Above is a link to an article from Coffee Kids, a non-profit dedicated to improving the quality of life of coffee farming families all over the world, about what I would consider to be the elephant in the room.
Smart investors know that in troubling economic times, commodities are a safe place to store their money in hopes that the inevitable inflation’s effect on them will keep the value of their money at or above its true worth. Any fan of Jim Rogers is already familiar with the concept.
The problem, however, is that such speculative investment practices are often done by people with no interest in the industry behind the commodity that they are hoping to nest their money into, and more often than not have put little (optimistic) to no (realistic) thought into the matter. Speculation, as is evidenced by the real-estate bubbles (plural.. it’s an international phenomenon), drives prices higher. The question is how those inflated prices effect the industry. In real estate, it makes purchasing a home more difficult for legitimate home-buyers who now must take out a larger mortgage to get the same amount of home.
Let’s carry this concept over to coffee. The C-market for coffee futures has been on an upward trend for awhile. It’s broken beyond the point that most of us in the coffee industry expected it would go. Historically, it would normally have plateaued and then begun its downward trend back towards normal, even if the new “normal” is higher than the old one. The dilemma that’s effecting us today is the fact that the so-called plateau has yet to be reached, with the new prospected “normal” being unknown, but certainly higher.. and significantly so.
Yes, it is the commodity market, and no, we are not purveyors of commodity grade coffee. So how does this effect us, and more importantly, you, the consumer?
Specialty Coffee has always had a foothold in that businesses and consumers alike are always willing to pay more for a premium product. It’s common sense. A Lexus is worth more than a Scion. It is a higher quality product, and consumers understand the value difference, and thusly, are willing to pay a higher price. You get what you pay for. In the case of the example, you pay more money to get more car.
Coffee, however, is not like a car. Coffee lies in the realm of value of experience, rather than tangible value. An excellent cup of coffee is more enjoyable. What’s more, we feel good paying more to enjoy more while knowing that we are able to help improve the lives of the producers who were paid a higher price for their attentiveness to quality.
With the commodity prices rising so much, does this incentive still exist? How valuable is coffee, anyway?
These are the questions that are yet to be answered. I am hopeful, that with proper perspective and education, this little bump in the road can be a launching pad for greatness. Most people don’t think twice about a $7 4-6oz. glass of mediocre wine at a favorite restaurant. After all, a good wine is complex; a social lubricant; an experience.
As much as I can understand that about intentionally and skillfully spoiled grape juice, I see this more in the beautiful seed that we call coffee. Coffee is known to be at least twice as complex as wine in regards to flavor potential. Coffee has a history of productivity, positive mood enhancement, and, just like red wine, an excellent source of anti-oxidants. What’s more, coffee tells a story. A cup of coffee is often shared with conversation, a quiet moment alone, a witnessing of the day’s glorious sunrise, and it ties us all together, if you let it. The experience that a great cup of coffee can provide is easily worth more than the experience from a glass of wine.
When we do the math, a cup of specialty coffee that provides so much experiential value is ludicrously cheap. It’s the deal of the century, and we are more fortunate than we often realize to be able to get such enjoyment from a measly $0.55 (assuming $13/12oz. bag).
Are prices going to rise? Absolutely. What does this mean for coffee? Hopefully, it means that we can do for coffee producers what the wine revolution did for wine grape producers: vastly improve their quality of life.
You see, most coffee producers live in developing nations, with hopes to get an education, hopes to be able to get medical attention when needed, and unfortunately, sometimes hopes of being able to feed their children. Coffee Kids intends to supplement however they can to help these people. The Specialty Coffee industry has been trying to do this the “organic” way by paying higher prices for a higher quality product, while exchanging information in an effort to help enable them to do just that.
This commodity market speculation and its effects on the coffee industry can likely go either one of two ways. A)It can increase the value of coffee and spark a “coffee revolution” of sorts, or B)it can put the price of coffee beyond the willingness of consumers to pay more for quality and put a real dent in our efforts.
We optimistically hope for scenario A.