Coffee farm economics

As part of our trip to the pretty, nearby, mountain town of Minca this weekend we took a tour around an organic coffee farm. The farm was founded 122 years ago and still uses the same machinery. This seems a novel approach to capex that may not pass the rigors of a Treasury Better Business Case.

For those of you unaware (as I was) this is what a coffee plant looks like.

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What I found most remarkable was how little coffee beans growing on coffee trees resemble in any way the finished coffee product. They have no alluring smell. No real smell at all. So it’s remarkable that thousands of years ago some pre-colonial Americans were like: “sweet, you know what we need to do… pick these beans, shuck them, dry them, shuck them again, roast them, grind them and then turn them into a brew. That’ll be tasty”. Remarkable. Here the lower grade coffee is being sun dried.

DSC04527Some of the economics of the operation were also interesting. The beans are hand picked and the folk doing the picking represent more than 99% of the 130 people that the farm employs during harvest. They’re paid by product: about $14NZD for filling the largest box down to $3.50NZD for the smallest (see below). Given the heat, farm terrain (also shown below) and fiddlyness of picking one bean at a time, I’d struggle to fill half the smallest box in a day. You start to understand why coffee is produced almost exclusively in the developing world.

DSC04550 DSC04501The finished product gets exported in these massive sacks. The exported product isn’t ready to drink. It’s neither ground, roasted nor finally shucked. Exporting it in a more raw form means it keeps for longer. It’s also exported without farm-specific branding – it’s just Colombian coffee. It wasn’t even clear the farm was extracting a premium from organic production.

There seemed to be clear opportunities to inch up the value chain. You can totally see what Flight Coffee are doing at home, importing single origin coffee. You can imagine getting significant value by being able to talk about the specific origin of the coffee, especially as it impacts taste.

7 thoughts on “Coffee farm economics

  1. The other perverse thing about coffee economics is that when prices fall supply often increases. This is because farmers literally need the money to feed their families, when prices fall they work extra hard to boost yields… further depressing prices.

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