# Short article on green bean prices



## MikeHag (Mar 13, 2011)

Very interesting, and helps explain what is behind the price of high quality roasted speciality coffee. When you factor in all the 'other' costs there really doesn't seem to be that much margin for roasters.

http://timwendelboe.no/2012/02/coffee-prices-2011/


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## fatboyslim (Sep 29, 2011)

Its a scary article. With current prices increasing the way they are, is there a sustainable future for coffee?

I got showed some hourly trading prices for some commodity coffees at work for a few hours on one particular day and the fluctuation was incredible.

I'd struggle to remember any exact figures but even the average fluctuations for the last quarter has been massive, partly due to the poor Colombian crop the last few years which has had a big impact.

I know our commodities team are worried about the sharp increase of buying quality green bean and I think we are hedging the price we buy at from certain places. I'm not sure thats possible when buying in lots.

I believe this means we pay more in the short term but its a fixed rate over a set period as to avoid steep increases in the future.

This allows for better forecasting but shorter profits in the short term.

Tea is a much more lucrative commodity









P.S. Hopefully I haven't disclosed anything I shouldn't have lol


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## Spazbarista (Dec 6, 2011)

Well, there seem to be roasteries springing up all over the place which suggests it isn't a bad way to make money.

I think the big factor for us, and this will stretch across all 'luxury' goods, is when our money ceases to be worth much compared to the Yuan, the Rupee, and the Real, and those populations develop their taste for quality coffee.


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## MikeHag (Mar 13, 2011)

Exactly what I was thinking, expo. Japan already buys up a lot of the great auction coffees. Brazil now consumes more than it exports. I said it a few months ago... Direct trade relationships seem a very good idea to me. Only problem is that small roasters may not have the volumes or cashflow to support it.

The other thing is, lots of micro roasters seem to buy beans (from importers) for perhaps £6 a kg and they are sometimes quite unremarkable beans.


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## sicknote (Sep 5, 2011)

I fly to Ethiopia later in the month and will try to post the prices paid to small growers.


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## MikeHag (Mar 13, 2011)

Would be good to know as a start. Still doesn't tell us the roaster's total landed cost and other overheads, and each roasters apportioned costs will differ, but it's perhaps somewhere close to say that an average roaster may make 50% gross profit, which might be reduced to 15-20% net profit after overheads. For a low volume business that would make it tough going.

Have fun in Ethiopia. Holiday?


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## Stevenp6 (May 17, 2011)

Coffee prices are high, but the cost to the supplier is still very low compared to the selling price. Coffee has one of the highest mark-ups of all goods (apart from software).


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## wastedhours (Jan 2, 2012)

But then the roaster I was looking at is best part of £20k (you can get cheaper ones in the same category, but you'd still need an afterburner/emissions capturer if you're near other businesses, weighing equipment, lab equipment). Then about £20kpa excluding rates for the lease on appropriate premises, then bills etc. That's a lot of £2-£3 profit-per-bags to break even...


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## MikeHag (Mar 13, 2011)

Stevenp6 said:


> Coffee prices are high, but the cost to the supplier is still very low compared to the selling price. Coffee has one of the highest mark-ups of all goods (apart from software).


Can you help me understand your comment a bit more please? Whose mark-up are you meaning? The supplier (eg roaster) when selling to coffeeshops, or the coffeeshops when selling to consumers?

Coffee mark-ups/margins are often thrown around in misleading ways. People say "there's 85% profit margin on coffee". 85% of £2 is £1.70. Take off your cost of milk if it's a latte... £1.50. WOW people say. Massive. Ok. What else that day?

- rent: £100 (per day)

- rates £40

- wages £100 (two staff)

- electricity £10

Total: £250

Ok so £250 / £1.50 means you have to sell 166 coffees BEFORE MAKING A PENNY OF PROFIT! And that's not even considering costs for equipment depreciation, banking costs, insurance, accountancy etc etc

Sorry, but the REAL profit on coffee is low. Mark-up means nothing on its own.


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## sicknote (Sep 5, 2011)

MikeHag said:


> Have fun in Ethiopia. Holiday?


Part holiday, part business.......meeting lawyers to finalise land purchase in Addis Ababa. Then looking for additional land and more importantly a small coffee farm or a parcel of land that would be suitable for growing coffee.


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## RolandG (Jul 25, 2010)

wow - exciting! What are your thoughts on the ECX? Does it put you off?


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## sicknote (Sep 5, 2011)

The last time I was in Ethiopia a lot of the smaller farmers had no access to the current trading data so were still in the hands of traders.

Our aim is to set up a travel/tour business rather than make money from coffee production. We will have accommodation built in various locations that will be used by clients. There is decent money to be made in Africa.


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