Thursday, May 14, 2015

23. Costs to Produce Coffee - the danger of averages

May 15, 2015
SCAA Seattle - Apr. 11 - "Cost to Produce vs. Price" Panel

A month ago I had the honor of moderating a panel of three experts at the SCAA conference in Seattle.
The content of this panel was amazing, if I do say so myself as the organizer. The panel members were so awesome in their willingness and ability to deliver real content -- they shared data and details -- a glimpse of the costs they shared are below. But the conclusion from looking at costs was unanimous from all three panelists -- "it's dangerous to use averages." Averages hide variability. If coffee a buyer limits the price paid to a Nicaraguan farmer based on an understanding of a national or even regional "cost to produce" number, that buyer may think he's paying a huge premium, and in fact be part of putting that Nicaraguan farmer out of business.

Ben Carlson, Long Miles Coffee Project and Mark Lundy, CIAT
Mark shared new to the world data on findings from the CRS Borderlands project in Narino, Colombia. His team first segmented coffee producers first by the importance of coffee to their household. He defines the
  1. "Coffee Specialists" (coffee > 50% of income)
  2. "Diversified Coffee Farmers" (coffee income = income from other sources)
  3. "Off-Farm Income Farmers" (coffee < 50% of income).
This is all shown in a beautiful infographic that shares many other details about each of these three segments. Importantly, the costs to produce for each segment are different.
Narino, Colombia Costs:
1. Specialists = $1.58/lb. parchment coffee
2. Diversified = $1.40/lb. parchment coffee
3. Off-farm income = $2.38/lb. parchment coffee

Ben shared data from a 2014 report he helped produce with Integrity Research from London. The work was contracted by the Trademark East Africa group.  Their research included five coffee-growing provinces which would be the majority of the coffee producing provinces. They sliced the data by farm size and showed the following:
Burundi Costs:
< 300 trees = $0.73/lb. parchment
300 - 500 trees = $0.68/lb. parchment
500 - 800 trees = $0.74/lb. parchment
> 800 trees = $0.65/lb. parchment
(using cherry to parchment ratio of 6:1)

Finally, cost data from COSA gave us a remarkable 7 country span:
Country V = $0.52/lb. parchment
Country I = $0.72/lb. parchment
Country N = $0.92/lb. parchment
Country C = $1.12/lb. parchment
Country G = $1.32/lb. parchment
Country K = $1.52/lb. parchment
Country C = $1.96/lb. parchment
(The exact names of countries are intentionally withheld by the author, COSA, in order to avoid over reactions by groups in those countries and also to avoid getting distracted from the point -- which is the wide variety of costs between and within countries.)
Daniele's slide immediately following the numbers above showed profitability for these same countries:

Country V = $0.22/lb. parchment
Country I = $0.73/lb. parchment
Country N = $0.78/lb. parchment
Country C = $0.72/lb. parchment
Country G = $0.45/lb. parchment
Country K = $0.17/lb. parchment
Country C = $0.38/lb. parchment

SPECIAL THANKS: to Mark Lundy for impromptu translations as several Spanish-speaking producers came to the microphone.

SPECIAL THANKS to audience members who suffered through my poor translations from French to English of Ben's slides.

SPECIAL THANKS to Daniele Giovannucci because although he couldn't be there due to a time conflict, he arranged to have his organization represented. With several coaching sessions prior to the event, Daniele brought me up to speed so I could present his slides.

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