Over the past year or so, coffee prices have been steadily increasing. The first sign that prices would increase was a sudden frost which hit some of Brazil’s major coffee-producing regions in late July 2021. Since then, prices have consistently remained above the US $2 mark.

However, despite the higher prices, some smallholder farmers are not receiving more money for their coffee, leaving them vulnerable. With roasters and coffee shops also starting to increase their prices too, we may see a shift towards consumers paying more for each cup in the next few months.

However, with these price increases, it is important to ask: just how much of the final price of a cup of coffee do farmers actually receive?

In addition to my own research, I spoke to the Academic Director of the Specialty Coffee Transaction Guide (SCTG), Peter Roberts, and owner and founder of Reciprocafé, Chad Trewick. Read on for their insight on the historic context of green coffee pricing, as well as some data they provided from the SCTG.

You may also like our article on coffee pricing: why we need to know farmgate and not just FOB.

Understanding farmers’ economic vulnerability

Among all coffee supply chain actors, farmers (especially smallholders, defined as those who grow coffee on less than 30ha of land) are generally the most economically vulnerable.

The reasons for this are complex, but can largely be attributed to historic inequities in the coffee industry. When coffee was first mass-produced, it was mostly under the control of European colonial powers, who retained the vast majority of the money when it was sold.

While these colonial empires no longer exist, they have undoubtedly left their mark on today’s coffee industry.

“[In the 1700s and 1800s], most of the land cleared for coffee production didn’t belong to the people who cleared it,” Chad explains. “In fact, the majority of the physical labour involved in coffee production was carried out by people who rightfully owned the land.

“Because of this, the beginnings of the coffee industry were exploitative,” he adds. 

After coffee-growing land was returned to native farmers, many producers were left with small parcels of land that did not allow them to operate at scale, and little financial or structural support. Ultimately, this forced many of them to sell their land to multinational companies to improve their financial stability.

“[To a certain extent], the legacy of colonialism determines the terms of trade in today’s coffee industry,” Peter explains. “Coffee farmers still need more information, support, and empowerment so they can have more agency.

“A well-functioning market should be open and well-informed, and industry stakeholders should have multiple avenues through which they can trade goods,” he adds.

Exploring prices and costs at origin

When discussing the prices farmers receive for their coffee, we often hear the terms “farmgate” and “Freight on Board” (or FOB). But what do these terms actually mean?

Farmgate vs. FOB

Essentially, the farmgate price is the money that a farmer actually directly receives, rather than the price paid to traders or mills. The term derives from the amount of money that a producer is paid “at the farm gate” before export fees or additional costs.

It’s important to note that farmgate prices are different from the C price, which is the trading price of arabica on the Intercontinental Exchange (ICE). The C price is largely determined by supply and demand; if coffee supplies fall then the price will increase.

It can be difficult to collect accurate farmgate data because these prices are usually not publicly available, unless traders and roasters publish the information themselves.

FOB price, meanwhile, is the amount of money paid for a full container of coffee which is ready to ship. The price includes what the farmer was paid, plus in-country coffee production expenses such as milling, warehousing, transportation costs, insurance, customs, and other intermediary fees. 

For reference, the 2021 SCTG states that the median global FOB price in the same year for an 87-point coffee was US $3.70/lb, while the median C market price was US $1.42/lb. 

Freight costs

While some roasters directly import coffee themselves, many work with green coffee traders who handle logistics and export. This means that they take a percentage, which generally means that farmers’ final share of the sale price decreases.

Beyond traders’ margins, export, transport, and other freight costs are accounted for in the FOB price. And while the exact prices will differ from country to country, these are all generally significant.

For instance, to move coffee from a farm to a local co-operative, trucking alone can cost at least US $2 per 60kg bag of cherry. Altogether, after post-harvest, in-country transport can cost as much as $4 per bag – representing a significant cost.

Other production costs

Generally speaking, farmers also need to reinvest a significant proportion of their income back into their farm. This can cover anything from new seedlings and carrying out regular seasonal repairs and maintenance to replanting old trees or buying agricultural inputs to maintain or improve yield or quality.

Ultimately, in many cases, as little as 60% of the FOB price is paid to farmers, while the remaining 40% is spent on in-country expenses, as well as intermediaries’ fees and export fees.

Some of these in-country expenses rightly need to be paid to other labourers who work in coffee production, such as pickers and mill workers.

“There are post-farm workers who also need to get paid,” Peter says. “But the much bigger issue over the last 30 to 40 years has been the relationship between FOB and retail prices.”

Ultimately, with most consumers paying between US $12 and US $18 for a retail bag of specialty coffee, it can be difficult to break down exactly how much of the final price of each cup farmers receive. Typically, US specialty coffee shop customers pay between US $4 and US $7 for a single filter coffee.

