July 20, 2020

A Guide to Green Coffee Auctions

Green coffee auctions are a popular way to buy and sell green coffee on the international market. Not only do they often provide producers with an opportunity to sell coffee at premium prices, they also help them to connect with buyers and build their reputation.

There are many green coffee auctions held around the world. The most well-known, however, are the Cup of Excellence (COE) auctions. However, while overlooked or rare specialty coffee micro lots are often picked up at auction, the associated fees and costs do affect what producers are paid. 

I spoke to Saša Šestić, director of Australia’s ONA Coffee and creator of the Project Origin: Best of Coffee auctions, and Arturo Aguirre, a seven-time Guatemala COE winner and the owner-operator of Finca El Injerto. They told me more about these auctions, and discussed the challenges they can present for producers.

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How Is Green Coffee Auctioned?

For centuries, green coffee has been traded at auction. Auctions are typically held by importers, exporters, and coffee organisations, and take place either on-site or on the internet. They aim to bring attention to specialty coffee producers and their coffees. Typically, producers also receive better coffee prices and promote their farm to new buyers in new regions.

On-site auctions usually take place at origin during events hosted by exporters, NGOs, or other industry stakeholders. They allow producers and buyers to meet face to face, and sometimes include farm visits and cupping sessions as well as the actual auction itself. While they can foster long-lasting relationships between producers and buyers, they can be costly for producers to take part in. Even if there are no fees, producers incur an opportunity cost as they can’t be on their farm working. Alongside this, payment terms also differ from auction to auction, meaning that producers sometimes have to wait longer for their money than they normally would.

Online auctions, however, provide producers with more flexible access to the international green coffee market. Buyers from around the world will bid on coffees online, usually after they have been judged, scored, and awarded. Roasters can also request cupping kits and samples to allow them to make a more informed decision about which coffee they buy. Arturo favours this option as he says it exposes producers to more roasters than on-site auctions.

However, while online auctions give producers a bigger pool of buyers, they can be less personal than meeting on-site. As a buyer, Saša prefers building relationships with producers in person at origin. He does, however, acknowledge that online auctions are preferable in countries where travel is restricted, and that it can sometimes be costly. 

Saša elaborates: “[It is challenging] to bring roasters from all over the world to an event. It’s a big commitment for roasters and producers to come and be there for the entire week. 

“I think it’s nice what other auctions are doing, because it’s the only way we can taste these coffees when we cannot travel there to see the country and the farm. So in a situation like this, it’s better to set up the online platform, taste these coffees, and bid on them.”

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How Auctions Like The Cup Of Excellence Can Benefit Producers 

The Cup of Excellence is a global specialty coffee competition managed by the non-profit Alliance for Coffee Excellence. It takes place in many producing countries, including El Salvador, Honduras, and Ethiopia. After each competition, the top 30 coffees – provided all have a cupping score of 87 or above – advance to a Cup of Excellence auction.

COE auctions can help producers receive more for their coffee than they would elsewhere. For example, the 2020 COE in Ethiopia saw the highest-scoring coffee sell for US $185.10 per pound – the highest price ever paid for an Ethiopian coffee. The producer, Nigusie Gemeda, said: “I have been a coffee farmer for a long time, but I am just learning the value of our coffee. I am so happy with the result. Never could I have imagined coffee would have sold at such a price.”

COE competitions and auctions also encourage farmers to invest in improving the quality of their coffee. Geoff Watts, Vice President of Coffee at Intelligentsia, says: “Ethiopia is widely considered to be the producer of the most delicious coffees in the world, yet many of its farmers are among the poorest. This auction sends a message that not only validates investment – and the associated risks – in quality but also serves as a reminder that the quality movement is here to stay.”

COE events can also expose producers to coffee buying markets they might not normally come into contact with, such as those in Japan, South Korea, and China. Saša says that in his experience, auction-winning coffees are considered prestigious by many customers in these markets, and are highly sought after. He says: “The roaster or the company that purchased that coffee did so because they know customers want it. They are comfortable spending a lot of money to promote it.”

While other independent green coffee auctions do exist, the most significant is the Specialty Coffee Association of Panama’s annual Best of Panama competition, which first took place in 2001. Last year’s auction broke records when the Lamastus family’s Elida Estate’s natural processed Geisha sold for US $1,029 per pound at a cupping score of 95.25 points. These auctions have helped popularise Geisha as a high end specialty coffee. Fourth generation farmer at Elida Estate, Wilford Lamastus Jr., says that while his coffee won awards, “people will remember the origin and variety, not individual producers… in the long run”.

Saša also believes that these high prices benefit the country’s producers more widely. He says that when “the Best of Panama coffees go for US $700 or US $1,000 a pound, everyone benefits”. He explains that by improving the global perception of the coffee, it encourages others to spend more. This often means that producers are better compensated for the effort they’ve put into growing it.

Typical Green Coffee Auction Fees

For green coffee auctions to be accessible for producers, the fees they are charged need to be worth the potential price they can expect from a sale. Fees are generally calculated as a percentage of a lot’s final sales price, but these may not be fixed and vary from auction to auction. Producers also have other unforeseen costs that they have to consider.

Darrin Daniel is the ACE’s Executive Director. He says that the exact percentage that the producer goes home with will depend on other added costs. “Washing stations in Burundi and Rwanda charge a fee to individual producers for milling and grading the coffee. The ACE receives 1% for commission, and the country partners [receive a percentage on] a moving scale of 10 to 18%.” He says that, eventually, “closer to 69 to 73% goes back directly to the producer”. 

To decide if it’s worth entering a particular auction, producers should examine coffee prices from previous auctions. They should also research typical fees ahead of time, and check the sales figures for certain varieties. This information will help producers to decide which events to attend, and which coffees they should aim to sell.

Producers who would prefer more control over what or how they’re paid can take their coffee to a private or producer-organised auction. These may also be suitable for producers who do not meet the minimum required lot size for larger auction events. However, while these events might provide them with more control, producers will often have to rely on their own reputation to attract buyers.

If cash flow is an issue, producers can also consider immediate payment auctions for smaller specialty lots. For example, Brazil held a Micro Region Showcase Caparaó auction in 2019, which was organised by the Brazilian Association of Specialty Coffees and Brazilian Export and Investment Promotion Agency. 

This auction allowed producers to enter nano lots for auction, which were sold for between US $15 and US $54 a pound. The upper end of this range is around 20 times higher than what regional producers were typically receiving. The auction also required buyers to pay in cash when bidding. 

Many larger auctions operate on a delayed payment model, which can mean producers wait for up to a year before they are paid for their coffee. For smaller producers, timely payment could mean the difference between staying profitable or getting into debt.

Green coffee auctions can be highly beneficial for specialty coffee producers. If successful, they can help them to develop long-term relationships with buyers and build a reputation for their coffee. 

However, it’s also important for producers to make sure they’re appropriately informed and making the best decision. There may be other auction models out there that are more suitable.

Enjoyed this? Then Read How Can Coffee Auctions Enable Direct Trade Relationships?

Photo credits: Diego Nájera, Finca El Injerto, Cup of Excellence, Nick Castellano

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