While I’ve been playing around learning to make videos over the last few months, I haven’t really posted them here. I thought sharing this one would be fun. I spent 5 days in China (I’m currently in Japan, heading to Auckland tomorrow) and it was a pretty intense experience. Getting to share the book like this (I hadn’t really done much touring to promote it) makes me want to do more stuff like this. I am scheming for the start of next year…
The video is really just supposed to be a bit of fun, and perhaps a vague answer for people who want to know exactly what it is I do for a living…
The historical data for coffee pricing causes me some headaches. The C-Market price for coffee is currently about $1.55 per lb. Looking at historical data, you can see that in February 1982 the price of coffee was $1.28 per lb. So, in the simplest terms, you might see coffee as being more expensive now. The important thing you’d be forgetting is inflation. A dollar was worth a lot more in 1982 than it is today.
The fact that the price of coffee per lb hasn’t really risen with inflation has increasingly bothered me. I decided to dig a little deeper into it, and take the monthly price for C-market coffee going back to 1980 and to adjust it for inflation.
Inflation calculators are going to be a little unreliable, but I think they’ll prove the point. I checked the numbers with a few different calculators online and they all seemed to agree within an acceptable margin of error.
The graph below is the price of coffee for the last 36 year, against the price of coffee back adjusted for inflation. If a dollar was worth twice as much in 1988, then the price for coffee that year would be doubled, so that we could compare it against today’s pricing. I included simple linear trend lines on both graphs.
Interestingly, the trendlines tell two very different stories. One implies a small increase in the prices paid for green coffee, while the other suggests a significant decline. It also puts into context the previous price spikes, suggesting they were far more dramatic than we might have thought.
The World is Shrinking
This is not to say that the financial models in the world of coffee in 1980 were the same as today. In theory, farmers might have been earning comparatively more, but costs would also have been higher. For example, fertiliser would have cost more historically. In searching for historical data on this topic, I came across this blog post. Here’s the pricing of fertiliser before and after adjustment for inflation.
While increased costs did play a role, and this is just one example, we can’t ignore the fact that growing coffee is a less attractive profession than ever. The greying of farmers most definitely applies to coffee farmers too. The average age of a coffee farmer is around 56 years old. It might have something to do with the fact that it just pays less well.
This is overly simplistic. I have included cost of living in various producing countries, I haven’t looked at the quality of life for coffee farmers historically either. There isn’t much data on the financial model of running a coffee today, let alone 30 years ago. I have no idea on whether data on the profitability of growing coffee over the years even exists. I doubt it.
What about retail?
There isn’t a lot of data about the cost of a cup of coffee, and even now I’d say it is pretty hard to tell say with any certainty what the price of a cup of coffee is today! However, the ICO do publish a retail price per lb in the USA, and that data back to 1990 is freely available online. I took those numbers, adjusted for inflation again, and had a look at the price per pound.
I didn’t use the C-price of arabica for this graph, because arabica isn’t necessarily what all that is going into those retail bags. I used the ICO Indicator price, that is a composite price of all coffee sold. This is why the spikes in price are less dramatic.
So far, not so interesting. They look like they track with each other pretty well. You’ll notice a slight time-shift, where sometimes changes in green coffee pricing seem to kick in the following year. I would presume this is down to the significant stocks held, and forward contracts bought, by the sort of companies whose products make up the bulk of the ICO’s retail pricing measurements. Once adjusted for inflation it would appear the price of a bag of coffee has been relatively stable.
I did want to look at it another way. I was curious about margins, and how they moved. The true cost of goods for products like these are always going to be pretty opaque, and so this next chart is pretty simplistic. If the price of coffee was $1.00 and the retail price was $5.00 then the multiplier here would be 5.
The simplistic reading of this graph would be that when the red line is high, there are high margins in coffee. Again, this is simplistic because of the stocks of coffee, and forward contracts. However, when the market hit its low in 2001-2002 the margins look very good. Coffee didn’t get commensurately cheaper. The nature of competition would ultimately drive prices lower over the next few years, but they don’t bottom out until 2004. (Whether the consumer benefits from there always being someone in the market willing to be cheaper/to make less money is a separate topic). Equally, it looks like coffee companies tried hard not to raise prices until absolutely necessary during the last price spike a few years ago.
