The alarming state of coffee futures has been el topic du jour across the blogosphere in recent weeks. As a primer, have a look at this recent feature by the Dorothy Parker of Specialty Coffee, Erin Meister, whose article on “Why Coffee Will And Should Cost More“ offers a great jumping off point for discussion.

Sprudge had a chance to talk coffee futures with Peter Giuliano, current President of the SCAA, and he filled us in on “C” markets, “real” markets, the role of direct trade, and why a gradual increase in coffee prices isn’t such a bad thing:

My advice?  We need to make a concerted effort to revalue coffee at the consumer level.  This is a place where baristas and coffeeshops can lead.  This is the moment- even before we see the inevitable price spike- where we can revalue coffee as a truly exceptional beverage

The PG Man spoke to us while at origin in El Salvador.

“It’s important to recognize the difference between the ‘C’ market and the ‘real’ market.  The ‘C’ market is a futures market, and the ‘real’ market is where actual coffee is bought and sold.  Without getting too technical, you can think of the ‘C’ market as an indicator of the ‘real’ market.  Often, the ‘C’ market is used to determine prices paid in the ‘real’ market, so the two are closely linked.  They are NOT the same thing, however.

The ‘C’ market has had an unprecedented rise lately.  This is an indication that those who speculate on this market see writing on the wall: that coffee consumption is outstripping supply. This is due to a number of factors: global warming is reducing the area of land available for coffee farming, pressure of other uses of land besides coffee farming, an increased number of coffee consumers worldwide, and others.

So, the shortage of great coffee is real, and the ‘C’ market is an indicator of that.  Direct Trade coffees- which by definition try to break away from the tyranny of the C-market pricing mechanism-  are still subject to the market basics that have influenced the C market.  Some of these are unexpected- for example I am visiting Aida Batlle in El Salvador at the moment- her costs have gone up this year because she needs to hire security for her farms since coffee has gotten so valuable so quickly!  Strange strange strange.

Aida, Tim Hill, and I were discussing over breakfast this morning that the hope is that true, long-term Direct Trade relationships will try to exert some stability on this marketplace, and therefore the prices should be a little more stable.  On the other hand, in some cases the prices will necessarily go up.  There won’t be one standard thing.

Also, some roasters will try to absorb the price increases, thinking that they won’t be able to increase prices.  This won’t work in the long term, obviously, and may put some roasters out of business.  In any case, the prices you see for roasted coffee will increase gradually- not suddenly or in any coordinated way.

My advice?  We need to make a concerted effort to revalue coffee at the consumer level.  This is a place where baristas and coffeeshops can lead.  This is the moment- even before we see the inevitable price spike- where we can revalue coffee as a truly exceptional beverage.“

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