Coffee Beans at $15 a Pound OK for Some

Cups ready for tasting at Four Barrel

Cups ready for tasting at Four Barrel

En Español.

Jeremy Tooker, the owner of Four Barrel, watches as the Probat roaster turns the green coffee beans sourced from a small farm in Africa a deep mahogany brown, ready to sate Mission denizens willing to pay more than $15 for a pound of coffee.

While many cafe owners complain about the 83 percent increase in the price of unroasted coffee beans on the global market, Tooker is among an emerging group of “Third Wave” roasters who applaud it.

“Last year we had a contest to see who could pay the most per pound from a farmer,” Tooker said, grinning. “I won.”

Increasing coffee prices might not sound like a reason to celebrate. But during a recent trip to farms in Colombia, Tooker observed that one of their coffee producers was able to build a new house thanks to price increases. “We’ll pay the most for good coffee,” said Tooker, who would rather know that the farmers are receiving a fair price than deal with a middleman. Termed “coyotes,” middlemen often buy low from farmers and sell high.

Four Barrel is not alone in supporting higher-priced coffee if it means that farmers can make a livable wage. “I’d like to think this is all a positive trend. Perpetuating the $1.50 cup of coffee is propagating a system based on undervalued coffee and taking advantage of the difference in economies,” said Eileen Hassi, owner of Ritual Coffee Roasters.

In the long run, Hassi and Tooker feel that rising prices will also mean better coffee for the consumer. Both roasters said that farmers are paying closer attention to what conditions produce higher-priced yields. And San Francisco coffee drinkers are catching on. “What good coffee was in 1999 versus 2009 has changed drastically,” Hassi said. “All the places that have been established are improving their coffee programs.”

Ritual’s carefully curated selections in the $3-a-cup range are worth it to drinkers like Tosha Albor. “It’s not a problem if that’s the real price. It’s the same way that I don’t mind paying a bit more for produce if it’s sustainable,” she said.

Albor said she’s noticed that some farmers in her homeland, the Philippines, are doing a lot better. “Especially the ones with bigger contracts, like with Starbucks,” she said.

Hassi, who started Ritual Roaster in 2005, has seen how low prices were unsustainable for farmers, citing Costa Rica as a prime example. It is one of the more developed countries in terms of coffee trade, but 2011 was only the second time in the last 30 years when the market price was above the actual cost of production, Hassi said.

In other words, for the past 28 years, commodity-based coffee was only breaking even in Costa Rica. But partially thanks to the 2005-06 micromill revolution, farmers have started becoming more self-sufficient and are doing more of the processing themselves, she said.

“This year is interesting,” Hassi said. Now that prices have risen, “We continue to work with more and more family farms in Costa Rica. But when the commodity was low, it was easy to be really generous.”

In the last five years, the cafe and bakery Mission Pie has watched coffee prices rise about 20 percent — more than any other whole ingredient. As a result, the cafe raised the price of medium and large to-go cups by a quarter. “What’s important to us is having high-quality food that’s ethical and sustainably sourced at an affordable price,” said co-owner Krystin Rubin.

There’s “nothing unethical” in the price rise, she said. “It’s a precious ingredient, and we should treat it as it is.”

Not everyone agreed that the price increases trickle down to the farmers. Brad Butler, co-owner of Bicycle Coffee, who roasts in Oakland but has a Mission office, argued that higher prices have a marginal impact on the welfare of growers. While he credits fair trade and organic organizations with helping to create predictable price points and more favorable work conditions, he points to other parties, such as financial speculators who take advantage of the changing economics of coffee.

Butler said that it’s challenging to run a business where the main product (the green beans) is both the most expensive and most difficult to predict in calculating product costs. Bicycle Coffee has chosen to work harder to increase revenues with a smaller employee footprint, rather than raise its prices.

Elsewhere, prices per cup are going up.

Stable Cafe on Folsom Street has a steady flow of customers, even on a rainy Wednesday afternoon. About three weeks ago, owner Thomas Lackey had to make the difficult decision to raise coffee prices for the first time since opening in 2008.

Lackey said that their coffee supplier, De La Paz, is just trying to keep up with the market, and is not overcharging wholesale accounts. “I know what kind of car they drive,” Lackey said of the owners, who specialize in organic, fair-trade coffee.

Mission cafes Dynamo Donuts and Kafe 99 sqft have also raised prices, but customers didn’t seem to mind the 25-cent increase. “Most of the coffee drinkers are well aware of what’s happening,” said Sarah Spearin, owner of Dynamo Donuts on 24th Street. Jim Noh-Kuhn, warehouse manager at Philz, said, “We try to absorb the price increase ourselves instead of passing it on to the consumer.”

