Coffee Pricing: Why We Need to Know Farmgate And Not Just FOB

April 9, 2020

What did the farmer who grew your coffee get paid?

Finding an answer to this simple question is challenging. So challenging, in fact, that most cafés and specialty coffee roasters don’t know the answer.

This is a major concern for them and coffee drinkers, because everyone wants the higher prices they pay to reach farmers. But the uncomfortable reality is that there are often few concrete guarantees that this will happen. Worse, there is the real possibility that specialty coffee purchased at what appears to be a financially sustainable price is actually below a farmer’s cost of production.

Unfortunately, today’s industry-standard for transparency, the Freight-On-Board (FOB) price, is partly to blame. It’s time we turned to farmgate pricing instead as a measure of how ethical a coffee really is.

What Is FOB Pricing & Why Does The Industry Use It?

A large number of specialty coffee roasters put their transparency principles into practice by publishing the prices they have easy access to. Make no mistake: the fact that so many roasters are doing this is something to celebrate.

However, this is nearly always the price paid to the coffee exporter, also known as the Freight-On-Board (FOB) price. This is the price paid for a container full of coffee that is ready to ship. It includes what the farmer was paid but also the in-country milling, warehousing, and transportation costs as well as intermediaries’ fees and export fees

As a measure of prices, the FOB has significant benefits. For those who can access it, it’s usually accurate.

“Most of the exporters we work with are very transparent and will let us know the breakdown of costs within that country,” says Bradley Steenkamp, Co-owner, Head of Coffee, and licensed Q-Grader at Horsham Coffee Roaster.

Second, it is useful when contrasting supply chain costs at origin versus the costs in consuming countries, as well as comparing supply chains against one another. “FOB is a great benchmark and, generally speaking, gives a very good idea about the amount of money returning to the origin country,” Bradley tells me.

Yet it has one very large limitation. “The risk with only being aware of the FOB price is that roasters and consumers are not fully aware of how much of that money is actually paid to the producer,” says Bradley.

Please click for full story.