crops fail). 

Jeffrey Neilson is an associate professor and researcher with a focus on economic geography, environmental governance, and rural development in Indonesia and Southeast Asia. He says that coffee production is subsistence agriculture in Indonesia.

“Indonesian coffee farmers generally don’t look at coffee production as a way of getting rich; they see it as a way of not starving.” 

He also notes that there’s not much scope to invest in coffee production for smallholder farmers in Indonesia. If they earn additional income from the harvest one year, they can choose to either invest in their farm or equipment or improve living conditions for their family. They generally choose the latter.

Furthermore, thanks to a lack of available farmland, little automation, and poor infrastructure for transport, the cost of production for Indonesian coffee is increasing. 

Smallholder farmers in Indonesia

Like in most other producing countries around the world, Indonesian coffee producers are mostly smallholder farmers. 

Win Hasnawi is a coffee farmer and a distributor of Gayo coffee at Qertoev Coffee. He says that a farmer in Indonesia typically only owns one or two hectares. 

On larger farms, you can replant a percentage of your older coffee plants, and the investment will be covered by the harvest of your remaining crop. Over time, the continuous cycle of replanting keeps plants young and productive.

For smallholders, however, things are different. Replanting is practically difficult, and losing even a small percentage of your yield is not financially viable.

Win says: “Climate change and warmer weather are causing the amount of available farming land to shrink. 

“There’s little replanting, and even if there is, it takes [years before farmers can harvest new plants].”

He goes on to explain that the infrastructure for coffee farming in Indonesia is often minimal. “Our coffee farms are in the mountains, often at steep inclines of 45 or even 90 degrees. [And because of the isolation], it’s more challenging to build adequate infrastructure for processing [and transport].”

Why are coffee exports falling?

There is no single answer as to why Indonesian coffee exports are falling, however; it’s not just an increase in the cost of production. Instead, it’s a range of different factors.

Initially, adverse weather conditions have been blamed for low productivity in some harvest years, including 2016/17 and 2018/19. Since then, overall coffee production has recovered.

But a 2018 paper in the Journal of Industrial and Beverage Crops states that while Indonesian coffee became more competitive in the market (compared to origins like Vietnam and India) from 2000 to 2015, it was still not enough.

The paper notes “quality improvement, elimination of operating costs in the port, tax abolition, low interest export credit… and market penetration to other countries” as opportunities for Indonesian coffee exports.

Benji Salim works for The Q Coffee Trading, and has extensive experience importing Indonesian coffee into Australia. 

“Indonesian coffee is expensive compared to other coffee-growing countries,” he says. “And farmers will not release their crop if they don’t like the price.” 

With other crops to fall back on, it’s clear that if Indonesian farmers cannot negotiate a better price for their coffee, they will simply switch to another product.

Finally, domestic consumption in cities like Jakarta is growing. In 2019, the USDA’s Foreign Agriculture Service reported that this was thanks to “strong demand for RTD coffee products”, while Statista notes that domestic coffee consumption has almost quadrupled in the last 30 years.

So, with falling exports and a growing domestic market, this raises an interesting question for Indonesian producers. Where is the opportunity?

The future: Should farmers go global or local? 

Jeffrey notes that farmers don’t care whether they sell their coffee in the domestic market or for export – it’s all about price. 

Win, however, notes: “For commercial coffee, farmers can actually earn more by selling it within the country than for export.” 

This is because selling internally farmers gives a few advantages. Firstly, there is strong demand for commercial grade coffee in the country. There are also lower quality standards for domestic coffee sales. Finally, when selling to roasters in places like Jakarta, farmers can be more flexible with their margins, because there is less of a logistical cost to ship the coffee to them. 

However, Jeffrey says: “With exports you get a much bigger market. [If the government just banned exports, for instance], that would clearly have a negative effect, because there would be more coffee floating around and prices would decline.

“What’s interesting to look at is how it affects quality,” he continues. “As the domestic market has grown in the last ten years, I think the capacity to monitor quality is not as good as it might have been in the export market.

“This means farmers get higher prices for lower quality coffee, and negatively affects coffee quality in the long-term. This, in turn, makes it increasingly difficult for buyers in the international market to buy good quality Indonesian coffee.”

Benji agrees, and says he believes that international standards need to be the goal. He says these can encourage “healthy competition” among coffee producers and help them all move forward.

“In Latin America, producers are much closer to a major consuming country, the US, which buys in big volumes. This makes trade easier and means the supply chain is more efficient; therefore, information travels faster, learning happens quicker, and quality gets better.” 

Benji says that wet hulled coffee is a great example of how exporting means that Indonesia can leave its mark on the coffee sector. Wet hulling is a coffee processing method originating in Indonesia which produces a unique flavour profile, despite the possibility for defects. 

“Wet hulled coffee is part of Indonesia’s coffee heritage, a unique identifier,” he says. “And now it’s recognised in the global industry, and even taught as part of the education of coffee processing.” 

He says that this shows how exporting allows origins to showcase not just unique flavour profiles, but also a range of techniques and processing methods. This, in turn, drives an increase in quality and diversity. For Benji, there is no other option than the global market.

In contrast, Win says that he thinks it’s more feasible for producers to focus on the local market at this point in time. There is growing pride for locally-grown coffee, and Indonesian coffee consumption is at an all-time high.

“We have a population of more than 200 million people,” Win says. “Even if, let’s say, 20% of them drank more coffee and grew to appreciate quality, that would be more than enough demand for all locally-grown specialty coffee to satisfy the domestic market. 

“Then, in time, if we increase domestic consumption, more small business owners will emerge. It’s a circle of growth, and it helps boost the Indonesian coffee economy.”

Ultimately, it’s not as if this is a simple binary option at this point in time. Even though Indonesian exports are declining and the domestic coffee market remains at an all-time high, there are so many moving parts, and there will be no major seachange overnight.

We are seeing another major change with the first Indonesia Cup of Excellence (CoE) competition this year. According to Michael Utama from Chapter and Verses, Indonesia will expects at least 400 samples to be judged and selected for online bidding. Many are hopeful that CoE can accelerate progress in the Indonesian coffee sector and add value to future exports.

However, if internal consumption in Indonesia continues to grow, farmers may find that the option of producing coffee for domestic sales becomes more and more attractive. More options mean more stability and more control. Farmers can go from being “price takers” to negotiators – choosing between two options when selling their crop.

In turn, however, as Benji and Jeffrey say, there could well be implications for the quality and Indonesian coffee. One thing’s for sure – this is a complex and unique situation. Time will tell over the next few years, and we will see how things unfold – whether the internal market continues to grow, or if international exports reassert their dominance.

Enjoyed this? Then read our article on wet hulled processing. 

Photo credits: The Q Coffee Trading, Qertoev Coffee, The University of Sydney

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