The answer is more complex than ‘because some coffee taste better than others’ or ‘some coffees are very rare and unique and therefore the supply and demand relationship will create a higher prices’.
What is a Living Income?
Living income is the net income a household would need to earn to enable all members of the household to afford a decent standard of living. Elements of a decent standard of living thereby include: food, water, housing, education, health care, transport, clothing, and other essential needs including provision for unexpected events. (Living Income Practitioners‘ Workshop hosted by ISEAL & GIZ, Eschborn, February 2015)
In an earlier blog post we addressed that Cost of Production is variable between different countries, and even within countries. Another major factor is that labour costs account for 50-70% of production costs.
Union Coffee is committed to fair and equal work conditions and that producers should agree to our Code of Conduct.
Producers should be committed to pay a living wage to their workers. The reality is far more complex.
First, 78% of the coffee we source comes from smallholders, and they only employ a small number of people. Union Direct Trade strives to make coffee production profitable for farmers by allowing them to earn a ‘living income’.
The concepts of ‘living wage’ and ‘living income’ are both about achieving a decent standard of living for households. The idea of a living wage is applied in the context of hired workers (in factories, on farms), whereas living income is discussed in the context of any income earner, such as self- employed farmers (source: isealalliance.org).
The ISEAL alliance proposes the definition as: “A living income is the net income of a household earned/generated under conditions of decent work, sufficient to enable all members of the (average) household to afford a decent standard of living.“
Jeremy meeting a producer at the Yayu Wild Forest, Geri Co-Operative
For Union, this means coffee produced under the rules and regulation of our Code of Conduct, including payment of at least the minimum wage for that country, and striving for a living wage to workers. Also, implementation of environmental friendly practices. Coffee producers should cover their cost of production and earn a decent margin which in turn allows them to have a decent living.
Now where does the complexity arise:
- Cost of Production is different between different countries and even different farms in the same country.
- Coffee is often not the only source of income. Farmers may dedicate part of their land and time to coffee production. So, coffee production takes up a percentage of a farmer’s time and subsequently contributes to household’s net-income ranging from 1 to 100% accordingly.
- Calculating the cost of a decent standard of living depends on the country. How many children do families have on average? Is it fair to base a living income for a typical family on the basis of 2 children in one country and 6 in another country? Are schooling, housing and food prices subsided by the government?
Wageindicator.org is a web-site that monitors cost of living and wages through surveys. Let’s have a look at their available data.
According to the data a typical family in Costa Rica should earn at least USD 12 523,- per year to meet the basic minimum of a ‘decent living’, whereas in Nicaragua this amount is estimates at USD 1947,-.
This will influence the price negotiation, taking into account other factors such as Cost of Production, quality and volumes.
The price of the green coffee is the most important element of the final total cost of the roasted and packed bag of coffee. Therefore, this gives some insight into why some of our coffees will be more expensive than others.