What is coffee "worth?"
I hate the rule that the punctuation goes inside the last quotation marks. Seems wrong.
Anyway, when we were at the SCAA conference, we were graciously invited to attend a party by the good people of Hacienda La Minita. I think Isaiah, Jason and I were the only three in the hizzle without suits on. Oh well, that's not how we roll. As I mentioned in the previous blog, we got into a little conversation with the owner of La Minita, Bill McAlpin, about the value of coffee. What is it worth? It's an interesting conversation and I'm still mulling it over in my head. I'm not sure I totally agree with Bill. But I'm posting this blog because I want your opinions.
It may seem like a dry, uninteresting, and unimportant issue. But if you know me at all, you know that's not the case for me. This is one of the most important issues I've wrestled with over the past couple years. So important that I find it hard to keep selling coffee some days without knowing how to do what's right.
Basically, Bill's premise is that I should pay the farmer what he asks for the coffee. If I pay more than he asks, it's charity, and that charity doesn't teach the farmer anything. He says the price should be based on quality. And he posits that high quality coffee requires a higher amount of work. So if I go to a farmer and ask this farmer to do some things differently to improve the quality of the coffee, the farmer will ask me for more money for that coffee because of the increase in labor to produce it.
Well, the problem (in my opinion) with this premise is that La Minita has charged the exact same amount for their coffee every year for the last 20 years. It's true that Bill has cultivated his methods in order to minimize risk (by picking only ripe cherries, multiple water, mechanical and hand sorting processes, and by mechanical drying to keep the weather from messing up his coffee), but coffee is still a tasty agricultural product and it still varies year to year. So how could a coffee whose quality theoretically changes year to year maintain exactly the same price for 20 years? Upon discussing around the campfire, we decided that the only thing that remained constant throughout those 20 years was the quality (and amount) of labor involved in producing the coffee. Thus, when Bill says "quality of coffee" he must mean quality of labor to produce the coffee.
I asked, what about a farmer in Ethiopia who produces a natural dry processed coffee? He has a good year one year and then conditions are bad the next year and his crop isn't as good. Do I pay the same amount both years for the coffee, since he put in the same amount of labor both years to produce it, even though one crop was clearly better than the other? Bill was adamant in saying "no." If you pay the farmer the same price for the poorer quality coffee, he will know that I am willing to pay more for lesser quality and will either never again put in the work to produce high quality coffee or will never sell me high quality coffee again because he knows I will pay more for less.
Again, his premise is that if you teach a farmer to produce a product that is worth more on the open market, he isn't just dependent upon my buying the coffee or my charity, but has a product with an actual higher value.
Back to my Ethiopian farmer. Bill says the only exception to this rule is if I ask the farmer to do something specific and that results in lower quality coffee; then I am obligated to pay the higher price. Bill also informed me that a bad year at La Minita doesn't mean the quality of his coffee suffered, rather more of the coffee was sorted out as lower quality and the high quality crop was smaller. He claims the quality has been sufficiently high every year to deserve the high price he asks. (We'll get back to this point later.) But the Ethiopian farmer doesn't have the same processes. His crop doesn't shrink in bad years; the quality of his crop diminishes overall. This poses an interesting problem. To this, Bill told me I shouldn't reward someone for getting lucky. Getting lucky = producing a high quality dry processed coffee (in Bill's opinion). He is against dry processing altogether. For one, it's too risky for him and he told me I should NEVER ask someone to dry process coffee. And for another thing, he told me that my palate is still young and as it develops, I'll recognize that the flavors in dry processed coffees aren't interesting, they're off-tastes. It's over-fermented, moldy, baggy, musty, and just plain bad. He grew up in coffee and the way he learned was wet processing. He was taught to taste coffees and identify when there are problems, and those problems (in wet processing) are sometimes what we celebrate in dry processed coffees.
So I have a problem because I love dry processed coffees (when they are good) and apparently by buying these coffees, I'm encouraging farmers to take risks that cause them to have unnecessarily bad crops some years. But I love them and there must be another way to compensate these farmers for producing exceptional coffees under such enormous risk. (I think I know how these types of investments are supposed to pay off.)
