Cost of Production: A necessary discussion

During the 2014-2015 crop, nearly all Central American countries and Mexico were severely affected by ROYA, or leaf rust. This windborne fungus was responsible for crop reductions of over 50 percent across the Central American region where, to no surprise, most of the damaged occurred to low income, small scale coffee producers. In some cases up to 90 percent of their plantations were permanently damaged and widespread stumping and renovation were the only solution for growers to eradicate the fungus.

Some claim the cause of the fungus is global warming; others say it’s a lack of proper agricultural practices – whatever these reasons may be, they are irrelevant. What is relevant now is how to overcome the ROYA and other diseases for the future of coffee and its producers. Solutions to global warming are discussed; one result of these discussions is the combined efforts of, the highly respected organization, World Coffee Research (WCR) with others industry stakeholders which are currently working on the development of new coffee trees to succeed against different types of diseases. However, the one topic that practically no one talks about is – the cost of production (COP) of one pound of green coffee at the farm gate — which in most cases is unknown to those small scale producers. So the question is: how can a grower cover the cost of fighting a fungus such as ROYA when she/he likely can barely, most cases not, cover the collection, wet milling and transportation costs of their coffee?

The most recurrent components of COP are labor, input, processing and commercialization. This combination varies from origin to origin, as well as from large to medium to small growers, but in all origins the COP has basically been below the NY C market. (COP ranges between $1.20 to up to $2.00 dollars per pound of green coffee). Nonetheless, the few times the NY C has been at levels well above the COP, most growers don’t have access to secure the good prices within the current crop — let alone for longer than a year.

coffee c market The lack of access to better prices that cover COP leads me to review the definition of sustainability.

One of the definitions of the Merriam-Webster is “able to last or continue for a long time”*.

I would agree with that definition and to alleviate some of this, meaning working with a supply chain that is able to last or continue for a long time. S&D, in combination with one very important client, recently committed to a three multiyear sourcing contract in a Central American country, for a percent of their harvest  and with a price per pound above COP — giving participating growers the opportunity to focus on the agricultural management of the farm and not on the how to subsist the crop. This combined commitment should also allow the growers to dedicate the proper resources in order to perform the appropriate agricultural practices needed to ensure a better yield of the plantation. It will also assist them to obtain financing from local banks or exporters where she/he will be able to acquire, or at the very least have access to, those new disease resistant trees being developed by WCR thus avoiding pests such as ROYA.

Learn more about S&D’s work with growers and initiatives at origin in our 2015 Sustainability Report.

*Photo of leaf rust taken by SCAA