Coffee transparency-reporting by roasters - comparing two roasters' green beans costs

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Acavia
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#1: Post by Acavia »

How would you compare these two roasters' costs. These costs are in US dollar.

Sey discloses Farm Gate, FOB and FOT costs on each coffee. Farm gate is often $6 to $10 per kg, and the final/higher FOT price is usually 30% to 50% higher, in the $9 to $13 range per kg.

Recently, I ordered some Red Rooster's coffee. It lists its green cost. The coffees I bought were near Red Rooster's higher price coffee, with one reporting its green cost at $6.28 per pound. ( A C-market price of $1.86 per pound was also listed for that particular coffee. I am not sure if that is in addition to the green $6.28 cost or part of that cost. )

What surprised me is the Sey green coffee cost is much less. For example a recent one I received had $7.06 per kg, or $3.20 per pound, less than half the cost of Red Rooster's. But that Sey coffee had a FOT cost of $11.56 per kg, or $5.25 per pound, which is closer to the Red Rooster cost.

Based on Sey showing FOT final cost and being a larger, world-famous roaster, and Red Rooster, a smaller regional roaster, showing only a green price, I am making the following assumption - and wondering if this is correct: Sey's lower farm gate cost is what a Sey representative paid at the farm gate, then Sey had to pay for transportation back to NYC, which is the FOB and FOT total costs. Whereas Red Rooster's green coffee reported cost is the total price that Red Rooster paid to receive the coffee with an importer handling the transport to Red Rooster. Basically, Red Rooster's green price included the buyer/importer's adjusted price costs, so the final comparison between the two roasters would be between Sey's FOB final price and Red Rooster green coffee price.

Is that the correct way to compare these two roaster's costs: Red Rooster's green coffee price vs Sey's FOT price?

Milligan
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#2: Post by Milligan »

You are pretty much right. Comparing the two highest prices is most likely what their final cost for the greens to their warehouse is. Farm gate is what the coffee costs at the farm. FOB is what it costs to do all the transporting and processing to get it on board the ship to sail to the destination. What Sey means by FOT is including the destination port fees and logistics to get it on the domestic truck to do the final delivery to their warehouse.

Sey seems to be working directly with farmers while Red Rooster likely goes through an importer, as you say. They may be purchasing spot for some coffees which means they buy it from an importer that has it in their domestic warehouse ready to ship.

C-Market is what the commodity price for coffee is trading at currently. Red Rooster likely lists the C-price to let their buyers now how much of a premium they are paying for their greens compared to the floor.

Unfortunately, transparency in the coffee industry can be very opaque to the average consumer with so many numbers to talk about.

Acavia (original poster)
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#3: Post by Acavia (original poster) replying to Milligan »

Thank you for explaining it. I like to know how things work, and your explanation helps, especially on the c-market.

Acavia (original poster)
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#4: Post by Acavia (original poster) »

I assume Sey, through purchasing power, gets better prices and saves money by doing some of the logistics work itself. So all else equal its costs are going to be less than smaller roasters for the same beans.

Milligan
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#5: Post by Milligan replying to Acavia »

Farm gate is the best indicator on what the producer actually takes home. Some larger farm coops handle processing and shipping through FOB, so it can get a bit muddy still. I believe Ethiopia handles everything domestically through FOB without foreign middlemen (others will know more than me about the nuances of each country.) A roaster finding a producer to directly purchase from eliminates some expenses compared to buying spot or through an importer. However, a roaster has to be quite large to make that happen.

Something else to consider is that cost is not always associated with quality of green. Sey may simply have found coffees that match their market targets at a lower cost due to a better green buying program or long term relationship guarantees.

If you'd like to dive in a bit on the topic there is a good book on Rao's site:
https://www.scottrao.com/products/dear-coffee-buyer

Another that goes into the history and economics of the coffee industry more broadly can be found here:
https://www.roastmagazine.com/shop/products/cheapcoffee

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luca
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#6: Post by luca »

Acavia wrote:Is that the correct way to compare these two roaster's costs: Red Rooster's green coffee price vs Sey's FOT price?
I don't think that there's really enough information to do this. Sey go and taste stuff in different countries and engage exporters and importers to do the logistics for them. I had a look at Red Rooster's webpage and couldn't tell what they do. For all I can tell, they might be buying coffee chosen by a local importer and stocked locally. The local importer may have a margin on it that is much higher than the logistics costs that Sey pay. Importers and exporters have a wide variety of cost structures that follow the risk.

If Sey are selecting the coffee on the ground in country, they may have bought it at that point, so there may be no risk to the importer of Sey rejecting it; the importer didn't make the decision to buy it and do any QC if there are quality problems with it when it arrives in Brooklyn, that might be a matter to be resolved between Sey and the producer or the exporter; the importer may bear no risk and, so, they may not be charging Sey anything on account of that risk.

Red Rooster, for all I can tell, could be buying spot from an importer. They may make no commitment to the importer to take the coffee at all, and may simply be buying what the importer has avaiable to ship from time to time. The importer may have selected the coffee and Red Rooster may buy based on tasting a sample and be entitled to reject the coffee at the importer's risk if it doesn't match the sample. Red Rooster may not be committed to any particular volume, so if it sells less quickly than Red Rooster may like, the importer may have the risk of having to sell it to others (and Red Rooster may equally be competing with others for the supply). So the importer may bear more risk in selling the coffee to Red Rooster and may thus (and for other reasons) be charging additional margin and fees to Red Rooster compared with Sey.

