The supply chain is complicated and context is everything. This will only cover some of the potential complexities and not describe every situation. Usually a coffee transaction involves at least 5 parties, and each party is operating a business that hopes to turn a profit on every transaction. Sometimes multiple parties may be under one umbrella company, referred to as “vertical integration”, which can reduce costs but does not eliminate them. The goal is not always to “cut out the middleman”, but to push for transparency and fairness in costs and payments. No matter how direct the purchase is, usually “middlemen” are necessary and important actors in the supply chain to get coffee from point A to point B, and not always a dirty word when one chooses their partners carefully.
Producer - May be a large estate, an independent small producer, a cooperative or association of small producers, or perhaps a privately owned wet mill purchasing cherry from local growers. The Producer is paid the farm gate price.
Dry Mill - The facility, often in or close to the city of export, where dry coffee is dehulled, sorted by screen size and density, bagged, and prepared for export. Coffee must be transported from the Producer to the Dry Mill, which could be anywhere from a short trip across town to a long and dangerous journey from a remote area.
Exporter - The entity responsible for preparing export documents and ensuring the coffee is properly loaded onto the ship. The Exporter is paid the FOB price. The Exporter often is responsible for paying the Producer and the Dry Mill. An Exporter may also have done work sourcing the coffee, which would be included in their fees. An Exporter could also be vertically integrated with the Dry Mill and/or the Producer.
Importer - The entity responsible for preparing import and customs documents and transporting the coffee to its destination warehouse. The Importer often provides financing to the Roaster, paying the FOB price directly to the Exporter in advance and invoicing the Roaster only when they actually need the coffee. A Roaster will write a contract with the Importer to guarantee that they will eventually use and pay for the coffee. The Importer is paid the EXW or FOT price. On top of this the Importer may charge additional fees for warehousing. An Importer may also have done work sourcing the coffee, which would be included in their fees. An Importer could also be vertically integrated with the Exporter, the Dry Mill, and/or the Producer.
Roaster - If you’re reading this, then the Roaster is us! We pay the EXW price plus any additional warehousing fees, often to the Importer who provided financing, then we pay the costs of palletizing and trucking the coffee to our roasting facility. Additional costs include equipment, utilities, rent, salaries and benefits, packaging materials, plus 13% - 15% of the coffee’s weight is lost during the roasting process. The final cost will receive a wholesale markup for sales to a retailer, and the end consumer pays a retail price marked up from the wholesale price. A Roaster could be vertically integrated with any other actor in the chain, but we’re not!
- “Spot” means the coffee was purchased from an importer off a “spot list” of coffees already landed and available to roast right away. We try to buy as little spot coffee as possible preferring to plan and make commitments in advance.
- “Farm gate" is, in a nutshell, the price paid to the producer, but that might be oversimplifying it.
- FOB means “free on board”, and is the total price paid for coffee up until the point it is loaded from the dock onto a ship in the origin country. FOB includes the farm gate price, transportation, fees paid to the exporter and the dry mill, and possibly other costs incurred along the way.
- EXW means “ex-warehouse”, and is the total price paid for coffee up until the point it is loaded onto a truck to be delivered to its final destination. EXW includes the FOB price, plus shipping and customs, fees paid to the importer, and possibly other costs incurred along the way.
- FOT means “free on truck” and is the EXW price plus palletizing and loading costs charged by the warehouse.
- The Coffee Commodity or “C” price is the trading price for coffee on the New York Commodity Exchange. The “C” price references the FOB price (rather than the farm gate) on the exchange.
- Fair Trade is a third-party certification that guarantees at least a $0.20/lb premium over the “C” price and establishes a minimum FOB price for coffee at $1.40/lb should the “C” ever go lower. Therefore, the Fair Trade minimum is $1.60/lb FOB if the “C” is $1.40/lb or lower. If the “C” is higher than $1.40/lb then the Fair Trade minimum is $0.20/lb above the “C”. Fair Trade certification is not available to every producer and certification fees can make it too expensive to obtain for too little return on investment.