What Determines the Price of Green Coffee?

As coffee prices have increased in the past 18 months, more customers have inquired as to what goes into the price they pay for their roasted beans. Let’s take a look at the most common questions and determine what really goes into the cost of green coffee.

1) What is the NY US “C” futures price that coffee is traded on? The NY “C” price is based on the commodity market on any given day. It is the base price used for coffee purchasing. We then pay a differential, which is added to the overall “C” price.

2) What is a “differential?” Differential is the difference between the base, or “C” price of the green coffee and the final price that we pay. Differencial is determined by the coffee broker, the farm, or the country of origin, and is based on the quantity and quality available, in the long and short term.

3) What costs are involved in getting the beans from the farms and ports to our roasting facility in Raleigh, NC? A carrying cost is added for any contract that is purchased over time, to cover storage in New York, insurance on the coffees, etc. Often it is represented by 3 – 5 cents per pound, green. To ship coffee from a farm to the US, insurance must be purchased for the coffee. It is then sealed into a shipping container and goes through customs and port authority just like any other inbound shipment. Then it is unloaded, palletized and brought to storage facilities for a fee.

4) What factors cause the “C” and/or differentials to change? Outside commodity trading effects the “c” price of coffee. For example, if oil increases, so do transportation costs. Weather also plays a big factor – most notably weather in Brazil, since it is the largest producer of coffee today. Crop forecasts and predictions in Brazil, Colombia or even Vietnam can affect the overall “C” price of coffee. Let’s say an origin country is experiencing months of poor weather conditions and social strife. Economic forecasters can probably assume that coffee production would be less than what was expected and what consumers demanded. The shortfall would likely drive the “C” price up.

5) How does the quality of the coffee affect its price? The better the quality, the more work is involved during harvesting, processing, etc., therefore the differential is greater and thus, the coffee is more costly.

6) How do certifications (Organic, Fair Trade, Utz, etc.) affect the price of green coffee? More effort is involved in certifications, and the costs of certification agencies add into the overall price.

Also, keep in mind that one pound of green coffee typically only yields around 3/4 of a pound after roasting.

Mike Adams & Brandon Riggs
Stockton Graham & Co.

Getting a Bounce from Commodity Prices

Prices for Arabica coffee rose to a 14-year high last week in the middle of a global shortage that is sending ripples throughout the entire supply chain. Some market analysts predict we could see the 30 year high come and go in the coming months.

The decision to raise prices is a difficult one, but doing so on the retail level is an absolute necessity at this point. Green coffee prices have spiked almost 150 percent in the last year, which means if your shop hasn’t moved yet, the time is now. Even large companies with tremendous buying power that can afford to absorb some increases are feeling the heat – Starbucks, Dunkin’ Donuts and Folgers are all raising prices, among others.

Keeping your base informed of why the decision to raise prices was made is critical to retaining business. A noticeable change is an opportunity to have an open dialog with people who are paying attention to your shop. A customer who is asking questions is paying attention, which means they are an opportunity and a major asset.

These facts and tips can give you the tools to educate, inform and expand your customer base:

“Why are your prices going up?” Thank you for taking the time to ask. Over the last year, green coffee prices have increased around 150%. Many times we are able to absorb these increases. Like all commodities, prices fluctuate based on a number of different variables, which affects supply and demand. At the moment, supply is low and demand is very high. Eventually, this will have to reverse itself and we are monitoring it closely.

“Why is supply so low?” There are a number of reasons why crop yield is low, but it has a lot to do with bad weather in major coffee producing countries. In Colombia, for example, extended periods of torrential rainfall has wreaked havoc on production. Brazil, on the other hand, is recovering from a long drought.

Now they’ve asked questions, ask yours. What do you love about coming here? What would you like to see more of? You want to have a finger on the pulse of your customer base’s wants and needs.

You may recall the project Marketing Area Profile (MAP) we offered last year, which is still available and relevant right now. We created it to help the business owner increase sales, average ticket and profitability. The premise behind the MAP is to help you build upon your core strengths using the area surrounding your store, which offers the greatest opportunities for building and sustaining your business. We believe it’s critical to help document your current situation, competition and areas for growth. To request your free Marketing Area Profile, please call your Customer Care Associate at (800) 835-5943.

Give more bang for the buck. Anything that adds value without dramatically increasing overhead should be considered. Value pairings (small coffee + muffin), Free Shot Fridays, free cup of drip with a purchase of retail coffee, free flavor shot between 2:00 – 5:00, double stamps on loyalty cards, bring a friend, get 50% off your drink, .99¢ Latte Day, add unique garnishes that add value without adding much cost, etc.

Keep your employees informed and make sure they know how to answer any questions that come up. Imagine an unprepared barista attempting to explain a price increase. Also, don’t panic too much about raising prices. Most customers aren’t going to stray just because the price of a cappuccino goes up by a .25¢. If your competitor down the street isn’t reacting and is keeping prices too low in order to capture small sales from value shoppers, they are only hurting themselves.

Mike Adams
Stockton Graham & Co.