#025 - Why We Don't Incentivize Organic Coffee (Altough We Love Organic Food)

We feed our kids organic food, but coffee is a completely different story. Here is what happened in Minas Gerais.  

In Europe, we are frequently asked about organic coffee. Without exception, these questions come from highly educated, conscious roasters whom we admire.

There is a powerful case for prioritizing organic food. In fact, when it comes to feeding our own children, we always prioritize organic from small-scale farmers.

But we believe coffee is fundamentally different. To explain why, we want to share a story from our home region of Minas Gerais - a story that has unfolded over the last 15 years.

Why is coffee different from other crops, like berries or fruits?

First, the coffee bean is deeply protected inside the fruit, meaning the bean itself has minimal direct exposure to external chemicals.

Second, coffee operates on a long, sensitive life cycle. A coffee tree takes at least three years to start producing, and it naturally fluctuates between high- and low-yield years. Because of this slow, biannual cycle, if something goes wrong, a producer faces a grueling, multi-year recovery period.

This is exactly what happened in our region. Around 15 years ago, some of our most forward-thinking peers transitioned to organic coffee, encouraged by sophisticated global consumers. The organic mission is noble, and on paper, the economics seemed tempting.

The real-world economics of organic coffee generally look like this: upfront capital investments are high due to strict certification fees and necessary tree renovation. Operating costs run about 10% higher because you are substituting chemical inputs with intensive manual labor. Meanwhile, yields typically drop by roughly 30%. While organic coffee does command a market premium of 15% to 100%, it leaves a razor-thin margin for error.

Initially, the smartest producers we knew made the switch, and for a few years, they thrived.

However, the ultimate argument against strict organic farming is the "unknown unknown". When a pest or disease sweeps through an organic plantation, yields plummet, bean sizes deteriorate, and the trees' recovery time increases significantly.

For producers who took on bank debt to finance their initial organic transition and survive the uncompensated three-year setup phase, this sudden drop in crop quality and cash flow is fatal. They can no longer service their loans. Suddenly, exporters can no longer guarantee a reliable standard, the quality that sophisticated consumers expect vanishes, and the entire supply chain breaks down. Tragically, driven by high leverage and crop failure, many of our friends went bankrupt.

A crisis that could have been quietly contained with a small, targeted dose of crop protection—the agricultural equivalent of giving antibiotics to a sick child—instead becomes a catastrophic failure that destroys a farmer's livelihood.

Because of this, we prefer to look forward and focus on incentives and a constructive, resilient alternative. We believe the true future of sustainable coffee isn't strictly organic—it lies in biologicals!

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Highlights:

• Coffee Futures KC Price in NY: -3.15% weekly, closing at 265.60 cents/lb.  

• Coffee Price in Brazil's B3 in USD: -2.64% weekly, closing at 330.55 USD per 60kg bag.

• BRL/USD fx rate: +1.12% weekly

• Proxy of 20' container freight prices from Santos to Rotterdam: down ~3.5% weekly

• Starbucks reported its best quarterly results in two years, highlighting strategic menu innovations and operational efficiencies amid shifting consumer preferences for premium coffee experiences.

• De’Longhi achieved record results, driven by strong demand for home coffee machines, reflecting a consumer shift toward at-home brewing for consistency and convenience.

• Nestlé's new CEO revealed a personal habit of consuming 8 cups of coffee daily, underscoring executive-level endorsement of high coffee intake amid broader industry discussions on health and productivity.

• U.S. coffee consumption reached 66% daily among Americans, up 7% from recent baseline periods, but Starbucks' market share fell to 48% as consumers favored rivals like Dunkin' and drive-thru chains.

• Laird Superfood acquired Navitas for $39 million, a strategic M&A move to expand in plant-based and health-focused coffee alternatives.

• Nueva Vizcaya, Philippines, allocated ₱5.7 million for coffee industry enhancements, a governmental initiative to boost local production through technology and climate resilience.

• Starbucks announced free coffee giveaways on February 9, as a strategic promotion to drive traffic and introduce new brews amid competitive pressures.

• India's Budget withdrew duty concessions on imported coffee machines, potentially increasing costs for machine-brewed coffee in cafes under new governmental fiscal rules.

• U.S. tariffs on coffee-producing countries were discussed, with exemptions confirmed, providing strategic relief to importers and stabilizing supply chains.

• Home coffee routines emphasized speed and consistency, with consumers prioritizing durable, easy-to-use equipment amid hybrid work schedules.

• Brazil's Conab’s official survey forecasts a record 66.2 million 60-kg bags (processed), up 17.1% from the previous cycle. If confirmed, it would exceed the prior record of 63.1 million bags in 2020; private estimates (e.g., Hedgepoint, Safras & Mercado, Itaú BBA, Sucden) range higher at 69–75 million bags for the current crop cycle.