A message from Hilo, as it is adapting.
The market of coffee is unstable and very good at exploiting the coffee producers. Over time, prices for farmers soar sky-high, and then fall, and then fall even more. So maybe once every ten years they may get to fly again, as they’re doing in 2021 and 2022 when the green coffee prices in Colombia are at a record high. Nevertheless, due to an unusually long rainy period – a consequence of climate change – crops have been small and farmers do not have that much coffee to sell. Even in a moment of high prices, farmers do not get a fair share.
Prices for consumers
But what’s up with the coffee prices for consumers? Do they increase too? Well, guess what: they typically don’t.
Most companies’ goal is to increase sales, and increasing prices for consumers goes against that interest. Consumers are usually sensitive to price increases, especially regarding something as common as coffee. So companies are reluctant to do it. As coffee prices vary, they tend to stay much longer on the lower end, so big companies can manage short periods of higher commodity prices without changing prices for consumers.
But what should a company do if they’re trying to sustain sustainability, instead of increasing profits? Let’s take a look at the range of consumer prices in the world of coffee.
On one extreme we find the generic bitter-tasting caffeine-rich dark powder most people are used to paying 10 or 11 Euro per Kg. On the other, we find the exclusive prize-winning micro-lot hand-roasted beans that can easily cost beyond 100 Euro per Kg. And then there’s everything in between.
We can find coffee with an organic and fair trade seal for a mere 15 EUR/Kg. I do not trust this coffee, mainly because of its price. And because I know the farmer’s reality working within such certifications, back from my family’s hometown, Jardín. Farmers still exploit themselves and their land, like they have been doing in the past 200 years. This is not changing the system at all.
We can also find single-farm direct trade coffee from an independent roaster for around 60 EUR/Kg. I have to say that I also do not trust this coffee because it feels as if it is exploiting the margin, and its consumers too. All for some hipster brand, or complex description about quality specifications. It is fundamentally an exclusive price, excluding most people from drinking good coffee. And what is more, excluding the bulk of the small-holder farming families in the world because it demands a lot of knowledge about how to grow and process such coffee quality. In the end, only a few, well-connected farmers, have access to such consumer prices. This is not changing the system either.
But then, how is the system supposed to change, and what price should the coffee on that new system have? Well, maybe, there should be something in-between. Something that covers costs, strives to be inclusive, transparent and sustains sustainability by including socio-environmental costs.
Hilo is trying to be in that sweet spot. Where there is the least exploitation of the farmers, and of the consumers. Today, this is how the Hilo system calculates its prices now, and why we will need to increase them in March 2022.
Costs at the farm
The first step in our system change is to guarantee a fair price for farmers, the ones who always lose in the conventional system. In 2019, when we started this project, we calculated a fair income based on the living costs for a family in rural Colombia. This income would be yearly adjusted according to the national minimum wage adjustment. We thought that by doing this we would manage to decouple our green coffee costs from the market variations. Sounds perfect in theory, but 2021 has shown us a different story, and 2022 is keeping it going: if we follow the Hilo price now, we would be paying almost 1 EUR/Kg less to the farmer than the conventional system.
The first cost increase is in order to avoid generating any financial sacrifice from the farmers, breaking the cycle of “farmers always lose.” We’ve decided to adjust our price to the market price for this year’s purchase.
|6,19 EUR/Kg||7,12 EUR/Kg|
Costs from the farm to Germany
The second cost increase is the transport of coffee from Colombia to Germany. The broken supply chains from a planetary pandemic influenced these costs big time. There is less availability of containers, and fuel is more expensive.
|1,56 EUR/Kg||2,48 EUR/Kg|
Costs of finishing the product
Paper and other packaging supplies, as well as the electricity for printing and sealing bags, have also increased.
|1,99 EUR/Kg||2,10 EUR/Kg|
Costs of building a company
Companies need people working full time. We are a non-profit with the whole team in Germany still as volunteers working part-time (with second jobs to pay rent). But we plan to grow and scale the Hilo System, so we can quit the second job and dedicate more time to Hilo. Hence we need more investment in our own infrastructure and marketing, as well as a reserve for security.
|Operations||8,24 EUR/Kg||8,66 EUR/Kg|
|Marketing||3,94 EUR/Kg||5,34 EUR/Kg|
|Reserve||1,90 EUR/Kg||2,80 EUR/Kg|
These loops enabled us to draw a first draft with the aim of moving towards a more adequate software. The goal is to visualize and to operate at a system-level full of factors that range from society to logistics, further encompassing the environment and more. To summarize: We got a first hint of the complexity behind the coffee system.
In a nutshell
The Hilo system, if it is coherent with its claim to embrace complexity, has to take as much as possible into account. At this moment, our system has to increase prices in a transparent way in order to adapt to its context. Here is a visual representation of our new prices:
Beyond adapting to the context, our system should also have a strategy in order to continue existing. In the case of the Hilo initiative for system change, the most important strategy for this is a subscription. If anyone wants to support the Hilo system, they should get a subscription. This is the strongest connection we can make to enable economic stability and our work in sustainability.