But let's forget about dry processed coffees for now and focus on something less controversial: wet processed coffees. What is the value of wet processed coffees? According to Bill, the coffee is worth whatever the farmer is asking for it. He calls this "Fairly traded coffee." According to this principle, all of my coffees are "fairly traded" because as far as I know, everyone down the line paid not a penny more than what the seller was asking them to pay. That's fair. Right?
Here's another conundrum I'm dealing with: Bill McAlpin did not grow up poor. He grew up in a wealthy family and he went to prestigious schools and he is a very intelligent and learned man. One difference between his asking price for coffee and the asking price of a small Guatemalan farmer is education. Bill knows the market. The Guatemala farmer gets what the mill is paying today. It's not as if a small farmer knows that changing his methods and producing higher quality coffee will get him more money (and for that matter, maybe it will and maybe it won't). And it's not as if this small farmer has a computer and an internet connection. And it's not like this farmer would have any idea who his market is, where they are, and how to get in contact with them. And it's not like this farmer even speaks English (or Dutch or Japanese). I wonder if Bill McAlpin would feel differently about the "worth" of coffee if he had to live within the system and play by the market's rules.
My opinion has been that coffee is priced too low. Almost all coffee is sold with regard to the commodities market, but we're not selling commodity coffee. I believe the price of commodity coffee should go up too, but that's guided by market forces - supply, demand, and speculation. What we're selling is something very special. It's akin (in my mind) to a gourmet chef sourcing the very best ingredients to prepare a dish. When you produce the best, it seems like you should be compensated commensurate with that quality. But it ain't that simple.
Let's say I stand before a Central American coffee farmer. He tells me he will sell me his coffee for the same price that the mill is paying today. I look around and wonder if that is enough. I'm not that worried about paying more because I know that if the coffee is great, and people know the excess went into the farmer's pocket, I can charge more for a coffee. What do I do?
And I look at the coffee pickers, and wonder. Why are they paid such low wages? And I guess the farmer has the same problem I do. Should he pay the pickers more than they're asking?
Should I pay my employees more than they are asking?
Should I change the way I price my drinks? If I base the prices on what I feel is quality, we're talking about a $7 small americano, a $6.50 small coffee, 50 cents for an iced mocha... Wouldn't that be an interesting pricing structure.
Tell me what you think. Tell me how I should pay for coffee (when I get the chance to have a say in it). Tell me what you think it's worth should be based on. Because I'm not sure.
And there's so much more that could be said.
Let me finish this long post by saying a couple things about Bill McAlpin. At La Minita, he takes care of his people. He teaches them how to produce an excellent coffee, and they've done it year after year (it's been great each of the four years I've been in business). He expects more quality from his people, but he pays them more in return. He gives them the option of living in a house on the farm so they can save their money to buy something they really want- maybe their own house, or a field to grow their own coffee, or a car, or whatever. And I've talked to people who told me stories of Bill spending thousands of dollars out of his pocket to help them in their time of need. He does a lot for the people around him, and I'm barely even a speck on his radar screen, so who am I to question his beliefs? No one. So believe me, I mean no disrespect to Mr. McAlpin in this post. It's only a necessary mental exercise because I'm in a totally different place in the coffee industry with totally different considerations.
Anyway, when we were at the SCAA conference, we were graciously invited to attend a party by the good people of Hacienda La Minita. I think Isaiah, Jason and I were the only three in the hizzle without suits on. Oh well, that's not how we roll. As I mentioned in the previous blog, we got into a little conversation with the owner of La Minita, Bill McAlpin, about the value of coffee. What is it worth? It's an interesting conversation and I'm still mulling it over in my head. I'm not sure I totally agree with Bill. But I'm posting this blog because I want your opinions.
It may seem like a dry, uninteresting, and unimportant issue. But if you know me at all, you know that's not the case for me. This is one of the most important issues I've wrestled with over the past couple years. So important that I find it hard to keep selling coffee some days without knowing how to do what's right.
Basically, Bill's premise is that I should pay the farmer what he asks for the coffee. If I pay more than he asks, it's charity, and that charity doesn't teach the farmer anything. He says the price should be based on quality. And he posits that high quality coffee requires a higher amount of work. So if I go to a farmer and ask this farmer to do some things differently to improve the quality of the coffee, the farmer will ask me for more money for that coffee because of the increase in labor to produce it.
