How much it costs to produce coffee the market does not understand

Much is said about coffee, its benefits, characteristics and benefits, very little about the producers and especially the effort and costs that this activity has.

I grew up on the coffee farms, playing and learning to cultivate it, together with my grandfather and my mother; as my interest and curiosity for coffee grew. I worked for 10 years in projects that were related to the production, industry and commercialization of coffee, in 2014 together with my family and friendly producers we founded Pacayal Coffee, as a result of an unemployment crisis, aggravated by the disease of rust in the country and the low prices in the international coffee market.

Since then we have been analyzing the production costs from planting a farm to the moment of export, in order to identify a fair price for the producer and find a middle ground with the industry to generate a sustainable and fair coffee production.

Let’s get started.
Planting a 1 hectare of coffee supposes an approximate cost of US $ 10,650, during the first two years of cultivation, this coffee plantation can be usable in good conditions for at least 10 years, which represents an annual cost of US $ 1,650 per year.

Of this cost, 47% is represented by the purchase of the land, 19% the cost of supplies, 13% financial cost and 21% labor, which represents at least 194 days of work for the family during the two years, in Honduras there are about 474 thousand hectares of cultivated coffee, which represents an employment generation of 92 million working days.

The third year of the crop, which is a harvest year, the cost per hectare is approximately USD 4,150 plus USD 1,650 of depreciation cost of the farm per year, generates a total cost of USD 5,800, using our average production 3,500 pounds / hectare, The result is an average cost of USD 1.6571 / Lb of coffee.

The following graph shows how it is divided, the cost of 100 pounds of organic green coffee, this can vary from one producer to another depending on their productivity.

Of this cost, 20% is represented by the purchase of inputs, 2% transportation from the farm to the collection center, 8% the wet beneficiary, 16% the dry beneficiary, 8% export cost and 46% labor in fields that represent about 160 days of work per year per Hectare, multiplied by the area of ​​cultivation in the country mean more than 75.8 million days of work a year, that is, about 420 thousand direct jobs with at least 6 months of work.

Now, because we say that the market does not understand it; The vast majority of coffee businesses are sold with reference to the New York stock market price, for contract C in the raw materials section, this is influenced by different market forces and speculators, who do not know anything about the crop, but if about investments in the stock market.
In recent years this price has been well below cost, to be a reference last Friday, August 7, 2020, it closed at USD 1.1483 / LB, if the producers sold at these prices it would mean a loss of USD 0.5088 / LB. Which would represent a loss of 588.8 million dollars for Honduras.

Now, where this money is missing:
The industry will only transfer costs, in the best of cases it will be more efficient and will try to reduce them a bit, however, nothing can prevent the producer from receiving the strongest blow to its economy, which we will see reflected in high indices of extreme poverty, limited education for their children, migration, child labor, malnutrition and very little hope for development.

What to do about this problem
We cannot sit and cry, as producers we must be passionate about what we love our coffee and remember no one else can solve our problem only ourselves, first we must take the step from being artisan producers to being coffee entrepreneurs, we must have passion in learning about the industry and be innovative, we must know our production cost, learn about agronomic management of the crop, learn about organic certification standards, fair trade and others that give value to our product, learn about controlled fermentation processes, quality control, tasting and barista, everything is important if we want to change the business model we have.

As coffee entrepreneurs, we must unite and develop strategies that allow us to be in the markets that generate the most benefits for us, and take strategic innovation actions that allow us to be at the forefront of the market. As you can see, there are no magic solutions, just a lot of work, effort and passion to cultivate and offer the world the best coffees in Honduras, with unique origins.

Written by
Edgar carrillo
Founder and president of Pacayal Coffee SA de CV