We, as end consumers, are likely unaware of the price of coffee and/or how it is quoted and fluctuates daily, beyond the cup we pay for at our favorite coffee shop. However, it is a very common question among the coffee growers' community, as some believe the price is set arbitrarily by the National Federation of Coffee Growers of Colombia (FNC).
Therefore, at La Tienda del Café, we felt it was important to share how various external and internal factors influence the final price of coffee, which is nothing more than the sum of several factors.
The FNC offers all coffee growers a guaranteed purchase by publishing a base market price calculated based on the closing price on the New York Stock Exchange for the day, the daily exchange rate, and the reference differential or premium for Colombian coffee.
So,
How is the price of coffee calculated?
The FNC is responsible for setting this price daily, so that coffee sellers can know what price to set when negotiating their exports and imports.
According to official information on the FNC website, "The purchase price of a load of parchment coffee in Colombian pesos depends entirely on the behavior of the following market variables: quotations on the New York Stock Exchange, the quality premium recognized for Colombian coffee , and the exchange rate of the Colombian peso against the dollar."
Factors that influence the price of coffee
Coffee cultivation is highly exposed to climatic, environmental, and even social factors, which directly impact the quantity and quality of the coffee beans produced. This undoubtedly has a dramatic impact on the price of coffee. Below, I'll list some factors or variables that influence the price of coffee .
The weather
The coffee plant is very sensitive to its environment. Therefore, slight variations in humidity, temperature, or rainfall influence the quality and quantity of the coffee beans produced. Ideal conditions are:
- Temperatures of 19 to 21 degrees all year round
- Monthly rainfall of about 120 millimeters
- Humid and weak air
- And with a daily amount of sun of between 4.5 and 5.5 hours.
Crop management.
The methods and methods used to manage the crop greatly affect the fruit produced. Therefore, poorly maintained or contaminated soil can cause coffee plant diseases such as royal rot, iron spot, and so on. Likewise, care must be taken to ensure that other plants do not invade the crop.
Coffee plantations are often located in areas ideal for the proliferation of life. Therefore, these bushes are highly exposed to all kinds of hungry insects, which see a succulent meal in coffee plantations (pests). The most harmful insects to coffee are usually the coffee berry borer, the leaf miner, the root moth, and the coffee weevil.
The human factor.
Last but not least, I dare say the most important factor when it comes to determining the price of coffee is the law of supply and demand, as it directly influences the price of coffee . Demand is the amount of people willing to buy coffee. And supply is the amount of coffee available on the market.
For example, if for any reason, whether due to a shortage, an accident, or whatever, there is less coffee on the market, but people continue to consume it anyway, the price of coffee will rise.
However, suddenly people get tired of drinking coffee and no one wants it, but there's still the same amount of coffee in the markets, and the price of coffee will drop. And you might wonder, does it have that much of an impact? Well, yes, because in the end, coffee is made, coffee is grown, because people want and consume it, and the interest in it determines almost the entire price.