I wish I had older data (I have a request in with the ICO, but unfortunately I can’t justify spending £250 on the data for my own satisfaction and interest…) to see how it looks between the 1960s and the 1990s. I think the limited data I have doesn’t really give too much clarification to the question I’m asking.
We live in a world where everything is getting cheaper. That doesn’t mean that this is necessarily a good thing. The USDA has interesting data on food and inflation, as well as spending vs income. I don’t think I can really draw any hard conclusions, even if the prices paid for green coffee (once adjusted) are declining. I think it is far to say that coffee may well be less compelling as a crop for farmers than before, but then farming as a whole may be less compelling. Price competition in consumer markets applies pressure, and so the desire cheaper food, or cheaper coffee, ends up being passed right down the chain to those who ultimately bear the brunt of that pressure: the farmers.
Speciality has long considered itself immune to this, but that is changing. At some point soon cafes, and coffee roasting companies, are going to turn to pricing to be more competitive as they have to fight harder and harder for customers. This ends up being briefly good for the consumer, but ultimately results in less diversity, less choice, and lower quality – and that’s before we consider the impact on the supply chain.
UPDATE: An interesting link to an Economic Sustainability Report [pdf] from the ICO, shared by Thomas Copple on twitter.
UPDATE 2: Another great link covering the historic price of a cup of coffee, thanks to Pascale Schuit on Facebook.
The coffee industry is unusual. Over the years, for a variety of reasons, the supplier/customer relationships between roasters and cafes (and also consultants and cafes) has grown deeper and deeper.
The root of this depth was, for a long time, control. Creating a dependent relationship, where the cafe needed the supplier for everything from product, to cups, to the knowledge of how to actually produce a cup of coffee properly. When what you sell is commoditised, then it is hard to stop a customer switching to another supplier if the price is better. So roasters created a mindset in their customers where they were afraid to adjust their grinders, or change brands because they accepted the endless free branded items. Cafes ended up feeling that the customers first and foremost loved the brand of coffee they served, and so to change the brand was to risk losing their customers. This strategy continued with roasters ultimately bribing customers with free equipment, so that they’d accept lower quality coffee. (Let’s just call that what it is)
It is considered very normal for a new cafe owner to get a great deal of advice from their supplier. Everything from equipment choices, bar layouts, menu creation, pricing structures, staff training and retention. There is a problem with advice like this – it has the potential to have grave consequences.
Professional Liability or Professional Indemnity insurance exists for those who give professional advice. I believe roasters fall into this category, and consultants obviously do. There are a lot of coffee consultants, but I’d be willing to bet that less than 20% of those who list that in their bio online carry the insurance to protect them from being sued should someone construe their inputs as damaging to their business. I don’t know many roasters who carry this kind of insurance either. Some roasters may have this as part of the existing insurance, but it is something worth checking with your insurer.
You’re thinking, quite rightly, that you’ve never heard of anyone being sued for giving bad advice in the coffee industry. Neither have I. However, I still believe that many markets are likely to see a contraction as cafes close due to being unable to find enough customers to be sustainable. People are going to lose money. I suspect some will be angry, and might look for someone to blame. Perhaps I’m speculating, perhaps you think this is fear mongering. Nonetheless, the basic principle of insurance is the ugly idea that you’re willing to bet a certain amount of money that something is going to go wrong.
I write this because it seems worth bringing attention to. It comes with the unfortunate news that you can’t insure yourself retroactively. If you’ve given advice, in a professional capacity, then you’re still liable for it and there isn’t much you can do.
I’m not suggesting you go out and purchase insurance right now. I am suggesting you should think about it, about the nature of the advice you give, and how responsible you feel for that. Whether or not you live in a litigious country, whether or not you feel that lawsuits are too easily brought, it seems wise to at least know what you’re getting into.
Thank you to Marshall Fuss for insight and feedback on the topic.
The old french press guide from 8 years ago is one of my most viewed videos. However, it doesn’t really reflect the way I would brew one now. I tend to use the method described in “Cupping Vs French Press” now.