Well, the problem (in my opinion) with this premise is that La Minita has charged the exact same amount for their coffee every year for the last 20 years. It's true that Bill has cultivated his methods in order to minimize risk (by picking only ripe cherries, multiple water, mechanical and hand sorting processes, and by mechanical drying to keep the weather from messing up his coffee), but coffee is still a tasty agricultural product and it still varies year to year. So how could a coffee whose quality theoretically changes year to year maintain exactly the same price for 20 years? Upon discussing around the campfire, we decided that the only thing that remained constant throughout those 20 years was the quality (and amount) of labor involved in producing the coffee. Thus, when Bill says "quality of coffee" he must mean quality of labor to produce the coffee.
I asked, what about a farmer in Ethiopia who produces a natural dry processed coffee? He has a good year one year and then conditions are bad the next year and his crop isn't as good. Do I pay the same amount both years for the coffee, since he put in the same amount of labor both years to produce it, even though one crop was clearly better than the other? Bill was adamant in saying "no." If you pay the farmer the same price for the poorer quality coffee, he will know that I am willing to pay more for lesser quality and will either never again put in the work to produce high quality coffee or will never sell me high quality coffee again because he knows I will pay more for less.
Again, his premise is that if you teach a farmer to produce a product that is worth more on the open market, he isn't just dependent upon my buying the coffee or my charity, but has a product with an actual higher value.
Back to my Ethiopian farmer. Bill says the only exception to this rule is if I ask the farmer to do something specific and that results in lower quality coffee; then I am obligated to pay the higher price. Bill also informed me that a bad year at La Minita doesn't mean the quality of his coffee suffered, rather more of the coffee was sorted out as lower quality and the high quality crop was smaller. He claims the quality has been sufficiently high every year to deserve the high price he asks. (We'll get back to this point later.) But the Ethiopian farmer doesn't have the same processes. His crop doesn't shrink in bad years; the quality of his crop diminishes overall. This poses an interesting problem. To this, Bill told me I shouldn't reward someone for getting lucky. Getting lucky = producing a high quality dry processed coffee (in Bill's opinion). He is against dry processing altogether. For one, it's too risky for him and he told me I should NEVER ask someone to dry process coffee. And for another thing, he told me that my palate is still young and as it develops, I'll recognize that the flavors in dry processed coffees aren't interesting, they're off-tastes. It's over-fermented, moldy, baggy, musty, and just plain bad. He grew up in coffee and the way he learned was wet processing. He was taught to taste coffees and identify when there are problems, and those problems (in wet processing) are sometimes what we celebrate in dry processed coffees.
So I have a problem because I love dry processed coffees (when they are good) and apparently by buying these coffees, I'm encouraging farmers to take risks that cause them to have unnecessarily bad crops some years. But I love them and there must be another way to compensate these farmers for producing exceptional coffees under such enormous risk. (I think I know how these types of investments are supposed to pay off.)
But let's forget about dry processed coffees for now and focus on something less controversial: wet processed coffees. What is the value of wet processed coffees? According to Bill, the coffee is worth whatever the farmer is asking for it. He calls this "Fairly traded coffee." According to this principle, all of my coffees are "fairly traded" because as far as I know, everyone down the line paid not a penny more than what the seller was asking them to pay. That's fair. Right?
Here's another conundrum I'm dealing with: Bill McAlpin did not grow up poor. He grew up in a wealthy family and he went to prestigious schools and he is a very intelligent and learned man. One difference between his asking price for coffee and the asking price of a small Guatemalan farmer is education. Bill knows the market. The Guatemala farmer gets what the mill is paying today. It's not as if a small farmer knows that changing his methods and producing higher quality coffee will get him more money (and for that matter, maybe it will and maybe it won't). And it's not as if this small farmer has a computer and an internet connection. And it's not like this farmer would have any idea who his market is, where they are, and how to get in contact with them. And it's not like this farmer even speaks English (or Dutch or Japanese). I wonder if Bill McAlpin would feel differently about the "worth" of coffee if he had to live within the system and play by the market's rules.
