dec 23 2022 | ⏳: 5 mins
I recently came to realise that in times when I feel most 'engaged', I'm chipping away at an unsolved problem.
It tends to be a problem that holds broad implications, and one that piques my curiosity with its many moving parts.
As of late, I've been spending a lot of time on problems that captivate me in the domain of software engineering.
With those kinds of problems steadily gaining footing in my headspace, I felt compelled to reflect on a particular time when my curiosity steered me towards a rather unrelated yet riveting problem.
A few years ago, I worked as a research assistant for a professor named Peter Roberts at Emory's Goizueta Business School.
Peter's research is fascinating:
what explains the gap between the prices we pay for coffee1 and the compensation of its farmers?
Peter found that a big part of why this gap exists has a lot to do with the farmers' lack of awareness— specifically with regards to their coffee's objective market value.
In most cases, coffee producers— whether that term refers to farmers who work the land, or representatives who liaise between the farmers and the external buyers— live and work in some of the most remote parts of the world, along what is known as the coffee belt.
This geographical concept of the coffee belt contributes to the sociopolitical distancing already imposed to coffee producers, some of which being:
• the historical undertones of neocolonialism in agriculture
• and, relatedly, the information gatekeeping of the West.
With that, it comes as no surprise that coffee producers have long lacked a clear benchmark for how to best gauge the value of their coffee in the global marketplace.
And, naturally, in ways akin to wage negotiations in a job interview, whereby employers traditionally hold the imbalanced power dynamic on salary discussions, farmers have long been undercut for the coffee they harvest.
Sometimes this undercutting is so severe that farmers routinely report lower profit margins relative to their production costs2, made even worse by an ever-increasing set of climatic and geopolitical challenges.
Hence, many producers are forced to take on unrecoverable debts and, more perniciously, declare bankruptcy due to their insatiable operational costs.
What's important to note here is that beyond the financials of the coffee business lie a host of intangible factors that add to its overall value.
Think of it like wine, whereby a Chardonnay produced in a multigenerational, family-owned vineyard in Napa Valley sells for more than an unassuming "two buck chuck"; ironically despite the fact that both originate from Napa.3
Economists have a term for this phenomenon, namely value added.4
Value added serves to illustrate how the rich cultural narratives of the multigenerational wine contribute to its perceived behavioural economics-driven brand value.
With all said and done, there actually exists somewhat of a financial benchmark that purports to speak to the 'market value' of commodity coffee:
it's called the New York C Price.
This figure, hereby referred to as the "C", operates like any other stock futures in the financial markets.
Sidenote: agricultural futures5, in particular, tend to exhibit high volatility in the stock market, with the "C" being a poignant example.
Seasoned coffee traders understand that the "C" is an inappropriate proxy when negotiating prices of green coffee at origin.6
As I briefly touched on it earlier, this is because the "C" has failed to keep up with the ever-increasing cost of coffee production—
and this is especially true for specialty coffee.
Specialty coffee is a value added product which, by its definition7, distinguishes itself from commodity coffee and its "C" adjacent valuation.
But what exactly is specialty coffee?
Learning more about specialty coffee, my curiosity towards the topic kept growing— especially with regards to its role within the context of the broken market.
After all, having been a longtime consumer of commodity and specialty coffee alike, I've witnessed the rising prominence of specialty coffee and sought to better understand the latter's role in this age-old trade.
As it turns out, speciality coffee has gradually evolved into an instrument of economic empowerment in the industry— due to its very distinguished value proposition unshackling its producers from the vice-like grip of the "C".
Partaking in the free market, specialty producers worldwide are incentivised to cultivate gold standards—
giving rise to industry-wide pricing transparency and reducing the aforementioned information gap.
With my growing understanding, I dove deeper into this work and, along the way, had a couple of opportunities to apply my knowledge of the specialty coffee market beyond the abstract.
To brainstorm with coffee producers on ways to negotiate more equitable rates for their harvest, I traveled to Guatemala with colleagues from the business school to host a managerial accounting and marketing workshop.
Shortly after, I headed to Tanzania to explore the growing public/private sector investments in its emerging specialty scene; studying the country's shift from socialist cooperatives8 to smallholder farms and direct trade.
Here are some photos from those trips.
Despite now moving on from this work, I wanted to retrospect on a time that now feels alien and distant.
It's one marked by endless curiosity and learning.
The world is a playground for the curious, and I hope to continue to shape my life around the ongoing exploration of curiosity.
1 Coffee prices in its largest end market.
3 Not to dismiss quantifiable differences.
4 More on value added.
5 Agricultural futures are also known as soft commodities.
6 'Green coffee' (ie. pre-roasted beans) highlights the intricacies of coffee's supply chain, such as FOB.
7 More on the specialty coffee definition.
8 More on Tanzania's history.