Not As Easy as Pie

I had the privilege of attending Michael Sheridan’s “Millions on the Margins” farmworker panel at SCAA. The aspect of the panel that most resonated with me was actually a conversation I had with Erik Nicolson (of United Farm Workers) at the CRS reception. As a panelist, Erik made call for moral outrage at the conditions farmworkers experience and the compensation they receive, and I agree that moral outrage is important to catalyze the “long march from awareness to action” Michael identified in his opening remarks. But, I also think that a new kind of investigative economic study is necessary to really understand why farmworkers, the people at the genesis of the supply chain, are getting such a bum deal.

Working backwards from where the $4 for your latte goes to see how much makes it to the farmer/farmworker is the wrong way to do it; it’s not a pie that can be sliced, it’s a bunch of pies that have to be sliced, stacked, and sliced again.

Dividing up the cost of a latte only serves to break down how retail items cover the costs of running a café. If the cost of one ingredient in one product that a café sells (as coffee is in a latte) is anywhere near 25% or 30% of the cost of that product, then that café will never survive. A latte is priced as it is to cover the cost of real estate, the espresso machine, electricity powering the machine, employees running the machine, and all the other line items on a café’s cost of operations.

I think people want to “trace their dollar backward” because that’s how it maybe feels most connected to us as consumers, but what we really have to do is trace the product as it moves upstream to downstream (from the fields to retail) in order to understand who is making how much money off that product–in all its forms–and then we can determine if those value shares seem commensurate with work performed.

Tracing produce is easier because an apple stays and apple from when it’s picked to when it ends up in the bin at Whole Foods. With coffee it’s tricky because the weights and measures used to value it change every time coffee changes forms. These transformative thresholds are the slippery links in the supply chain. The thing that does seem most bizarre, as Michael mentions in his CRS blog post “Value,” is that all farmworkers are paid by the piece, and the price-per-piece is always derived from the C market price, which is tethered more closely to supply, demand, and speculative forces than it is to physical coffee. The people making the most money off coffee are not in fact making money off coffee itself, but rather of shifting values of coffee, hedged as trades on the futures market.

Let’s say a worker picked 60kg of coffee a day for 6 days a week for 12 weeks (4,320 kg). He would probably be paid slightly different amounts for those kilos over the course of 3 months, but all according to the C market price at the time he’s picking. By the time that coffee gets processed and packed on a container to be exported and traded, the C market price will be something completely different, and the same exact coffee will have a different value, not just because it’s been processed to a different form, but because the arbitrary value assigned to coffee will have shifted.

Even if the market price were relatively stable, depending on the supply and demand for coffee from that region, the differential for that particular quality of coffee could have skyrocketed or plummeted. The very same physical product assumes a wildly different value, not just because it’s dried green coffee versus freshly picked cherries, but additionally because there are speculative forces (such as funds) driving the C market price which dictates the base to which the actual “supply and demand” regional differential is applied.

I think it would be fascinating to follow a volume of coffee, say 100,000 kg of fresh cherries picked during the peak harvest on a given farm, and trace that same physical volume all the way to retail. First, calculate how much it costs the owner to pay farmworkers to pick it. Once that coffee is depulped to remove skin, washed to remove mucilage, and dried to become parchment and is, say, 60,000 kgs (40% weight loss), see how much that same volume fetches when a farm owner sells it to the coop/mill. Once it is milled and becomes green exportable coffee, say 48,000 kg (105,600lbs, or almost three 37,500lb C contracts, a 20% weight loss), see how much the coop/mill exports it for and see how much a roaster pays for it from an importer (or direct from the coop/mill acting as exporter). Then, once that roaster turns it into roasted coffee, say, 38,400 kgs (20% weight loss), see how much the roaster sells that coffee for per pound, and multiply that by 84,4480 lbs (38,400 kg).

I haven’t seen anyone do anything like that, but I think it would be doable now because so many roasters roast large volumes of single origin coffee, whereas when the price per pound of coffee is for a blend of several different coffees it would be impossible to tease out the price per pound for a volume of coffee from one place once it became part of a blend.

It seems like something to this effect would give a clearer sense of how much every player in the chain is netting for the same physical volume of coffee as it is transformed across physical forms and assigned values. It might be most straightforward to do it in Panama, or some other place that uses the USD to avoid the added confusing layer of currency conversions. (And certainly it wouldn’t work in someplace like Costa Rica that pays pickers by volume not weight!)

As Miguel Zamora (of Fair Trade USA) commented (both on the panel and in his remarks at the FT USA reception), that if you don’t buy producers’ coffee and pay them handsomely for it, not even the most well-intentioned farm owner will have any money to do the great things he/she wants to do for workers. Even though tracing the consumer dollar backward doesn’t really work for coffee, it is that consumer dollar that informs all the other payouts everyone receives, and perceived value is certainly the strongest driver determining the destiny of the consumer dollar.

Originally written as a response/comment to Michael Sheridan’s SCAA panel and “A Dignified Life” and “Value” posts on the CRS Coffeelands blog.