My opinion has been that coffee is priced too low. Almost all coffee is sold with regard to the commodities market, but we're not selling commodity coffee. I believe the price of commodity coffee should go up too, but that's guided by market forces - supply, demand, and speculation. What we're selling is something very special. It's akin (in my mind) to a gourmet chef sourcing the very best ingredients to prepare a dish. When you produce the best, it seems like you should be compensated commensurate with that quality. But it ain't that simple.
Let's say I stand before a Central American coffee farmer. He tells me he will sell me his coffee for the same price that the mill is paying today. I look around and wonder if that is enough. I'm not that worried about paying more because I know that if the coffee is great, and people know the excess went into the farmer's pocket, I can charge more for a coffee. What do I do?
And I look at the coffee pickers, and wonder. Why are they paid such low wages? And I guess the farmer has the same problem I do. Should he pay the pickers more than they're asking?
Should I pay my employees more than they are asking?
Should I change the way I price my drinks? If I base the prices on what I feel is quality, we're talking about a $7 small americano, a $6.50 small coffee, 50 cents for an iced mocha... Wouldn't that be an interesting pricing structure.
Tell me what you think. Tell me how I should pay for coffee (when I get the chance to have a say in it). Tell me what you think it's worth should be based on. Because I'm not sure.
And there's so much more that could be said.
Let me finish this long post by saying a couple things about Bill McAlpin. At La Minita, he takes care of his people. He teaches them how to produce an excellent coffee, and they've done it year after year (it's been great each of the four years I've been in business). He expects more quality from his people, but he pays them more in return. He gives them the option of living in a house on the farm so they can save their money to buy something they really want- maybe their own house, or a field to grow their own coffee, or a car, or whatever. And I've talked to people who told me stories of Bill spending thousands of dollars out of his pocket to help them in their time of need. He does a lot for the people around him, and I'm barely even a speck on his radar screen, so who am I to question his beliefs? No one. So believe me, I mean no disrespect to Mr. McAlpin in this post. It's only a necessary mental exercise because I'm in a totally different place in the coffee industry with totally different considerations.
posted by Brian at 5:47 PM
9 Comments:
This post has been removed by the author.
I've gotten a couple emails about this blog post. I appreciate the emails, but I would rather have this discussion here, in public. So hopefully the two people who emailed me won't mind me posting their emails here.
The first was a question about what coffees are generally dry processed and why. A lot of Ethiopians are. The amazing Sidamo from MAO Horse we had a couple years ago was a dry processed coffee. Yemens, Indian, Brazils. A lot of processing techniques have to do with tradition. It's the way they've always done it, and the way they know how to do it. But I think a lot of farmers dry process coffees because they're too poor to own or get their coffees to wet processing facilities. It's a simpler process: you let the cherries dry on the patio before you remove all the stuff from around the coffee beans.
The other email I got, I'm just going to paste here:
When you ask the question, "what is coffee worth?", you're actually
contemplating something that has been thought about possibly for as
long as men have traded one good for another.
There are many methods for determining value. All except for one do
not work. That one method is merely asking what someone is willing to
pay for what you're selling. Many things affect price but when all
the obfuscating crap is stripped away you find that value is entirely
subjective.
I'll repeat that, value is entirely subjective.
There is no such thing as a fair price. There are only prices that
people are willing to pay.
This piece of real world truth may not actually answer your specific
question but I hope it helps provide a little clarity.
That's the end of the email.
I don't know if this comment is necessarily true.
I agree the value of a product (or service) is subjective. But to say there's no such thing as a fair price would imply there's no such thing as an unfair price. All things being equal, that might be true, because they could deny my offer and go sell their coffee to someone else, but these people are in a disadvantageous position in the coffee market. Is it fair to take advantage of someone who is desperate or who has limited resources? There's basically only one price for the coffee these people are selling. My question is, should that price be higher? If so, based on what?
That's all I have to say about it, I guess.
More comments, please.
This is the kind of thing Economics PhD candidates write dissertations about.
Just like with evolution, nothing happens without mutation (experiment). If you let the farmer know you will pay more for the coffee, he will be happy. If you pay a little more, you can then pass on the increase to your customers (who may not be happy). If this gets too out of whack, somebody makes a lot of money, and somebody loses a lot of money.
If your price is too high (because you pay the farmer more and more), your customers won't buy the coffee. But there is a point of equilibrium. You pay the farmer a little more, and your customers pay a little more, and everybody is ok, until your customers start to squeal.
