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I have been speaking about quality premiums on this blog before. I took it as a matter that you understood the quality premium as the additional USD/lb that is paid to the grower for a coffee quality above the market’s average. However, specialty premiums are also paid to roasters, by us, specialty coffee drinkers. Are the specialty premiums for green beans comparable to the specialty premiums for roasted coffee?
Daily Coffee News magazine recently published an interesting article mentioning the SE@G, an academic center at Emory University’s Goizueta Business School that has developed the Specialty Coffee Retail Price Index (SCRPI). The SCRPI averages the prices of the lowest priced and highest priced coffees of 58 specialty roasters in the United States. In March 2015, the lowest priced coffees on this index were sold at 16.51USD/lb, the highest priced coffees at 27.52USD/lb respectively.
I compare these prices to the coffee retail price published by the Bureau of Labor and Statistics of the United States Department of Labor. Ground coffee sold in the US during March 2015 was on average priced 4.83USD/lb. Given these numbers, specialty roasts sold for prices that were between 3.4 and 5.6 times higher than prices for conventional coffees.
Of course this is a heuristic approach and this ratio should be consumed with the same carefulness as a cup of specialty coffee. Coffee chains that roast commodity coffee do not provide the same service as an artisan roaster does. Moreover, logistic costs are higher for the artisan roaster and small batch roasting is definitely more expensive than bulk roasting. To take into account these additional costs - that are independent from the cost of green coffee - and for the purpose of this analysis, I suggest to decrease the specialty retail price by 15%. The ratios reduce to 2.9 and 4.8. (This percentage is an assumption, something economists love to do. However, the ratio may still be overestimated.)
This said, if we expect a fair specialty premium for green beans to be the same as for roasted beans, FOB prices in March should be around 5 times higher than the commodity market. Or given the ICO composite price for Brazilian Arabica in March (1.27USD/lb) an average specialty coffee should have been paid 4.92USD/lb FOB. My gut feeling tells me that this price could have doubled the growers’ earnings, if the green coffee was traded directly.
Any roasters still reading these lines? If this post makes you want to increase the specialty premiums you pay, make sure that your quality incentives reach the growers.