This article was contributed by Gianni Assam, a barista at Cartel Coffee Lab. Thanks to him for the contribution!

By Gianni Assam

There is a fairly new term involved with the coffee industry worldwide. The term specialty coffee refers to a specific part of the retail side of the coffee industry and with growing support is affecting the coffee market and specifically the individual farms that grow the coffee. The term specialty coffee is specific to companies that focus on the continuing quest for better quality coffee. A good question then is what is quality in terms of coffee and how does it affect the coffee market. Quality in coffee starts with the coffee plant at the source. There are around 70 different countries in the world that produce coffee and many of them rely on it as one of their main sources of export. This means that there is a wide range of different coffees on the market. When specialty coffee companies look for different coffees they are looking for a small percentage of the coffee market. Large companies like grocery stores and chain coffee shops do around 90 percent of the coffee produced and sold on the retail market, even though specialty coffee is working with a low percentage of the market they are making a big impact on the people who the coffee is produced by. Similarly enough around 90 percent of the coffee is produced in developing countries and most of the consumption is in industrialized countries. So how does specialty coffee affect this market? First it drives up prices by using quality as an incentive for farms to produce the highest-grade coffee possible. It also sets an example for the retail market especially in the United States and creates an image of higher standards. Large companies are forced to follow these standard because of the growing popularity, just a few months ago Target just bought a coffee from Bolivia that won the National award for Cup of Excellence. This is not a cheap coffee and surely is not what Target is used to buying. It is clear that if the market continues to follow this trend then the coffee market could very well be compared to that of fine wines, where the farmers could also make money along with retailers.

Coffee farming is much like most farming where there are periods of growing, cultivating and harvesting. Each country for the most part has different harvesting times and during this time the coffee is processed and then sold through auctions. As stated before most of the coffee is bought up and is not of very high quality, and then there is somewhat of a medium grade coffee that is bought up by larger chains like Starbucks and other large chain coffee companies. The last tier of coffee is purchased by import companies that sell to small independent roasters; these companies are looking for the highest quality possible. A term mentioned previously is the Cup of Excellence award; this is an international organization that holds somewhat of a competition in the top coffee producing countries. A series of tasting and grading takes place to rate the top coffees produced that year by various farms in that country. Most of the coffee producing countries in South America and around the world participate in the Cup of Excellence. Some of the highest rated coffees sell for over thirty-to-forty dollars a pound and sometimes even higher. When farms see that these kinds of prices are being given it gives incentive to focus on quality and craftsmanship of their coffee. This also is good for specialty coffee companies who are willing to pay more as long as the quality is there. This supply chain shows how the market and the use of incentives can be used to make all of the participants happy and successful, from the consumer who get the best tasting product to the retailer who can sell some coffees for high prices and the farmer who can make larger margins on his crop. This sounds like a great system and it is, but a lot of work still needs to be done.

The coffee market reached an extremely low price in 2001 of around 45 cents on the dollar and slowly climbed for a few years after, now just last month in November of 2010 the average composite price of coffee reached a new high of a dollar and 73 cents a pound. This is nearly four times the average price in 2001, this may seem like a small margin form 45 cents to $1.73 but when your talking about the worlds second largest traded commodity under oil were talking big numbers. An estimated twelve billion pounds of coffee is consumed around the world a year. When you have and increase of $1.28 that is just over 15 billion dollars more added to the coffee market from 2001 to 2010. This money gets dispersed throughout the supply chain and helps continue to grow the coffee industry with more focus on research and development of farming and processing techniques as well as retail and marketing options.

With continuing growth and support for the specialty coffee community the market will also grow because it will always follow the trends. We already have large companies and corporations using some of the lingo and techniques of small specialty coffee companies because of the growing popularity and dollar power in that market. What are important to recognize are the effects on the whole market and on the vast global supply chain of the coffee production. How these rise in prices cannot only benefit those selling to consumers but also the producers and farmers in developing nations that are currently making very small percentages of the overall chain of exchanges. The coffee farming industry could, for some countries, be what takes them out of poverty and help them build infrastructure in their towns and cities across the world to better their standard of living. What’s in your cup?

This article was contributed by Gianni Assam, a barista at Cartel Coffee Lab.

