We started Honest Coffees because we had a hard time finding really nice Fairtrade coffee…in the shops, in coffee shops, online, anywhere. It seemed anecdotally that we could either have really good coffee, or we could have Fairtrade coffee, but we couldn’t have our cake and eat it too (coffee and drink it too?). So, like a lot of companies, Honest Coffees (Empty Pocket Traders back then) was borne out of a problem we wanted to solve. But were our assumptions right? Was there really a dearth of really nice Fairtrade coffee? And if so, why? The first answer is easy: yes! As far as we know, we’re the only company in England focussing on specialty grade Fairtrade coffee. But the more interesting question is why? Like a lot of things, this comes down to maths, incentives, supply and demand. Stay with me, the story is interesting despite the economics lesson! Let’s start with a few baseline numbers:
- Global coffee production: 7.9m tonnes
- Fairtrade coffee produced: 400,000 tonnes (or just about 5%)
So right off we can see there’s not a lot of Fairtrade coffee out there, relative to the global supply, and if we only want the best, say 10% of coffee, that number’s even smaller – say 40,000 tonnes, or around 80m pounds of really good Fairtrade coffee. It looks something like this. That tiny little nexus in the middle is where you want to be.
So how much Fairtrade coffee do the bigger names purchase? Is there enough high quality Fairtrade coffee out there for them to serve really good stuff?
This chart shows the US only, which is a small percent of global coffee supply. Two buyers–Starbucks and Green Mountain–alone are buying up nearly 40m pounds of Fairtrade coffee. So unless they’re buying up half the global stock of really nice Fairtrade coffee to serve exclusively in the US, odds are it’s more likely they’re having to compromise a bit on quality to get that much of a very finite product. There’s just not enough space in that tiny nexus from the first chart to accommodate the needs of big players. But it gets worse. The numbers above assume Fairtrade coffee is generally in line–quality-wise–with non-Fairtrade coffee. Unfortunately, farmers are incentivised to chuck their lower-quality beans into the Fairtrade bin. Bruce Wydick explains why:
Fair trade attracts bad beans. Every crop contains some beans that are of higher quality than others. If the market price for the low-quality beans is below $1.40 and the market price of high-quality beans is above $1.40, then the fair-trade system incentivizes growers to dump their bad beans into fair-trade channels. As economists will lecture to you unceasingly, incentives matter. As the bad beans are drawn into the fair-trade market (what economics calls “adverse selection”), potential buyers eschew buying the coffee for fear of being stuck with the low-quality beans. This phenomenon has limited the market for fair-trade coffee.
So that number from above–80,000lbs of really nice Fairtrade coffee–is likely much smaller. Maybe 40,000lbs, which just makes the problem worse. So there’s just not much of it out there, and anyone big enough that you’d have heard of them would be too big to supply it. Which leaves crafty little operations like Honest Coffees. We don’t have any aspirations to become the next Starbucks. Or even the next Cafe Direct. We’ll always be small enough that we’ll never have to compromise on quality.