Sky-high coffee prices not reaching farmers, says supplier

The rise in the price of Arabica coffee has not yet abated. Uncertainties such as unpredictable weather patterns have affected yields, putting a strain on the market. Droughts in key producing countries such as Brazil and Vietnam are worsening the issue.

According to one key supplier, Matthew Algie, the continuing volatility in prices, as well as limited access to affordable credit, could make it difficult for producers to plan or invest.

Crucially, small-scale farmers are not reaping the benefits of high prices, according to the supplier.

Why are prices not reaching farmers?High prices, according to Matthew Algie, have impacted roasters, cafes, and even consumers themselves.

However, smallholder farmers, who in theory should benefit from increased prices, are not actually seeing such benefits in the long-term.

This is because the gains they would have are being eroded by high input costs, extreme weather conditions, limited access to finance and pervasive uncertainty about the future.

Also read → More on the commodity crisis These things are making it difficult for farmers to reinvest in their farms and make long-term plans.

World events have worsened conditions for prices. For example, geopolitical tensions, such as ongoing conflicts in Ukraine and the Middle East, have further pushed up prices by disrupting supply chains and lengthening shipping routes.

Finally, rapid movement in the coffee futures market, which attracts short-term investors, is creating uncertainty for those with long-term contracts.

High prices “may temporarily increase income”, says Amaro Cruz, of the Frontera San Ignacio Cooperative in Peru, but in the longer term, rising prices, as well as competition from local traders, can reduce supply to Fairtrade markets.

“Higher income can help us improve our farms, but the volatility means it’s hard to commit to those investments.”

Fairtrade’s minimum price of €1.60 ($1.80) per pound, while currently below market rates, aims to provide a safety net for when prices fall, thus protecting farmers against volatility.

Despite some hopes that prices could improve, the future remains highly uncertain. Some regions are forecasting stable harvests, but a lot of attention is on Brazil’s own, which begins this month. Frost from the country’s winter has damaged the crop in the past, and has the potential to do so again. Prices, as ever, remain volatile.

Refocus on long-term relationshipsEstelle MacGilp, Matthew Algie’s head of coffee sourcing, has a solution – a refocus on long-term relationships.

Coffee cooperatives, she suggests, often rely on credit to operate. As costs rise, the amount they borrow increases, in turn limiting access to affordable credit. Furthermore, exporters and traders are often forced to finance forward contracts for a commodity which has doubled in price. These increased costs, according to MacGilp, are often passed down the supply chain.

By focusing on sustainable, long-term relationships, MacGilp suggests, this volatility can be reduced.