Price risk management for coffee producers

Twin works with smallholder producers to manage the volatile market and fulfil demands for high quality coffee.

Twin runs annual national Price Risk Management programmes for producer organisations across Latin America as well as individual workshops in the region and in Africa. So far nearly 200 organisations in Mexico, Guatemala, El Salvador, Nicaragua, Honduras, Peru, Ecuador, Bolivia, Brazil, Uganda, Tanzania and Rwanda have received training from Twin.

These workshops are interactive events combining insight into current market trends and providing practical steps for producer organisations to assess and reduce their exposure to changing prices. Producer organisations are encouraged to share their experiences with one another and learn from both best practice and also where things have not gone well.

Background

In recent years the coffee market has been characterised by volatility, high prices and a high quality differential risk. The NYC price for Arabica coffee increased 91% between 1 April 2010 and 1 April 2011 alone. These market tendencies over the last couple of seasons have severely challenged both producer organisations and buyers to manage their risks, leading to several problems in the supply chain including lack of liquidity. With these increased risks, it is necessary to strengthen price risk management and ensure that is it an integral part of businesses across the coffee sector.

Producer organisations work within two markets: buying coffee from their members according to local coffee market pricing and selling according to prices on the NYC market. Matching pricing between these two markets when buying and selling coffee at different times for the same contract is a major challenge, leaving organisations exposed once they have fixed their price.

Twin’s price risk management work

Twin runs an annual Price Risk Management programme for producer organisations across Latin America as well as individual workshops in the region and in Africa.

Following a workshop, work is undertaken to help support organisations in their price risk management strategy and equip them with tools for use during the season. A final evaluation is then carried out at the end of the season to assess the strategy and gather any learning for the next season. In addition to this, in countries where Twin has managed to secure additional funding, we have carried out mid-season workshops and developed regular regional bulletins providing organisations with local prices and quality differentials.

The results following these workshops have been tangible with producer organisations avoiding losses, improving their performance in price fixing, for example, and increasing their creditworthiness. Producer organisations that have received advice and support on a regular basis during the season have obtained the best results.

The Price Risk Management workshops have been very beneficial. They have helped to strengthen my commercial skills and capacity, understanding the specifics of the market, planning and evaluating our harvests and reducing our risks in the coffee market, which is highly volatile at the moment. This has enhanced our commercial management to support the best interests of our members and provide a better service for our clients.” - Elmer Peña Silva, Commercial Manager of Cenfrocafe, Peru

Next steps

Twin has run workshops in partnership with the CLAC, the Latin American coffee network, and national networks such as Cafenica, Nicaragua and Junta Nacional de Café, Peru. Funding for the workshops has come from a multitude of stakeholders including ethical banks, roasters, coffee importers, local foundations, NGOs and national fairtrade entities, who understand the importance of this work in order to strengthen supply chains.  Twin considers that this multi-stakeholder approach ensures that the programme is balanced and does not focus on commercial needs of one entity, whilst also ensuring a breadth of knowledge and experience from contributing partners. 

Please get in touch if you would like to learn more about our Price Risk Management workshops.