But at the end of last year, the rising bean costs pushed Philz to join the ranks of cafes raising their prices.

Tooker also reported that he has raised prices for espresso drinks by a quarter, but he hasn’t heard of any customer complaints. His business model uses a set profit margin per pound of coffee, and bean prices change according to the specific coffee source. While he nicknames the slow bar that offers single-origin pour-over coffee “the break-even bar” because of the extra labor involved with brewing a cup, he said that people who try the pricier coffee often buy a bag or two of beans to take home.

The majority of Tooker’s customers take advantage of the $2 cup of coffee rather than the slow bar’s pricier offerings, which, considering the constant line, is fine with Tooker. The French press $2 cup uses a varietal that rotates about every two weeks, and won’t increase in price.

Will other cafes continue to raise prices in order to keep up with the changing market? Roasters expressed frustration at trying to guess the future of fluctuating coffee prices. At least for the moment, Hassi admitted, “I may be more popular in Brazil than I am in the Mission District, because I pay a good price.”

Correction- The previous version of this article named Mission Pie as a non-profit. Mission Pie is a for-profit business that collaborates with neighborhood non-profits.

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21 Comments

  1. nandro

    Raising prices ALWAYS benefits the retailer if they pass the price increase along. They can increase their profits more easily and Ritual has been doing this for year. It is easier to charge an extra .10 on $3 cup of coffee without anyone noticing than it is for a $1.50 cup of coffee. This is why local coffee companies here are so exicted about rising prices… It has nothing to do with the growers….

    Prediction: When coffee prices drop in a year or so (because there are huge amounts of coffee that will be ripe than that were planted a couple of years ago dude to the price increase) Ritual, Four Barrel, etc. will NOT drop their prices….

    You can’t bank on that. In a for-profit enterprise, prices only go up…. Don’t let them fool you into thinking they’re running a charity service for the growers in Brazil…. Its just PR bull.

  2. matt g

    That’s why I make my coffee at home. Although I don’t mind the price of whole beans going up, at least I don’t have or pay for the cocky Mission hipster behind the counter doling out bad service and expecting to be tipped.

  3. $1.50 cup of coffee is just fine with me(hard to find though), $2.50 at the most. $3.50 for a small coffee, no way. As far as per pound, 9$ max.

  4. Lance

    Sorry, but I know Jeremy and his buyers as well as Eileen, and they have always been nothing less then straight forward about the economics of coffee buying and selling. Painting them as greedy corporate peeps out to wring as much cash out of a coffee drinker as they think they can get away with is completely wrong. Both Jeremy and Eileen are small scale local business owners who roast and sell their coffee right here in San Francisco, treat their workers extremely well, and are personally involved in every aspect of the business. Both also travel to the actual farms themselves to meet the farmers in person, see the operation and product first hand and that makes a huge difference (plus adds cost). That kind of personal sourcing of beans is why the quality is so high and is something most cafe’s can’t or won’t do. I see the price of coffee every day on the markets and it does indeed fluctuate wildly so it’s nearly impossible to predict the costs from one month to the next let alone a year or more out and with countries like India and China with massive populations now able to afford and demanding better coffee it’s forced prices steadily higher as well.

    I also know that both owners often pay more then the going market rate to farmers to ensure they secure the best beans and to foster better business relationships with them, which helps everyone in the end. They also contribute knowledge that helps farmers grow and process a more desirable product which also ends up a win/win since the farmer’s can justify selling their beans at higher rates and we get a better tasting cup of coffee. Coffee is a commodity, with many different grades of quality, if you want to drink at the higher end of the spectrum, then be willing to pay more for your beans, that’s the simplest way to put it.

    • nandro

      My point is simply that they continue to raise prices regardless of the costs and will continue to do so. It is in their interest to up the prices (obviously) just as it is in their interest to fight a competing company (Blue Bottle) from setting shop in their backyard. Let’s not pretend that they are altrusists here. Just because you use their first names doesn’t make them saints. Eileen and Jeremey are out to make a living. Nothing wrong with that but let’s not pretend that they are a charity for the coffee growers.

      Let’s also not pretend that they aren’t absolutely hosing SF residents because of their willingness to pay so much more. The supply of coffee being planted is such that almost every major analyst expects coffee prices to drop in 1-3 years. I will bet you a million dollars that Ritual’s prices only go up up up….

    • abc

      Do you consider offering your baristas minimum wage and no benefits for 6 months treating your employees “extremely well”?? I think it’s great to pay top dollar for coffee, but don’t forget to take care of your employees too. That’s why there is a new barista there pretty much everyday.

      • marco

        Don’t Barista’s make a lot in tips, like servers? I watch the tip jar at 4 Barrel and pretty much everone puts in at least $1. With a line out the door every day, I imagine they serve dozens upon dozens of coffees every hour.

