Open Letter: The World Coffee Industry -- The Truth

Dear Friends of Apasionado Coffee, 

One of our stated goals is to provide a new supply model, which breaks the traditional supply chain bypassing the coffee giant distributors and retailers.

Here is one reason which most coffee aficionados are not familiar with.
Around mid year Smucker, the owner of Folgers and Dunkin' Donuts announced that they will be raising the price of coffee products by 9% due to rising market prices for Arabica green beans.

Starbucks plans to raise prices when it runs out of its hedged coffee.
True, prices for Average Arabica coffee, hovering around $2.0/ lb have risen some 70% since a year ago.

The principal reason for this increase is low production in Brazil in 2014 as well as lower estimates for the 2015 harvest due to severe drought. Arabica production in Brazil decreased by 20-30% depending on the region compared to 2013 harvest. Other countries have suffered as well.  Bolivian exports, for example, fell as much as 50% compared to 2013.

Using this rational wouldn't you expect the reverse to be true as well?  Apparently not!
Do you recall, ever, a price reduction of retail coffee products in response to lower green bean cost?

The current price is almost 30% lower than the $3.0/lb, reached in 2011.
The price last year was almost 70% lower compared to that price.

Even wilder fluctuations in price occurred between 1997 and 2002.  In that period, the price of the Arabica green bean dropped from almost $4.0/lb to just over $0.45/lb and many small farmers had to abandon their farms.

Did we see the coffee giants pass any savings to the consumer from 1997 to 2001? Or from 2011 to 2013? Of course not.    Coffee giants always blame the producer, which on average realizes just few cents of value from every cup of coffee sold in order to have price increase designed to maintain or improve corporate results.

I believe that some explanation is also needed about the price of specialty coffee. First, retailers like Folgers and Starbucks do not purchase specialty grade coffee, whose price is independent of the commodity price traded on the New York Exchange.
The price is determined based on quality, profile, demand and brand name. Some of the top coffees in the world cost around $100 per pound (lb or bag). Some have reached $300 or more per pound while New York commodity price is hovering around $2.0 per pound. 
True specialty coffee constitutes only 5% of all green coffee business in the US.

Apasionado coffee is a great buy !

Sincerely, 


Yehuda Lilo
Farmer & Co-founder
Apasionado Coffee
www.apasionadocoffee.com
 

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