Arizona Coffee

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  1. Gianni,

    Great read! Definitely brings up more questions especially for the future direction of the industry and WHAT it is that moves the coffee commodity market (usually supply/demand and farm level economics), but this was a good article. Thanks for sharing that with us!

  2. Psyd

    What this means is that coffee, on average, will become more expensive. What that means for the specialty coffee industry is that specialty coffee, as the high-end of that market, will become more common, and less expensive (closer to the lower mean).
    What I’d love to see is Target showing some respect for ‘Babbie’s Rule of Fifteens’. It’s great that they’re shopping for high end specialty coffees, but if they’re going to have some hack French roast ’em, and then drop them into the stores months after roasting, what’s the point. It’s like having Rainbow bake your specialty breads and then delivering them to the store months after they’re baked. It’s a waste of a finite resource.

  3. Gianni assam

    Thats subjective to personal opinion.. What if I or anyone else likes darker roasted coffee? As long as the quality continues to increase in terms of farming and processing I think it’s the right direction. As far as price target was selling the Bolivia COE for 8.95/lb just for reference.

  4. Psyd

    Most specialty coffee roasters roast to bring out the best in the coffee. Most volume roasters tend to roast fast and high, to get the highest throughput because it translates to less overhead and more profit. What the bean wants tends to be ignored, and if it’s right it;s due to happenstance more than planning.
    And if you happen to like beans that are two months our of the roaster, or more, there is always the grocery store shelf.
    All I’m saying is that if Target were to take that last step toward getting it right (roasting at the end of the truck ride instead of at the beginning, and roast-dating their product), they’d not only play a larger part in the big picture of specialty coffee, bu they’d attract a larger market-share while doing it.
    Can you imagine if the word got out here, on,, Alt.Coffee, and Barista Exchange that Target has a 92 COE for sale for $8.95/lb. and it’s roasted day-before-yesterday?
    We’d clean their shelves.
    It’s like getting all of your stuff to run on electricity to green up your methods, but not taking that last step to wind and/or solar, but powering all of your electric stuff by burning rainforests. Great, and almost there, and with a teensy bit more effort you’d actually be doing something wonderful.

  5. I have to say Pysd that I disagree to point….the idea of putting a high end coffee on a Target shelf hurts the specialty roaster (me) other small coffee shops even, larger ones like Intelly or Stumptown for that matter….perfect example is wine, it used to be you could only get the good stuff from local/specialty wine shops, now Total Wine and Costco buy in such mass quantities that its nearly impossible to compete. This would be the same for coffee. Good for the consumer, bad for the small biz owner.

    FYI- coffee (arabica) has sky rocketed in the past week, now almost $2.26. The price of coffee has doubled in just under a year.

  6. Psyd

    Economically, that’s fifteen minutes. In ten years, the coffee that we speak of as marginal or decent will be what gets tossed aside or instant and Folgers. What we consider great will be average, and the creme-de-la-crema will be the next decade’s specialty coffee.
    It stands to reason that the incentive to make greater profits from what is mere pittance in additional cost and labour (comparatively) will make more and more growers and farmers convert to ‘specialty’ coffees, making them ‘normal’ coffees eventually. The increased popularity in these coffees will also incentivise more farmers to grow these coffees.
    As with the Blue Ray, two years ago they were five hundred dollars. Two years before that, eleven hundred dollars. Yesterday, a buck and a half at Blockbuster and Fry’s. Grocery, not Electronics.
    If were were to measure that greater good against what it could do to harm the small roaster, it would seem heinous. The truth is, though, that it will benefit most all of the industry, from the farm-workers to the cafe-goers. The small boutique roaster will end up being the buggy-whip maker at the advent of motor-cars.
    Sad, but inevitable.

  7. Dave

    My feeling is that most specialty shops not only roast coffee to bring out the best quality product but also have the rest of the missing ingredients necessary to carry the quality forward to the cup. Most consumers do not possess the knowledge to produce a consistently good cup of coffee, even with the best beans at hand, and are not interested in learning the processes to accomplish it. If Target carried their process forward a couple of notches, like Chris said, it would at least help improve the consumers palate for coffee and their corresponding interest in a better quality product in my opinion. The end result might very well be an increase business for all of us specialty shops——-For what it is worth.

  8. Joe Hohmann

    Your car? My neighbor is going to have it towed!