March 24, 2021

Why do East Asian buyers often pay record-breaking prices for auction winning coffee lots?

Buying behaviour varies in different coffee markets around the world. Buyers from each country will look at a range of factors when sourcing coffee to make sure they can meet the demands of their customers.

Understandably, one of the most important factors is price. Some markets are naturally more price-sensitive than others. However, at coffee auctions, we sometimes see a phenomenon known as “premiumisation”. Premiumisation (not to be confused with premiums paid for organic or Fairtrade coffee, for instance) is the action of using rarity, exclusivity, and superior quality drive up brand appeal and price, often to an astronomic level.

When sky-high, record-breaking prices are paid for ultra-high quality coffee lots at auctions and competitions, it is often East Asian roasters or buyers making the purchase. To learn more, I spoke with two roasters from East Asia. Read on to learn more about what prompts this behaviour, and how it affects the global coffee supply chain.

You may also like our article on entering China’s emerging coffee market.

Premiumisation & coffee in East Asia

Premiumisation is the process of using exclusivity, rarity, and superior quality to drive up brand appeal and prices for products which would otherwise be cheaper. This adds a greater sense of value for the buyer, and ultimately makes them more willing to pay higher prices.

In the coffee sector, this has become increasingly evident among buyers of high-quality coffee from East Asia. For example, in 2018, a collective of East Asian buyers set a world record of US $803 per lb for Elida Geisha at the Best of Panama auction. 

Two years later, East Asian coffee companies were among the highest bidders at the CoE, while in the same year at the 2020 Best of Panama, most of the highest-priced lots were purchased by East Asian coffee companies. 

At all of these competitions, these ultra-expensive lots weren’t just of exceedingly high quality, but also in limited supply. In addition, over the years, CoE lot sizes have decreased, while prices have only increased, further exacerbating this effect.

So, the question remains: why is it that East Asian buyers pay these astronomically high prices for coffee? 

Across the region, particularly in economically robust countries like China, Japan, and South Korea, there is a shared cultural appreciation for high quality products as part of the wider experience of consumption – in coffee and beyond.

Take tea, for instance. Not unlike coffee, tea is produced at different grades (from commodity to specialty). This creates a segmented market, where buyers in each segment are willing to pay a certain price. As price goes up, the volume of buyers in that segment goes down. 

Jin Guo is the green coffee buyer for Gee Coffee Roasters in Shenzhen, China. She says: “[Historically, in China, people are] used to paying very high premiums for tea and even wine.” This trend has subsequently “spilled over” into coffee consumption, which has become more popular in East Asia in recent years.

“Naturally, people are more willing to pay a very high price for high quality and rare [coffee] products,” Jin adds.

Why do East Asian markets often buy these ultra-expensive auction coffees?

Auctions have long since been places where buyers can obtain high quality green coffee for premium prices. But what drives this buying behaviour?

Well, first, remember that these coffee buyers have customers of their own. Jin says: “[Certain countries in East Asia have] a large amount of upper and middle-class people who are willing to pay more for really rare products.”

Being able to drink one of the rarest or most expensive coffees in the world has a certain appeal for a certain demographic. So, for the roasters buying ultra-expensive coffee lots, it is often just a matter of understanding what your customers want.

This demand is growing in markets like China, too. The US-China Institute says that the rise of coffee in China has “a strong Western influence”. Until recently, coffee was perceived in the country as being “unique” to the West, and today serves “as an exhibition of social status and cosmopolitanism”.

Kentaro Maruyama is the President and CEO of Maruyama Coffee in Japan, and a regular CoE buyer. He has a comprehensive understanding of premium consumption behaviour. He says that this kind of behaviour in Japan is not unusual. 

He draws parallels with Tokyo’s historic tuna auction, which has operated for more than 85 years. Today, the auction is held at the Toyosu wholesale market, and has recently been the site of some noteworthy buys.

This includes the January 2019 purchase of a 278kg bluefin tuna by restaurant magnate Kiyoshi Kimura, for which he paid the modest sum of 333.6 million yen (US $3.08 million). 

