What Is Relationship Coffee?

What Is Relationship Coffee?

Posted by Gimme! Coffee on 11/01/2016

If you've browsed our offering list in any capacity, you've no doubt noticed the emblems that we assign to different coffee. Some of these icons, such as Rainforest Alliance and Organic, are general third party certifications for commodity products, such as coffee, cocoa, etc. Some others, such as Relationship Coffee and Microlots, are representative of specific purchasing practices at Gimme that add value to the coffee you're buying.

A concise definition of Relationship Coffee is this:

Relationship coffee is a model of coffee trading where roasters and producers work together to establish a long-term trading partnership. This relationship can continue over many years, and is insulated against the fluctuations of international commodities markets. The trading process is transparent; farmers gain bargaining power through knowledge, and receive a fair price that is not vulnerable to commodity market fluctuations.

I realize that this brief explanation might be a little confusing to those who don't know the way in which almost all coffee is traded, that is, daily on the Intercontinental Exchange. Here's how that works...

We usually refer to the Intercontinental Exchange as the Commodities Market, 'C' Market, or simply as New York (NY), as in "Today NY is trading at $1.xx for December." Being that we are now in the month of September, you can see that coffee contracts are bought and sold months in advance of delivery. Typically, the daily price of those future contracts fluctuate based on the speculation of what the production output will be from a few big coffee producing countries, namely Colombia and Brazil. Speculators look to a myriad of external influences on coffee production, such as weather patterns, for these crop yield predictions. If there appears to be a shortage of coffee, the competition for contracts becomes more fierce, and thus the price for the contracts increases. Of course, it's more complicated that just this, but at least you can see how coffee prices respond to the basic principles of supply and demand.

Not all coffee is traded at the base daily fluctuating price, some coffees are traded at a higher differential, some at lower. While our contracts for our high quality coffees are traded with much higher premiums on top of the C, they are unfortunately still tied to whatever the daily price is (say NY + $1.35). This means that while the producer receives a higher price for higher quality, prices that are even above the Fair Trade minimum, in the free market, there is still no way to protect them from falling prices.

So you can see that with coffee, like any market, speculation causes the daily price of coffee to either fall or rise. Relationship Coffee refers to the way in which we protect producers, and their investment in the costly production of high quality coffee, from the changes in market prices.

As an example discussed in previous posts, the coffee from Finca San Luis was difficult to secure based on the producer's need to pay immediate production costs. Almost 70% of the total costs of production for Finca San Luis come from picking labor and organic fertilizer. This percentage is typical of almost any farm's production, which is the main reason why so many producers are hesitant to invest in the intense production labor of high quality coffee. Unfortunately, the costs are barely covered in full based on the daily price of the C market. The addition of premiums for quality helps the producer make a margin on their products, but in most countries, it is hardly anything to write home about.

Relationship coffee approaches buying from a 'different-from-the-norm' perspective, that is, we pay a flat price that is not subject to market fluctuations. These prices are based on production and transport costs, and also add a stable and truly fair margin for the producer. If the daily price of the C contract falls, the sustainable price for Relationship Coffees remains the same. Producers maintain their position and are able to recoup their production costs, while also making a living. We, then, are able to secure the supply of high quality coffee and know that the price paid was not due to false inflation and speculation, but to real costs to the actual producers. It's a win-win situation.

Learn more and buy our relationship coffees online