Insights

Farmgate Price: An Important – But Partial – Piece Of The Sustainability Puzzle

by | Sep 19, 2017

Category: Markets

Key Insight

We need to learn the relationship between farmer income and a living income. So… yes, price is important but is still a limited indicator of sustainability and farmer livelihoods.

In March, I wrote about my reaction to Kickapoo Coffee publishing a minimum FOB price for all their coffees. That article focused on Kickapoo and other efforts to make pricing more transparent – an aspect of the specialty coffee business that can be quite murky. I had 3 takeaways of things that I liked about this approach: a transparent approach to price setting; a movement away from the commodity price as the benchmark; a very public commitment to pay higher prices. Additionally, there were 3 questions I posed: what is a 2.75 coffee? What goes to the farmer, or what is the farmgate price? and finally, a reminder that high price does not correlate to improved farmer livelihoods.  While many coffee pricing transparency reports show the average FOB price (see this great Counter Culture report from 2015 as a good example), FOB pricing is the amount paid for the coffee once it is stored, processed, bagged and transported to the port, ready for export. It is not a reflection of what the farmer actually received, or the farmgate price.  Estimates of farmgate as a percentage of FOB run from 60-80% in the coffee sector, depending on the origin and the number of actors in the value chain.

Meanwhile in the even more opaque chocolate industry, our friends at Taza Chocolate broke new ground when they published not only FOB prices but also the farmgate prices paid to cacao growers. The company’s annual Transparency Report also laid out a “5 Steps toward Understanding Price” to help consumers navigate the numbers and evaluate the larger question of farmer well-being. Last month, cacao bean trader Uncommon Cacao released its own Transparency Report that includes estimates of farmer income from selling cacao beans.