Understanding The Farmgate Price

Welcome to our third post in the series $1-$1000. This series endeavors to explain the reasons for such a broad gap on coffee farm prices. The first post laid the groundwork by showing the reality of coffee prices today for many small farm holders. There we noticed that many of them only receive about 6¢ for every $3 cup of coffee. 

The second post gave a brief description of how people are stepping up to the plate. We learned why the Fairtrade organization came into existence, we also briefly touched on Direct Trade. Finally, we mentioned the efforts of good-hearted people who moved to destitute coffee regions with the hope of helping these communities earn a sustainable living.

We will now take a closer look at a new phenomenon made possible with today’s technology, “transparency”. In this post, transparency has to do with the business transactions between the green bean buyer and the farmer. In order to provide authentic transparency, some organizations have been using a technology called “blockchain”. 

What does this all mean? How does it work? How does it benefit coffee farmers who may not have electricity where they live or even a bank account? Let’s dig in!

Understanding Some Transparency Jargon

Farmgate, traceability, sustainability, and blockchain. These four words have become very common to this newer generation of the hard-working folks in the coffee industry. Now, more than ever, concrete steps are being taken to include the smallholder coffee farmer in the “earn a living circle”. What do these words mean and how are they linked?

A key factor in transparency is traceability. Traceability is where the data is registered for anyone to see upon request. Blockchain technology is what is used to ensure that the data is not tampered with. This open data provides the necessary information to prove if the farmers are receiving a “sustainable living”. The best way to understand sustainability in this context is when the farmer’s standard of living is relatively stable upon three pillars – economic, social and environmental.

The data that is registered starts with the farmgate price. Farmgate price, generally means how much the farmer was paid at the point of sale. 

Understanding Farmgate Price 

This all looks quite simple and straightforward. Right? Unfortunately, things are rarely as simple as they seem at first glance. When one takes a closer look at registered farmgate prices, it is possible to notice wide discrepancies in prices. Of course, there could be obvious reasons such as different countries, varieties, species, processes or cup quality. These prices could range between $1.20-$7 per lb without getting into auctions. 

The key to identifying the true farmgate price is to know at what point of the process did the farmer sell their product? Like everything else, coffee processing costs money. There are a lot of steps to be taken from the harvest to port. 

The farmgate prices for our farms and mill in Coclé, Panama, are as follows:

ProcessCostFarmer Sells at
Cherry just harvested$1.55 per lb$1.55
Wet milled to dry$0.25 per lb$1.80
Transportation and dry mill$1.00 per lb$2.80
25% unforeseen costs, taxes etc.FOB 0.70$3.50

In the first instance, the farmer sells his coffee to the wet mill, sometimes called the “wet station”. This may be a cooperative, an association or something along those lines. Here the farmer will be paid the price set by the cooperative. 

When these cooperatives are large national companies or organizations the prices tend to be extremely low. In a recent interview I had with a producer in Guatemala, I was shocked to learn that the farm gate paid by a large company there was approximately U.S. 20¢ an lb. Of course, that would fluctuate according to the value of the currencies each day.

Prices tend to be better in private wet mills such as ours. Coffee will be paid according to quality and variety. For a better price, the farmer needs to do his best to ensure he sells only fully matured beans. 

Coffee Pricing
Coffee cherries being dried after removing dirt and debris

When the farmer washes and dries his product and then sells it, they can expect a better price. This is seen in our chart. Each step of the process the farmer makes before selling enhances his farmgate price.

Processes are important, too. Washed is great and always popular. However, natural processed or honey processed if done well will fetch a better price. I won’t even get into other processes like anaerobics and others. 

As a whole, the arabiga species pays better than robustas. Pacamaras and geishas pay better than caturras or tipicas. 

Why Be Transparent?

That is a real good question. Why would importers or roasters want to make that information public? Some may compare it to walking in public in your underwear. Others believe there is a good reason for it. 

The world has become a much smaller place thanks to modern communications and technologies. In many circumstances, the consumer demands fair pay for the hard-working people in 3rd world nations. Hence, it is good business for coffee roasters and green bean buyers to show their clients that they are the good guys. 

A great way to do that is to prove that they are paying the cooperatives and producers of their coffee a fair price. This goes a lot further than displaying a couple of selfies of someone hugging a farmhand on a coffee farm.

Benefitting the Farmer

It is true that the farmer may never see the information on a blockchain app. Even if they did, they may not understand it if it’s in English and they speak Swahili, Spanish or Portuguese. However, these buyers and roasters really are paying the farmer a better price for their products. 

The roasters would not be able to provide these coffees without the support of their clients who demand fair prices for the farmers. Once again, the criteria of the clients is the wielding force behind these movements. We encourage all coffee drinkers everywhere to be of like mind and support roasters and coffee shops who do what they can to ensure a fair price to the farmer. What about you? Is it important to you that coffee farmers earn a living wage? Let us know!

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