  5. Aaron

    Four Barrel sells their beans in 3/4 lb bags, not 1 lb. Same as Ritual and most other coffee shops. That $15 bag comes out to $19.95/lb, just as the $18 bags at Ritual are $23.95/lb. So yes I would agree we are indeed willing to pay $15/lb, but I wish we could go back to those days.

    • Justine Quart Post author

      You’re absolutely right Aaron. I chose a $15 tag as the conservative end of the price spectrum (Philz retails some of their coffee at this price point). Often the price can go much higher.

  6. We sell quality coffees in full pound bags for $12 shipped for free if you buy more than 2 pounds. We are in business to make good coffee, not the money because, the world needs good coffee!

  7. *I’d like to make a correction: our $2 french-press coffee on the main bar serves solely single-origin coffees (not a blend) and changes every 15 minutes on average- ven the Kenyas, which we payed $9/lb green*

    I’d like to stress that while we support a _profitable_ price for the farmer (as opposed to merely a livable wage), we are also in the business of _selling_ coffee. Meaning, we at Four Barrel feel it important to keep the price hikes directly related to the increases in cost. Our markup for retail and wholesale whole beans is a fixed margin rather than a percentage markup, which allows us to buy coffee at a higher price than most and keep it closer to “affordable” than most. If we pay $1 more, you pay $1 more. We feel the similarly about the price-per-cup, which is why we haven’t raised our cup prices over $2. Yet.

    Let me do some math for you: we make 20 cups of coffee per pound, so every dollar increase in green represents a 6 cent increase per cup, including weight loss from roasting. So, is the practice of raising the price-per-cup in these times gouging? Yes, in my opinion, if it’s percentage based and/or if a company chooses advantage of these times as an excuse to significantly raise prices to garner more profitability that isn’t directly passed on to the producer.

    Josey Baker: “But coffee on your slow bar cost almost $4 per cup!”

    You’re right. But that’s because we’ve done the math and with that particular setup it’s the minimum that we can charge because IT TAKES SUCH AN UNGODLY LONG TIME TO MAKE IT THAT WAY. We only make an average of 12 drinks per hour at most up there, so you’re paying for the experience. And, only the $9/lb/green coffees are $4 per cup. Besides, you get a free cookie up there. Free. Cookie.

    Josey Baker: “Are you saying that you don’t want to raise the average price-per-cup over $2?!?”

    That’s not at all what I’m saying, stop putting words in my mouth. I do think that it’s silly that people are willing to pay $5-6 for a beer, $8-12 for a cocktail, then scoff at anything over $2 for spectacular coffee. But coffee is mostly produced by brown people, while cocktails and beer are mostly made by white people. I said it. I really do feel it’s responsible to raise the prices slowly however, to make these changes more digestible and over time.

    Josey Baker: “So will you lower your prices when the market crashes?”

    Josey, don’t be a jerk. No we won’t. Only one country that we buy coffee from is based on the market, most others are out-right and only loosely based on futures. We don’t like practice of back-sliding in prices as the market declines, but would rather pay a bit more year-after-year and keep to our quality incentive pricing structure, as the futures market don’t really reflect real farm-level costs.

    Josey Baker: “I don’t get it, but I don’t like it anyway.”

    Get your coffee somewhere else then. I’ll still love you.

  8. Wow. I don’t understand how iPhone let “payed” slide. Sorry, the text really really small on this mobile site. Paid. Done.

  9. It’s nice to see people feeling so emotional about the coffee they drink. I also like to see the consideration shown to coffee farmers and their workers, but I do think that coffee price increases could also be due to the rising costs of running a business, and not just the rising cost of coffee beans.

  10. Nick

    Thanks for the article, and for the commentary Jeremy.

    Jeremy since you’re trying to set the record straight a bit and offering some level of pricing transparency to back your points here – I wonder if you could explain your comments re the pricing structure paid to producers. Of course as a business your increases are understandable, and of course connected with the market surely. I know you say you won’t lower prices when the market drops – but I’m a little confused by your expalanation on this:

    “most others are out-right and only loosely based on futures. We don’t like practice of back-sliding in prices as the market declines, but would rather pay a bit more year-after-year and keep to our quality incentive pricing structure”

    are you really saying that your producer level pricing structure is not really connected to the NYC price in any real way? What does loosely mean? Are your quality incentive prices per pound to the producer fixed in most cases? Not set at a differential basis to the market plus an added diff for cup quality?

    Appreciate some clarity on this one and cheers for your comments so far.

    Nick

  11. blue

    Gotta love SF – most of the world struggles with fair trade, here we have “fair trader than thou”

  12. nick

    Jeremy, So you paid ‘the most’ to a farmer last year? Really?

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