If the farmer's quality suffers, you won't pay more, and he will probably improve his product (or not if his quality is the result of bad luck). But in any case, you won't repeatedly buy bad coffee, because you would soon go out of business.
In summary, you ask: "what is coffee worth?" The only way to determine that is to let a free market decide. Free markets cannot run correctly without open access to information. The ultimate answer for your business may be to provide information to farmers rather than paying arbitrarily higher prices to them.
Google "Iowa Electronic Market" to see the predicting power of a free market at work, it is kind of spooky.
Cheers.
One follow-up:
What is "good" coffee is subjective. That is just like asking: "what is good art"
If you think it tastes good, and enjoy it, it is good to you. The coffee that most people agree tastes good to them is labeled "good".
I personally enjoy the dry processed coffees (although I did not know there was a processing difference) more than the wet processed coffees.
Just like with beer, variation produces innovation. Many people like Guinness Stout. It actually is intentionally contaminated with a bacterium called lactobacillus. This was originally by accident, and produces the sort of distinctive sour taste that Guinness has. I personally prefer, e.g. Murphy's Stout (no lactobacillus). Both are objectively good (they have been around a long time and people seem to like them). In summary, there is room for different definitions of "good".
Part of the reason I emailed my question to you was because I think I am fairly ignorant on a lot of the background info, so I didn't want to muddy the waters with questions that may be too basic. But I suppose there are others out there like me who are somewhat uneducated about how all of this works, so, I'll be the one raising my hand (wasn't there a saying about this--if you see one rat, there are bound to be others, or something like that? I digress.)
I guess the reason I wanted to know about the wet vs. dry processing--even though it wasn't necessarily the focus of your post--is that I thought the coffees I typically prefer are the ones that are dry processed. The ones that you say have inherently more risk because of the unpredictability and the flaws (is that right? The wet processing removes what Mr. McAlpine might call "flaws" from the coffee?) To me, the "flaws" are what I love about them, which I guess makes my palate "young," too.
Which brings us back to the comment you posted from the emailer who talked about the subjectivity of value. I really loved the MAO Horse Sidamo. To the point where I would have had it most of the time if given the option. I would have paid more for it. A lot more. But I suppose that, according to Mr. McAlpine, those with more mature palates would not.
I struggle with this economic issue all the time, generally. I have discovered in my profession that increased price does not necessarily equal value or quality--it's a marketing sleight of hand. You put your picture up enough and join enough professional societies and make a pretty enough website and show your face at enough social functions and you get to charge more, because people think you are worth more, even if your skill level has not improved or, worse, has declined. Most people would not know the difference, because they don't have time to worry about it or the information that would help them make the determination of value.
And I find that the professionals for whom I have the most respect and whose skill I find to be exceptional will often not charge clients or will discount work, because they want to do the right thing.
This is sort of the inverse of your situation, Brian. I am the product, and I am trying to be fair in the price that I offer my clients, because I am the one with the power, generally, to make those determinations. In the coffee business, it sounds like purchasers of the beans are the ones with the most power to control the market--not the ones making the product (farmers) or even me as the ultimate consumer.
I am rambling and mixing ideas, but I suppose that part of the problem I have with the ideal theory of capitalism is the thought that the greatest product will win out, because that is what the consumers will buy. Consumers will buy and pay for what they *think* is the best product, at the best price. What they *think* is based often on incomplete information. The ones really controlling the market are the ones with the most knowledge and the most power. And it is at that point, in my opinion, where the meaning of "fair" ought to be judged. Is the person who *knows* quality making a fair decision in the amount he is offering for the product? Or is he making a decision based only on what he thinks he can get for himself, only to benefit himself. (Using the inverse example again, I could probably charge out my services at $250 per hour, but is that fair to the small business owner? Is it beneficial in the long run to charge up huge fees, even if the market justifies it?)
You may have a typo in this blog, second to last sentence. Is this what you intended: “So believe me, I mean no respect to Mr. McAlpin in this post.” Intended or not it was funny.
The problems that you point out seem to be inherent in capitalism, someone is always going to be exploited and someone is going to be the exploiter. Brian, it may be time to get rid of that pesky conscience of yours. I would also like you to refrain from pointing out that my very enjoyable habit is made possible, at such a low price, through this exploitation. It seems ironic that the free market tends to favor those that have money.
