Wakuli and the market price

Thanks to our business model and a large loyal customer base we are able to pay our partners in origin a substantially higher price than they would receive for their commodity coffee. But what does that mean? Let us explain.

Coffee's commodity price

Most coffee is sold as a commodity. Coffee is considered to be a commodity. This implies that it matters very little where the coffee comes from or how it is grown, it is all “just” coffee. In the same way that oil is oil and grain is grain. We have seen that coffee as a commodity creates an unfair system that leaves most of the value chain struggling for a decent living while commodity traders and big brands suck up most of the value. 

Like most commodities, the value of coffee is dictated by its global stock price. These prices are set in New York for Arabica and in London for Robusta. For this explanation we will limit ourselves to Arabica. And the commodity price for Arabica set on the New York stock exchange is called the “C-price”. 


What's wrong with the C-price?

Now you need to bear with us for a few paragraphs. In order to understand what Wakuli does and why we oppose the current pricing system we need to explain the basics. 

The C-price is not directly the same as the price a trader pays for a coffee, but it is the benchmark for determining the price of most coffee sold around the world. In other words, the price a trader pays at a port in Colombia or Kenya, as well as the price paid when the coffee is on board a ship on its way to the Netherlands, is based on the C-price.


Image source

This image shows the development of the C-price over the last decades. It shows a few things: the price is volatile, there are patterns and, on average, the price has not gone up significantly over the last few decades.

The volatility of the coffee's market price

The price is volatile partially due to changes in supply and demand. It would be okay if that was the only reason, as the market would then regulate itself as it is designed to do. 

However, it is the case that roughly 70% of all the trade of coffee is not about “real beans” but about the manipulation of the market for the sole purpose of profiting from its volatility. This means that there is an over fluctuation of prices - steep highs and lows that the market is always trying to "recover" from.

Some speculation is normal, but as it has nothing to do with the actual buying and selling of coffee, too much of it creates a volatile market that does not set prices based on reality/real costs. We will not go into the nitty gritty here but the bottom line is that this dramatically increases the volatility of the price, creating price bubbles that will at some point pop. They always do. 

Now let's take a look at the most important actor in this market: the coffee farmer. 

The small scale farmer in this equation

By far the biggest part (90%) of all coffee farmers are small scale farmers. Here, small scale is defined as small plots of land (less than 2 hectares)  and often subsistence farming. After taking out their cost of production there is barely enough left to cover the most basic needs. This means they have virtually no chance of building up financial resilience the way a roaster, trader, or big brand could do. In other words, if markets plummet, the farmer is screwed. They do not have the option to wait for cash and farmers don't have much oversight over market trends. Therefore, small scale farmers refrain from selling coffee when the market is low, or be sure to capitalize when the market is "high". And because of these market dynamics, farmers will do anything to sell their coffee for the highest price possible, as quickly as possible. Who knows what will happen to the price tomorrow. They don't. This creates unpredictable situations in which it is very hard to build a solid long-term partnership, if they are able to stay in coffee production at all. 

The Wakuli price

Because of the vulnerable position that small scale farmers are in, we try to set prices with our partners based on costs of production, quality, volume, and the needs of farmers. This way of price setting, through a dialogue based on an equitable relationship, is new and scary for a lot of producers who have been toyed with for decades and decades by big traders and local middlemen trying to line their pockets. So it takes time. But the 100% long-lasting partnerships in the 13 producing countries where we source from are proof that this is what farmers prefer: stability, predictability, and fair compensation for their hard work.

Disclaimer! We need to stress that we pay a higher price for higher quality coffee. Even though on average we pay more than the best alternative price, other specialty buyers also pay substantially higher prices than they would for commodity coffee. It takes more effort to grow and process specialty coffee, so a higher price is more than fair. We are advocating for a far bigger percentage of all the available coffee worldwide to be sold as either specialty or premium coffee with very little effort from the producer's side if there was a demand. For now this high quality coffee often disappears into the bulk of commodity coffee, purchased by the big players who are obviously perfectly happy with how the system works for them. Well, we are not.

So we fight to create a bigger market for this high quality coffee and support producers to become equitable and assertive business partners, fully connected to this growing market for diverse, sustainable, high value and futureproof coffee.
Wakuli and the market price