“For most East Asian cultures, there’s this mentality that the more you pay, then the higher quality it has to be,” Kentaro says. “It ends up becoming a marketing effort, because consumers demand what’s popular and what’s rare.”

While buyers do see these consumer demands, Kentaro does emphasise that this mindset of buying ultra-expensive coffees and selling them to customers is not always profitable. For roasters and buyers, he says the journey very much does not end there.

“The coffees we purchase at auctions are very high-quality, but we still need to do our part to make these coffees worth it for the consumers,” he explains. 

“We still need to add value by educating consumers, and convince the market that these coffees are well worth the price per pound.”

How does this affect the wider supply chain?

These ultra-premium buying habits have a number of positive and negative effects on the global supply chain. In financial markets the world over, any kind of “spike” in the price of a product can be disruptive.

However, Kentaro says: “These premium auction coffees are only being sold for a few weeks or a month while the news is still relevant. It’s not like people are buying these every day.”

It’s also important to note that when this news of a new record price does break, it can in turn boost the profile of a certain region or country as an origin, often encouraging others to spend more.

“I don’t think it affects the price because the volume of extremely high-quality coffees is super low,” Kentaro adds. “In a way, these are merely entertaining and exciting coffees that show the future and the dream of these coffees. 

“Even for us [at Maruyama], these coffees are a very small portion of the coffees we consistently offer.”

Jin holds a similar position. “I think coffee still has room for price increases. Higher prices will improve coffee estates and improve quality, which has a positive impact on the coffee industry,” she says.

“Ultimately, the market will always offer mid-range priced coffees that are still high-quality for people to choose from.” 

Jin also adds that premiumisation isn’t just a sensational price rise. The greater focus on quality ultimately drives interest and improves awareness among both consumers and farmers.

“High quality coffee such as the Panama Geisha stands for much more than marketability,” she says. “It stands for better terroir, labour care, environmental care, and so on. As such, it deserves a better return.”

Are these high prices driving stronger global trade relationships? 

On the other side, beyond market disruption, these ultra-premium coffees can lead to greater interest in certain regions or origins, and higher recognition for the producer.

Kentaro tells me that Japanese companies started to become very interested in Nicaraguan coffees in the early 2000s. At this point, he says, Nicaragua didn’t share the kind of specialty coffee profile as other origins.

“When CoE went to Nicaragua, it opened a new market for Nicaraguan producers,” Kentaro explains. “This slowly helped producers increase their prices.”

These auctions have also helped establish long-term trading relationships between producers, importers, and roasters, which can last for years after the purchase of these auction lots. 

“Many of our relationship coffees have been established because of CoE,” Kentaro tells me. “We meet the producers, visit their farms, and then from there we have continued to grow the relationships.”

This interest and premiumisation could even be linked to further innovation and growth in coffee quality for producers in East Asia.

Take Yunnan, for instance, the region where more than 98% of all coffee in China is produced. Yunnan has long been associated with lower quality beans used for instant coffee, but today, Chinese farmers are starting to invest in sustainable, quality-focused production.

While this is for a number of reasons, a greater appreciation for and recognition of coffee quality among Chinese consumers surely can’t be ruled out.

While the domestic consumption of Chinese-grown coffee remains low (around 70% of Yunnan coffee is exported) farmers in Yunnan are experimenting with natural processing and a range of new varieties. It’s yielding results, too; in 2015, the highest-ranking Best of Yunnan coffee was given a cup score of 84 points by 25 international judges.

Today, East Asian coffee buyers are renowned for seeking out high-scoring, ultra-expensive coffees at auctions. Unlike buying markets in North America and Europe, there are a number of reasons, cultural and otherwise, that influence these premium buying behaviours.

Alongside being newsworthy and raising the profile of the coffee sector, these ultra expensive coffees are also starting a larger conversation about quality, pricing, and sustainability. No matter what you think about the eye-grabbing prices some buyers pay for auction winning lots, that can’t be a bad thing.

Enjoyed this? Then read our article on a guide to green coffee auctions.

Photo credits: Gee Coffee Roasters

Perfect Daily Grind

Want to read more articles like this? Sign up for our newsletter!