If there is one thing I’m good at, it’s inventory management. My graduate degree is in a field related to Operations Research, which is essentially the study of industrial efficiency. My specialization was in mathematical models, which are used to predict demand, calculate safety stocks to avoid backorders, etc. For many years, things I learned at Lehigh, and later while earning an MBA at Duke, have served me well, and that continued to be the case with our small business. Until recently, when I’ve engaged in more green coffee buying, and have had occasion to speak with numerous importers and traders.
The dynamics of specialty coffee are interesting. And difficult, in some ways. The first thing to realize is that the coffee we buy is not commodity coffee. Commodities are items that are always available and, recent price volatility nothwithstanding, are predictable or can be hedged. Think oil, or corn. The Big Four of coffee – Procter & Gamble, Sara Lee, Nestle, and Kraft – employee armies of people just like me, in fact I was a consultant to one of those companies early in my career. Specialty coffee, however, is by definition the top of the quality heap. Certainly the top 5%, maybe the top 3%. So by definition, in short supply relative to the rest of the crop. And with specialty coffee becoming a larger trend, there is more competition for that scarce resource.
Another nuance is the business model of the small importer. While giants have the financial capacity to move large amounts of commodities without having to put up their own cash (or they have the cash), small importers like the ones we buy through stock their shelves the same way I stock mine – with inventory they actually own. Bought and paid for, then resold. (And we run a debt-free business, so I’m not about to stock more than I can sell.) In any climate, this would limit the amount of selection available from a given importer. But in these unusually turbulent and tight economic times, it’s even worse. As importers have their credit squeezed, they can buy less coffee. Which impacts my selection, and thus yours.
Lately, commodity prices have fallen. Fill your tank recently? Then you’ve noticed. Yes, coffee prices have fallen, too, but don’t expect to see much of it flow through. With commodity prices down, countries are demanding more price differential for the premium product. And they either won’t sell at a lower price (good for them!), or they’re getting it. We’re paying it.
Decaffeinated green coffees add another level of complexity, especially if you want organic and/or Fair Trade Certified. Top quality growers, especially FTO producers, sell all they can grow for all the money. They don’t need to submit coffees to decaffeination. Of course, some top quality producers do produce decafs, but they are a minority – another short supply situation. So when a good FTO decaf becomes available, they sell out quickly. This means we need to buythem when they are available, from wherever they are available, instead of waiting to include them with a scheduled shipment from a specific importer. Obviously this is inefficient, especially with respect to freight charges. But we do it, and this is a big part of the reason why great decafs are more expensive.
Couple all this with unstable demand at the consumer level (let’s face it, you can live without premium coffee – we felt you hold your breath at the end of September as the markets began their free fall), and increased competition among specialty roasters, and it all adds up to more difficulty securing great green coffee at reasonable prices. And it’s going to get more difficult as this current financial crisis becomes more severe.
You now have a little insight into my world. But not to worry – we work with the best suppliers in the business, and we are well positioned to buy large enough quanitites of fine green coffees. We’re placing an order this week that should arrive just before Thanksgiving, and I am very excited to offer our first Rainforest Alliance coffee (my cupping notes contained the words “balsamic vinegar” to describe its sweet, sharp acidity), as well as an excellent Mountain water Process Mexican decaffeinated. Stay tuned!
WWJD (What Would Jim Drink today?): Wow, this was a cupping weekend, so I’ve been tasting about a half dozen different coffees. Right now, I’m drinking a Sumatra MWP decaf, which is wonderful, but not wonderful enough to overcome my current inventory position on Sumatra decaf and my immediate need for a Brazil. One of those economic realities – I need to balance my taste with my forecast and budget. Earlier today I cupped a Rainforest Alliance El Salvador that made my eyes cross, it was so good. I’m buying that one! But until it arrives and I find the sweet spot, then put it on the website, you can keep drinking our organic, Fair Trade Certified El Salvador El Jabali.