Originally posted on: Medium
Concise explanations are a great way to quickly share the important details of the services you offer. An article like this makes either a great short blog post or an approachable piece of web content.
The coffee commodity market (commonly called the C Market) is at an all-time low, and it is causing a global coffee crisis.
What is the C Market?
The vast majority of the world’s coffee is sold as a commodity future. Purchasers place contracts on large lots of coffee to be delivered sometime later. For coffee, that often means a full season or more in the future.
In theory, this system is helpful for both the farmer and purchaser. It allows the purchaser to lock in a price, and it guarantees payment for the farmer. But what happens when too much coffee is produced?
Why is the C Market so low?
The drop in the C price is caused by two factors: overproduction and currency devaluation.
The two largest coffee producing countries are Brazil and Vietnam. Over the last few years they have produced so much coffee that there is now a global oversupply. Because commodities are sold in one giant bucket, this affects the price of all commodity coffee globally.
This price drop is compounded by the devaluation of the Brazilian real against the U.S. dollar. Suddenly, a dollar buys more coffee from Brazil, causing the price to drop even further.
Currently, coffee is selling for less than $1/lbs. Here’s the problem: it costs farmers ~$1.20/lbs to produce. This means farmers are now growing their coffee at a loss, and it is creating a crisis.
What are the effects of a C Market crash?
When farmers produce coffee at a loss, it creates a snowball effect that continues for years. They now cannot afford to perform necessary maintenance on their farms. This leaves their crop susceptible to crop infestations that destroy crops and ruin livelihoods. If a farmer cannot maintain his farm, he produces less coffee and brings in less income, making it even harder for him to recover.
Nearly 20 million households worldwide depend on coffee production for their income. Many of them are already abandoning their coffee and growing other, more profitable crops. In many countries the farmers are returning to poppy and other illicit and dangerous products in order to survive.
Wrapping Up
The global coffee market is at a crossroads. Coffee companies further down the value chain can help alleviate the problem by bypassing the C market and purchasing directly from farmers. The specialty coffee industry and the Fair-Trade movements are already working toward that goal, but they only cover a small portion of the world coffee market.
If the C Market does not recover soon, the global coffee industry will look drastically different before these initiatives can make a large positive impact.