However, Chad notes that calculating a final percentage will largely depend on how transparent the movement of the coffee is, and how much data is recorded across each step of the supply chain.

“In some cases, [producers aren’t made aware of the quality of their coffee], which means the assessment of quality takes place too far down the supply chain,” he tells me. “In these cases, farmers are paid the C market price, or potentially a lower-end specialty price.

“But if the buyer cups the coffee and scores it higher than the farmer originally thought then it can be sold at a premium,” he adds. “This price mark-up usually doesn’t make it back to the farmer.”

Considering costs for roasters and coffee shops

In order to understand how much of the final price of a cup of coffee farmers receive, we also need to consider upstream costs that contribute to how much is charged for each bag or cup of coffee. This includes roasting.

It’s important to note that most of the value of coffee is added once it is roasted in majority consuming countries, where it is marketed and sold. Roasters and retailers handle this marketing because they have direct connections with major consumer bases, which makes it easier for them to differentiate with branding and packaging, thus equipping them to charge a higher final sale price.

Peter tells me that retail coffee prices are considerably higher than they were some 30 years ago. He says that the Specialty Coffee Retail Price Index (SCRPI), created by Transparent Trade Coffee, found that most North American specialty coffee roasters sell 1lb of roasted beans for between US $18.28 and US $38.99.

However, this final sales price also includes the costs roasters take on. It’s estimated that the costs associated with roasting, packaging, and labour add around US $4 per lb to the retail price.

Furthermore, we need to remember that once roasted, coffee beans lose around 14.7% of their mass. This means that 1lb (around 0.45kg) of green coffee actually leaves a roaster with around 0.85lbs (around 0.39kg) of roasted beans to sell. A standard 60kg bag of green coffee does not automatically translate to 60kg of roasted coffee.

Calculating the final price of a cup of coffee

To break down the retail price of a cup of coffee, let’s use the Specialty Coffee Association standard brew ratio of 1:18 – which means 1 part coffee to 18 parts water. 

To prepare a 16oz (473ml) cup of filter coffee, you would need around 25g of ground coffee, which means 1lb of roasted coffee can make about 18 cups of coffee.

Considering that most specialty coffee roasters sell 1lb of coffee for between US $18 and US $39, this results in a price range of US $1 to US $2.20 per cup.

However, in most specialty coffee shops in the US, consumers pay around US $4 for a filter coffee. This means that coffee shops make a profit of somewhere from US $1.80 to US $3 per cup before staff costs and other overheads.

So what about the final price that farmers receive from a single cup of coffee? According to the International Trade Centre’s Coffee Exporter’s Guide, producers retain around 10% of the retail coffee price. In the examples we’ve used above, this would equate to around US $0.40 per cup.

Despite growing concerns that coffee is becoming more expensive for consumers, Chad believes that they still pay too little for coffee in order for farmers to experience the true value of their product.

Improving price equity across the supply chain

With demand for more sustainable coffee now higher than ever, price equity across the supply chain is becoming an increasingly important topic.

“If farmers can’t afford to produce coffee then they are not making a living income,” Peter says. “And if producers can’t make a living income then the future of the coffee industry is at stake.

“If even 30% of the money that consumers spend on coffee goes back to producing countries, the conversation around living income would be completely different,” he adds.

Chad agrees, saying: “We have to fix the value distribution in the coffee supply chain so that it can also be profitable for producers.”

A key part of this is ensuring that farmers make enough money to sustain not only their businesses, but also their livelihoods. This includes supporting their families and communities, too.

Findings from ongoing SCTG research suggest that during the 2018/19 and 2019/20 harvests in Colombia, less than 5% of specialty coffees which scored between 80 and 83.9 points were traded above the living income price threshold.

Although the solutions to this problem are deeply complex, Chad believes that disseminating knowledge more equally across the supply chain is key. He says that smartphones and social media have been instrumental for this over the last few years.

“With this influx of information [using different forms of technology] and access to different pricing levels, producers are starting to request prices which are commensurate with what they should be receiving,” he explains.

Breaking down the final price each individual supply chain actor receives per cup of coffee is challenging – especially for farmers. Furthermore, information about price transparency remains difficult to access, making it even more of a challenge to find out just how much producers are paid.

However, a push for more transparent, traceable, and sustainable coffee across the board is certainly a sign that things are moving in the right direction. While there is still a huge amount of work to be done, hopefully this progress can indicate that there is a foundation to pay farmers a fair, equitable price for their coffee in the long term.

Enjoyed this? Then read our article on producer perspectives on farmgate prices & technology.

Photo credits: Melina Devoney

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