The price paid for coffee is generally quoted in U.S. dollars per pound in weight ($/lb). There is something of a global price for coffee, often referred to as the C-price, or commodity price. This is the price for commodity coffee being traded on the New York Stock Exchange. Coffee production is often discussed in bags. A bag usually weighs 60 kg (132 lbs) if it comes from Africa, Indonesia or Brazil, or 69 kg (152 lbs) if it comes from Central America. While bags may be the units of purchase, on the macro scale coffee is usually traded by the shipping container, which contains around three hundred bags.

Interestingly, a rather small percentage of coffee is actually traded on the New York Stock Exchange, but the C-price does provide a sort of global minimum price for coffee, the minimum a producer would be willing to accept for coffee. Prices for particular lots of coffee often have a differential added to the C-price, a kind of premium. Certain countries have historically been able to get higher differentials for coffee (such as Costa Rica and Colombia), although this type of trading is still mostly focused on common grade, rather than specialty coffee.

The problem with basing everything on the C-price is that this price is somewhat fluid. Usually prices are determined by supply and demand, and to some extent this is true of the C-price. As global demand increased at the end of the 2000s, the market saw an increase in price and coffee supply began to look scarce. This produced one of the highest spikes in the price of coffee, reaching above $3/lb in 2010. This price wasn’t simply about supply and demand, however, it was also influenced by other factors, not least the influx of cash into the industry from traders and hedge funds who saw an opportunity to make money. This produced a volatile market, the likes of which had never really been seen before. From that spike, prices steadily declined again to levels that can be considered unsustainable for profit.

The C-price for coffee does not reflect the cost of production, and as such producers may end up in a position where they lose money growing coffee. There have been a number of reactions to this problem, and the most successful has been the Fair Trade movement, although there are many other coffee certification schemes.

Fair Trade

There remains some confusion about exactly how Fair Trade works, although it has undoubtedly become a successful tool to help those who wish to purchase coffee with a clear conscience. Many people presume that the promises of Fair Trade are far wider reaching than they actually are, and that any coffee could (in theory) be certified as Fair Trade. This is not the case. And to make matters worse, it is easy for detractors to allege that the farmer is not getting the premium because of the complex nature of financial transactions within the coffee industry.

Fair Trade guarantees to pay a base price that it considers sustainable, or a $0.05/lb premium above the C-price if the market rises above Fair Trade’s base price. Fair Trade’s model is designed only to work with cooperatives of coffee growers, and as such cannot certify single estates that produce coffee. Critics complain about a lack of traceability or true guarantee that the money definitely goes to the producers, and isn’t diverted through corruption. Others criticize the model for providing no incentive to farmers to increase the quality of their coffee. This has encouraged many in the specialty coffee industry to change the way they source their coffee, moving away from the commodity model, where coffee is bought at a price determined by global supply and demand and little regard is given to its provenance or quality.

The Specialty Coffee Industry

The following are different terms are used to describe the various ways in which specialty roasters are buying their coffee and their relationships with the growers.

Relationship Coffee

Relationship coffee is used to describe an ongoing relationship between producer and roaster. There is usually a dialogue and collaboration to work toward better quality coffee and more sustainable pricing. For this arrangement to have the desired positive impact, the roaster would have to be buying the coffee in sufficient quantity.

Direct Trade

Direct Trade is a term that has come about more recently, in which roasters wish to communicate that they bought the coffee directly from the producer, rather than from an importer, exporter or another third party. The problem with this message is that it plays down the important role of importers and exporters in the coffee industry, potentially unfairly portraying them as middlemen simply taking a slice of the producer’s earnings. To be viable, this model also requires the roaster to buy enough coffee to make an impact.

Fairly Traded

Fairly traded may refer to a purchase in which there has been good transparency and traceability and high prices have been paid. There is no certification to validate the ethics of the purchase, but those involved are generally trying to do good with their trading. Third parties may be involved but are considered to have added value. This isn’t a very commonly used term, except in situations where a customer asks if a particular coffee is Fair Trade.

Relating to Consumers

When purchasing coffee it is difficult for consumers to ascertain how ethically sourced a particular coffee really is. Some specialty roasters have developed buying programs certified by third parties, but most have not. But it is generally a safe rule that, if a coffee has the producers name on it, or even the farm, cooperative, etc., then there it is more certain a better price has been paid.