Without knowing these things, you don't know if the "producer" (whoever that may be eg. single farmer vs coop etc) has received more from either of these roasters, even if one of them lists that they paid a higher price than the other.
LMWDP #034 | 2011: Q Exam, WBrC #3, Aus Cup Tasting #1 | Insta: @lucacoffeenotes

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Almico
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#7: Post by Almico »

luca wrote:Without knowing these things, you don't know if the "producer" (whoever that may be eg. single farmer vs coop etc) has received more from either of these roasters, even if one of them lists that they paid a higher price than the other.
Which reinforces the point that trying to appear transparent in most cases is nothing more than virtue signaling.

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Jeff
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#8: Post by Jeff »

You're a commercial roaster, correct?

As a consumer, I prefer more information about my potential purchases, even if imperfect.

Milligan
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#9: Post by Milligan »

At some point this stuff is like requesting documents for discovery and they send you 500 bankers boxes to go through. It depends on what the consumer wants to know. Do they want to make sure the farmers are well compensated? Then maybe farm gate. However one has to consider the purchasing power of a dollar at each origin as well. Dollars don't go as far in Jamaica vs Honduras for example. But what about the processors, origin transportation, and local warehousing? Many of these are run by locals and support their economy just as much as farm price of coffee.

Some origins/farms use different processing techniques that take more or less time and labor. Comparing those coffees between two roasters could make one appear that the farmer is better compensated but their expenses are higher so they may actually be worse off.

Then there are logistics efficiencies and risk. Less risk, lower price. A roaster that has a highly efficient logistics and green buying program may do amazingly well on the logistics but then be questioned why their green is so cheap compared to others buying spot. The appearance being they buy lower quality green or don't support farmers where that may be 100% wrong.

More info is good in general but information without the knowledge to interpret it can be worse because incorrect assumptions could be made. It's complicated and I don't have the right answer. In the end, unless the farmer, importer, and roaster all open their books and we have an expert go through them then we really don't have the full picture to make real determinations on questions a potential buyer will have. That doesn't mean I'm for no numbers at all, but approaching them knowing there is much more to the picture than can be broken down into a few prices on a website is a healthy perspective to have.

archipelago
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#10: Post by archipelago »

So, quick rundown here, since transparency without context is not that helpful or useful:

Farmgate Pricing: The price paid to the farmer, ostensibly. In some countries, this price may be for cherry (as in outgrower schemes or central collection/processing stations); in other countries, this may be for wet parchment (like Nicaragua); in other countries, it may be for dried parchment (like Colombia, for example). Unless you understand exchange rates, local cost of living/poverty level, and the domestic market (e.g. what others are getting paid for similar qualities or grades) it's difficult to parse if the price paid is actually "fair." It gets even more complicated when you add in the questioning of timing: is the farmer paid immediately or quickly (typical in Colombia) or do they not get paid until final sale/export (like Kenya). Or is there a second payment at export (which can help defray the need for financing)?

Coffee in any state-ripe cherry, wet parchment or dried parchment-will need to be processed further and sorted. Any sorting and milling will reduce the yields. How much it reduces the yields will depend on the intensity of sorting and how actively the mill rejects coffees for defects, density, color-but the lower the outturn percentage, the greater the disparity between farmgate pricing and export pricing. The miller needs to be paid (very few producers outside of Brazil or larger exporters will own their own dry mills) as well, and there are costs associated with marketing the coffees as well as financing, storage, protection, transportation and preparation for export (bags, Grainpro, phytosanitary docs, export paperwork).

At that point, we're at FOB "Free on board" or "freight on board" pricing. This includes all of the previous services and movement of goods up to the point of export and is representative of the cost that the importer pays the exporter at the time the coffee changes custody from the exporter to importer via loading into the the SSL or freight carrier. This is most often the number you see reported since it is the point at which money is no longer 'at origin' and instead represents importer costs and margin.

With Red Rooster's language, it's hard to tell if the "green price" is from the importer; it does seem to me that it does. Often, if you're buying from a spot list, it's not possible to get transparency, particularly if you're a smaller roaster. Typically, importer spot prices will include financing and marketing costs (since they expect it will sit in a warehouse in their inventory for 6-12 months before selling) while forward booking prices (meaning, contracted before it arrives to the U.S.) will be lower. If a roaster (like Sey) is using an importer merely as a service provider-for facilitating financing, logistics and customs clearance-that's typically even less expensive. In that case, the importer acts as an agent for the roaster, purchasing the coffee from the exporter on their behalf, and transporting it to the U.S. with the roaster bearing the responsibility of quality assurance and approvals as well as most of the risk for the transaction.

One additional quirk is that even if a lot appears to be the same-same washing station, same process, same harvest-unless the roaster specifies a lot or outturn designation, it's not possible to know for sure as a consumer if they are, in fact, the same. Many producers will sell coffee through multiple channels, so it's also possible to see a lot from the same producer across two or three importer offering sheets, but they will almost certainly be of different qualities and cup characters and sold for different prices.