Why many farmers won't get rich from high coffee prices

For anyone in the coffee business, the past year has been historic: Never before had the global price for green coffee broken $4 per pound. It has now done so five times since February, driving up the core cost of commodity coffee — and the specialty contracts pegged to it — beyond anything we've seen before.

This is what many in the craft movement have wanted, right? Don't higher prices for coffee mean more money for often-exploited farmers? Alas, it's not that simple. 

It turns out that a system designed and controlled by traders and corporations in the Global North still tends to benefit them, even when prices spike. (They're the ones who can afford to bet both ways.)

Here's why high market prices don't necessarily make farmers rich:

1. The core reason prices are high is that many, many coffee farmers had smaller crops last year. In a classic case of supply and demand, bad weather in Brazil and Vietnam in particular means that producers simply have less coffee to sell. So even if the price is higher, they could still make less.
2. Many farmers don't get the benefits of higher prices because of how they sell their crops locally. For example, if a producer sells ripe coffee cherry to a local mill for processing, she may only get 30% more while the more powerful mill keep a bigger share of the new money for itself.
3. Many coffee producing countries devalue their currencies in order to boost exports (making them more attractive to buyers) or to make their own government debt easier to manage. However, that means that while a farmer could get paid twice the amount of last year's price on paper, once you consider the depressed value of the local currency it's not much of a change. Their relative power within the supply chain may even diminish as a result.
4. The big price swings sometimes lead farmers to make poor choices. As an example, some growers may try to hold on to their coffees for longer in hopes that prices will go even higher, only to discover that the quality of their crop has diminished in storage, or that exporters have already moved on for that harvest cycle.  
5. When coffee prices whipsaw, it can give farmers more cash short term while actually making it harder for both farmers and coffee buyers to make long-term plans — and long-term commitments are a key strategy for supporting producers. Locking in farm improvements or multi-year coffee purchases are always trickier when green prices are spiking up and down.

We've worked with our main farming partners to sell more of their coffees at the top of the market so that they can take advantage — record high prices are a golden opportunity for some. But it's never a slam dunk.

Cafes, meanwhile, face rising costs across the board, not just for coffee beans. We're trying to help there too. That's another post.

Chart via Business Insider.

Ben Szobody and Micah Sherer are the co-founders of Skylark. Micah has years of experience working in the supply chain with producers, exporters, importers, roasters, and cafes. Ben is editor of Cherry Bones magazine.