I’ve been enjoying making videos recently and the learning side, in particular, has been incredibly rewarding. I thought I’d make an updated version of how to brew with a french press, that featured a little more explanation about why I recommend certain parts of the technique (something people asked for in the cascara chocolate video).
Feel free to leave a comment/feedback on Youtube, or a request for future videos.
Coffee is a dead end job, but it doesn’t have to be. The boom in speciality coffee has created a crisis in employment in many parts of the world, but it has also created an opportunity that we must grasp if we want both growth and lasting success for the industry.
Recording interviews for the Coffee Jobs Podcast have brought to light a number of interesting, and interconnected themes: great employers value transferable skills. An applicant with knowledge and experience from outside of coffee can be more valuable than one who has had a more linear coffee career to date. Employers value the diversity of experience because it adds to their business, and often reveals hidden opportunities for improvement or growth.
The frustrating nature of this industry is that we are very interested in increasing someone’s skill and knowledge, but the skills we are teaching are not transferrable. Making coffee is often challenging, and the customer experience demands skilled people making coffee. However, this is really the only skill I see people being taught and it has very little use outside of the coffee industry. Making great coffee is a difficult skill to transfer, and this is a problem.
A lasting career in coffee is a difficult and unlikely thing. For every seven to ten barista positions, there is perhaps one position to move forward into as management. The funnel narrows very sharply, not only in the cafe but from the cafe to the roasting company, or from the roasting company to the green coffee company.
Most people hired into a position as a barista will leave the coffee industry. This is not a damning statement, this isn’t failure. This is just the nature of the opportunities and roles within the coffee industry in consuming countries. What I’ve learned from my guests on the podcast is that this isn’t a problem, this is an opportunity that should be embraced.
There are skills that can be taught to a barista that are transferrable. We often say there is more to being a barista than just making coffee, and this is true. However, we just don’t spend resources on developing these skills. Many coffee businesses lack the time, money or sometimes the ability to teach those skills. I believe that this is something we need to change.
What kind of skills? The most obvious ones that spring to mind are things like financial literacy, sales, customer service, empathy and understand resource allocation. Most cafe owners bear the burden of this work alone, especially aspects like P&L. Taking this single aspect, I believe sharing this information as well as the workload involved in monitoring and controlling it, would create a more engaged team as well as a more conscientious one. It would be important to be thoughtful about teaching, sharing and discussing the impact of actions in the cafe on operations. It would be necessary to keep everyone connected and engaged, even if ultimate responsibility for decisions would like with the owner. Anyone moving on from that business would have a valuable understanding of real world costings, wastage, staff cost and financial modelling. This is hugely valuable in their future careers, and independent of whatever career path they choose.
This is a single, basic example. I’m not here to argue that this is exactly what we ought to be training. I’m here to argue that we need to teach baristas about a lot more than coffee. If working for a year or two in speciality coffee becomes a genuine opportunity for personal development, rather than entry into a professional lottery.
Let’s face a difficult truth: In much of the world, there are very definite limits on what you can earn as a barista. Independent cafes aren’t making their owners wealthy, and most pay as much as they can to get the staff they need. Despite strong competition amongst cafes for staff, they simply aren’t able to just pay more to get what they want. I believe that a cafe that offered a living wage and a strong development program that broaden, rather than narrow, future opportunities would not struggle to find good people.
To do this, to change the way the industry views the potential of a barista. We need to look at building education programs that are about more than where coffee is from, how it is grown, and how to extract it. I am not saying these things don’t matter, they are fundamental to what we do. We just have to value other skills too.
We would need help to do this. It has taken speciality coffee a long time to develop the educational programs that we currently have, despite the subject matter being where our expertise lies. This kind of work is outside the industry’s scope and so we’ll need to engage with others industries and experts. None of this will happen unless there is demand. I want to start a discussion because I believe that this is where a potential future lies for our sustainability. It will require a change in mindset, but I believe certain businesses are already thinking this way and are reaping the benefits from it.
This is a problem that I want to work on, that I’m willing to put some resources into. I want to help create programs and practices to develop transferrable skills in coffee. However, this isn’t where my expertise lies and I need help. If you know anyone I should be speaking to then please get in touch. Drop me a line through the blog, or via twitter.
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