"We shouldn't sell the growers short"
Steven Macatonia, founder of Union Hand-Roasted Coffee, reveals why capitalising on the falling global price of coffee will have huge long-term costs
Back in August 2018 the world market price for coffee dropped below $1 for the first time in 12 years. Now, more than six months later prices are still hovering at a level that will lead to devastating effects on many coffee-producing communities around the world.
At Union, we buy specialty coffee, which although trading on a separate platform from commodity coffee, is still influenced by the trends of the NY Commodity market. Specialty coffee pricing depends on several aspects – mostly the cost of production (by country) and a quality differential. Also, simple fundamentals of market supply and demand. To produce specialty coffee takes particular levels of skill, techniques and hard work. This creates coffee with explicit flavour attributes and characteristics that impart intrinsic value. This is a different approach from commodity production, which is defined as a substance (eg coffee) that is interchangeable with another product of the same type. Commodity coffee has no inherent value and is only priced according to the world market fundamentals.
We source our coffee through a business model we created called Union Direct Trade that has been fundamental to our business since 2001. This is built on principles of ethical trading, including long-term relationships with coffee producers who grow high-quality specialty coffee and is driven by paying a sustainable price. In 2017-18, our most recent years of analysis, these averaged 50% above the Fairtrade minimum price. Our approach is to have the price negotiation with farmers at the beginning of the season to ensure they can cover production costs, invest in their farm and provide for their families, but also with commercial realism on what we can afford to pay. In 2017 we were awarded the Queen’s Award for Sustainable Enterprise for our model.
Underpinning this is our long-term commitment to sustainability throughout our coffee supply chain. Ethical trade is not like carbon-offsetting schemes; you cannot compensate harm done at one place in your supply chain by implementing a project at another place. You cannot pay sustainable prices one year and then low prices another year. Union Direct Trade is about consistency and about recognising the value of coffee
so that farmers receive fair prices, irrespective of what happens with the world commodity market.
At Union we ensure responsible purchasing practices are followed. Sourcing ethically helps to sustain coffee farmers and strengthen their communities, and guarantees we have a supply of high-quality coffee for our customers.
For a farmer who grows commodity coffee, continued low prices will be devastating. The previous time we saw these low prices, back in early 2000s, families suffered significant poverty and poor nutrition. It led to extreme situations where families were forced to abandon coffee production altogether. It was seeing this hardship that was our motivation for starting Union in 2001.
Low prices affect workers because there is less money to support farm management processes, incomes are lower and employment is reduced. It is recognised that coffee farmers worldwide are an aging population nearing the end of their careers; the low market returns further discourage younger generations from taking up farming.
The Specialty Coffee Association and the International Coffee Organisation recently announced initiatives to address the price crisis, focusing on exploring alternative pricing benchmarks and educating consumers about coffee farmers’ harsh economic reality.
Low prices are likely to have a knock-on effect on the quality of coffee in the coming years. A coffee tree takes three to four years to mature to full productivity, which is a relatively long-term investment. But with prices so low, farmers may be unable to afford farm management, which may mean there is no harvest at all.
At Union we source and roast high-quality, specialty coffee for those who share our vision. We hope a growing number of people will join us and place the same value on how their daily dose of coffee is grown and sourced.
To find out more go to unionroasted.com