In the spirit of communism and mental exercises it would be interesting to consider how $2 would be divided communally between everyone that put labor behind my cup of coffee this morning: barista, roaster, broker, farmers etc. Then of course we would have to worry about the dramatic differences in the cost of living between where coffee is produced and consumed. How much would a cup of coffee be to provide everyone with a “fair”wage?
This may be semantics but I don’t see value as subjective but rather relative. For me subjective is individual, meaning I can go to DoubleShot and pay what I feel is appropriate. The reason I think this distinction is useful is because to see value as relative begs the question “relative to what?” The worth of coffee seems to be relative to at least the following things: Quality of taste (which is subjective), labor (farmers, shipping, roasters, baristas), convenience (bag of beans vs. cup), and symbolic value (if it has a mermaid on the cup).
For me the relevant relative aspects are quality and labor. Unfortunately these may not go hand in hand. From the very little I know about producing good coffee it seems as though, because of all the variables, happy accidents are as likely to produce quality as tried and true practices. I would’ve paid, well more than I did, for that Yemen you had awhile back. I understand not wanting to pay as much when the coffee produced isn’t as good but at the same time if the same labor and practices went into the production I don’t think farmers should be financially penalized. My assumption is the typical coffee farmer, the ones getting the lowest wages, probably hasn’t had too many cups of really good coffee because it all gets exported, and they may be oblivious to the quality of the product they are producing. Not that they are stupid but they might not care. Keep it mind for some people coffee is just a job. They just do what they do, but due to factors out of their control the quality may vary. I don’t want whatever practices that produced that Yemen to be discouraged. Also I paid the same for every cup of Yemen I’ve had from DoubleShot and some have been better than others.
You are correct, Gabe. That was definitely a typo. I'm going to go fix it now, just in case someone reads it and doesn't get this far down the page.
Indeed, another problem with selling coffee solely based on quality is that it is such a variable product and soooooo many things can go wrong, that if I were to sell each cup based on its individual quality, I would pretty much have to taste every cup before I determined the price. And some cups would be too expensive for most people. So I guess we've just figured an average quality that you can expect to receive- some being acceptable and others being mind-blowingly good.
I guess the farmer would have the same problem. I believe you are right, the farmers probably don't know what their coffee tastes like or what a good cup is supposed to taste like. Judging by the poor roasting techniques and all the things that can and do go wrong in brewing, the farmers in Guatemala don't have a chance to taste good coffee. I suspect a lot more luck goes into a good cup than we know.
According to your coffee price theory of relativity, a cup of coffee could be priced based on the quality of taste and the amount of labor that went into it. It seems like, for the most part, the labor cost might be a lot more static than the taste part. So in theory, we could set a baseline "price" for coffee and say this is how much we pay for labor. Then, I guess we'd have to decide whether taste is as important as labor in paying for coffee or just the icing on the cake. If it is as important, we could take that same amount of money and say, based on the quality of this coffee, we're going to pay you a percentage of that amount more. I'm starting to like this theory.
In most other business transactions, it seems like assuming a great deal of risk is worth money. If you make stable investments, you may not get a huge return, but if you make risky investments, sometimes you go bust and sometimes you get bigger returns. Because the risk of failure and ruin is often what it takes to be an innovator. And innovation (even if you want to call it luck) is worth a lot. So maybe there should be a figure in your theory somewhere for risk. Is this coffee a high-risk or low-risk coffee? Is there a high probability that it won't be nearly this good next year?
This is good. Insane, but good.
By the way, my labor costs in roasting this coffee are going to shoot the baseline of a cup way up, so don't think you're getting out of here for $2. :)
I like this relativity idea a lot. It appeals to my urges to pay folks for hard work (--after all, a lot of these people working really hard have limited control over the ultimate quality of the coffee, though they have control over the specific task they are performing, e.g., picking best cherries) and to reward for quality. It would seem to reward those folks proportionally to the amount of control they have over the quality--pay set amount up front to pay workers, so they know what they can make, and pay extra after getting the product if it is of quality deserving of a "bonus."
Wow. I really like it.
There's good info about coffee processing methods on wikipedia.
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