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What’s going on with the price of coffee?

A lot of you have noticed recently that the price of coffee seems to be steadily rising globally. We hope to clarify why this is happening in this in-depth blog which strives to cover all the major factors.      
      

We will continue to keep you updated about issues that affect our farm partners and coffee farms across the country, but if there are any questions that you have or would like to learn more about, please get in touch with us on community@bluetokaicoffee.com. We always love hearing from you! 

How does coffee pricing work?

 

Arabica coffee is traded on something called the C Market, which is a commodity exchange marketplace that sets trade rules and standardizes the coffee trade at a global level. But most importantly, this is where the global benchmark for the price of coffee is set, called the C Price. The C Price of Arabica coffee, which is a benchmark for commodity coffee that doesn’t factor in quality or cup-score, is determined by the market forces of demand and supply.

What are the factors that influence C Price?

 

In 2021, Brazil underwent a terrible frost and a harsh drought that greatly brought down coffee production and supply, consequently upending global markets and increasing the C Price. That has been compounded by COVID-19 restrictions, now having plagued the world for more than two years, which along with the current destabilizing geopolitical situation, have been causing logistical issues, further hampering supply. Against this supply backdrop, global demand for coffee has increased, with travel and hospitality reopening, while home consumption continues to be strong.

What does this mean for India?

 

India happens to be the 7th largest coffee producing country in the world and is an important player in the global coffee trade and as a result, coffee prices in India are heavily determined by the C Price.

2021 wasn’t a great year for Indian coffee farms either. The southern states of India which are home to most of the country’s coffee farms, received late rainfall which affected the crop dramatically. The ripe cherries were split open, dried out on the trees and then dropped to the ground before they could be picked. This meant that, in some areas, over 30% of the crop was destroyed for Indian coffee producers because of unseasonable rains and associated challenges.

In a bumper crop year, growers might have been more inclined to sell their coffee for a cheaper price domestically but given their crop losses, there is additional pressure to maximize the price they receive for their coffee and the domestic prices have risen in lockstep with the C market. 

What does this mean for farmers, roasters and you?

 

A lot can affect the price that we, as roasters, pay to source and you, as a consumer, pay for your coffee. At Blue Tokai, we believe sustainable pricing is extremely important for the long-term viability of the entire specialty coffee industry. Most importantly, the coffee producers need to earn a sufficient margin for them to invest back into their farms, and to have sufficient reserves to (no pun intended) weather the variability in crop production each year.

While we have focused on the C Price, it is important to reiterate that producing specialty-grade coffee is significantly more expensive (due to selective hand-picking and intense post-harvest processing) as compared to commodity coffee which is sold at the C Price. As a result, specialty coffee will always have a premium over and above the C Price to justify the cost and efforts taken by Indian coffee producers who are involved in this process — which is why you will notice a slight increase in the price of our coffees this year.

The way forward

 

The way forward does seem promising thanks to the adaptability and resourcefulness showcased by so many of our farmers.

Several Indian coffee producers have made extra efforts to help insulate themselves from climate issues by upgrading their infrastructure, focusing more on climate-resistant varieties of coffee or including innovative technologies in their everyday coffee growing business. A number of our partner farms have taken several steps to safeguard themselves against the volatile conditions. Kerehaklu and Ratnagiri Estates have built covered infrastructure for drying coffee this year to combat the rains, with the former increasing focus on Robusta which is a more climate resistant variety than Arabica. Our other partners like MS Estate have increased the quantity of specialty production of their Kent variety, a plant more resistant to disease caused by extreme rains.

We will continue to highlight the award-winning farms that we source our great-tasting coffees from and to talk about what’s, quite literally, going on in the field.


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