The question often arises: why is specialty coffee more expensive than supermarket coffee? For a lot of people out there, coffee is just coffee, and it might seem strange that some coffee should cost more than the big brand stuff. Even to people who are above-average interested in coffee, specialty can sometimes seem overpriced when a 250g bag suddenly starts costing more than $20 or €20.

To be more transparent and to help people understand why our prices are what they are, we wanted to write a blog post breaking down how KAFFI price our coffee, and along the way hopefully. When we started writing this blog post we wanted to say that quality and price are linked, but breaking down the numbers we see that it’s unfortunately not the main factor driving prices up. This is not a transparency report, and we’re not making any claims about being ethical or that we have direct trade. We buy our coffee from importers because we’re not large enough to be able to buy direct from origin yet.

To start, let’s talk about specialty prices in general. There is a big distinction between the standard C-Market price (commodities market) for coffee and specialty coffee. The c-market is coffee as a generic commodity which is traded in bulk on the stock exchange. You don’t buy per kg or lb, but per container. Quality never comes into play, only volume. The price is set based on supply and demand, and it is currently at around $5 per kg of unroasted coffee ready to export. That’s almost the highest the c-price has been for the last two years. In fact it was 20% lower at the same time last year. This directly serves to drive up coffee prices globally, because a lot of exporters base their prices on the c-price.

Let’s compare this c market price with specialty coffee, which is usually bought in bags and not in containers from one of the steps along the value chain at origin, such as a washing station or in some cases directly from the farm. Specialty coffee usually has a base price, just like the c-market coffee, but there can also be premiums for quality to incentivize farmers to maintain a certain level in the coffee they produce. Specialty importers and large roasteries can also bid more to secure high-quality lots.

Let’s look at this breakdown from green importer Raw Material Coffee in the UK. This is based on their average price of Rwandan coffees back in 2020, so although it might not be representative of ALL specialty green coffee, or of the state of specialty coffee today, it helps us by giving us an example of how the price could be broken down. The FOB average price (Free On Board), meaning the price of coffee at the point of export from origin, on this chart is $6.55. That means that back in 2020 the AVERAGE price of their Rwandan specialty coffee was 31% higher than the current high c-price of today.

The farmer receives less than 40% of that FOB-price in this example, the rest is the cost of milling and preparing the coffee for export, management and the profit margins of everyone involved in the value chain between farm and export. Then we can see that there are additional costs involved in importing coffee to Europe, as well as warehousing the coffee for sale, Quality control, logistics and more. QC as well involves roasting samples and sending to customers, because no specialty roastery wants to buy coffee they haven’t tasted first. Which brings us back to what we at Kaffi pay, and how we set our prices.

So at this point the price of that imaginary example coffee from Rwanda is up to $8.71, but we would still need to get the coffee to our roastery in Norway. These days shipping costs are higher than they’ve ever been, so we pay around $480 to ship a full pallet of coffee. That adds about $0.75 per kg of coffee, and with customs fees that usually comes to around $1 to import coffee from an EU warehouse to Norway. We’ve now paid $9.71 for 1kg of coffee that the farmer was originally paid $2.57, or around 26% of the price we pay.

In comparison a large industrial coffee roastery that buys off the c-market at the current $5 is buying a full 17 000 kg container of coffee and having it shipped directly to their roastery. Now, we don’t deal with container shipping too often, but from what we can find it costs an estimated $4226 to ship a container. Even factoring in customs fees a large roastery is likely paying 25-30 cents per kg in shipping and fees, making their total $5.3 per kg of coffee. (It hurts to be a small business buying small volumes!)

But we digress. Let’s go back to that example of the $9.71 Rwandan coffee. It’s just arrived at our roastery, now we have to figure out what to charge our customers for it. The first thing to consider is that when roasting coffee, there is weight loss. Around 10-12% of green coffee weight is moisture that evaporates during roasting and depending on roast level a percentage of dry coffee mass as well. In our prices we estimate an average of 15% weight loss, which means that 1kg of green coffee is only about 869 grams of coffee that we can sell after roasting. Then we have to factor in packaging costs such as the cost of our bags and labels, which added to the green coffee price usually makes up around 30-40% of our sales price. We also have to consider variable production costs such as gas for our roaster and regular maintenance, which averages at about 1% per kg.

The next big thing we have to factor is our fixed costs. We’re a small roastery, with a relatively low production average of 300 kg per month of roasted coffee. That means all our big expenses have to be divided by 300 and factored into the price we charge per kg of coffee. If we were able to double our production on average, that would cut the fixed cost part of our prices in half. A large roastery, however, could produce 300kg an hour and make their fixed costs a negligible amount of their prices. Fixed costs include everything that we need to operate, accounting, website, rent, power and includes monthly or yearly fees and licences. For example we are Debio-certified, which we have to be to say that certified organic coffee is organic. This costs us $660 per year. If we were a large roastery that would be a pittance since there is a flat fee, but we’re tiny, so that adds around 18 cents per kg of coffee we produce. Not a huge amount, but all these little fees add up. Currently the fixed costs portion of our prices is around 30% of our sales price.

Then there’s salary, because if we didn’t pay ourselves we wouldn’t be doing this for very long. The salary portion of our prices sits at around 27%, though to be able to make a living out of this our goal is to get that up to 30%. For our more expensive coffees that leaves about 5% for our profit margins. This is usually where we adjust our prices based on things like the subjective quality of the coffee. Sometimes if we’re very unlucky we also have to sell coffee at a loss because we don’t feel that it’s up to our quality standards.

So with the example of the $9.71 Rwanda from before, with all of our costs factored in and if we assume that it’s tasting just as we’d expected from a Rwanda at that price point, we’d probably set our sales price to $15-16 per 250g bag. That’s about three times more expensive than a bag of decent quality supermarket coffee in Norway.

A more recent and real example of our pricing approach is a Natural lot of Rwanda coffee we purchased from Raw Material last month. We paid $12.54 per kg for a coffee that we’ve priced at $18.55 per 250g bag. That makes the green coffee price 28% of the sales sum for retail, of which we can assume that the farmer is paid $3.26 per kg according to the average breakdown above. Comparing that to the c-market price, if we assume the percentages work out the same, a farmer would be paid $1.96 per kg, or about 40% less than specialty. Just to give you a reference.

We hope that gives some insight into why specialty coffee is more expensive than supermarket coffee. Logistics and shipping play a huge part in it, especially for smaller companies like us where the smaller the production the more expensive per kg it becomes. It’s not a fair system at all for the people who produce the actual product, the farmers, but without all the costs associated with export and import, the coffee would never leave origin. At the end of it all, paying more for coffee is the only way we have to ensure that the farmer is paid more. We can talk about ethics and how the farmers deserve a larger portion of the value produced by the coffee industry, but we’re too small to be able to buy directly from the farm so there's not a lot of power we have to change that. So we instead strive to work with importers who pay farmers a fair price for their work, and hope that one day we can find a balance where we can charge our customers less while also paying the farmer more.

- Adrian & Silje -

* all origin photos belong to Raw Material Coffee