Don’t think the specialty coffee industry isn’t affected by the current crisis in global credit markets. At the producer and the consumer end of the specialty coffee chain, free flowing credit is the lifeblood of the industry.
Many observers of the specialty industry have come to understand how important credit is to coffee farmers –to all farmers.
Less well known is the dependence of small roasters on credit. Like farmers, roasters can’t survive without borrowed money. Late this summer and into the fall, credit has been very difficult to come by and roasters have been scrambling to find scrupulous agents who will underwrite their businesses. Without credit, boutique coffee roasters face catastrophe. Their cash flow simply is not sufficient to keep coffee beans moving from origin.
When a buyer for a boutique roasting company here in the United States purchases a container of coffee (40,000 pounds) from a licensed exporting agent in Guatemala or Kenya or another producing nation, it’s not the roaster who puts up the, say, 150K to pay for the coffee.
Roasters rely on overseas agents or bankers to supply the cash to buy the green coffee: principle, plus interest is repaid by the roaster when the roasted beans are sold. Sometimes roasters American-based importers acts as their bankers.
Nor do roasters use their own funds to transport coffee from the farm to the mill, from the mill to the seaport, from the seaport (by container ship) to the American port, from the American port to the warehouse, from the warehouse to the roastery and from the roastery to the end user.
Agents, importers or bankers pick up these costs, too. Interest rates, of course, vary, depending on the availability or lack their of, of credit in overseas and domestic credit markets. When credit dries up, interest rates rise, putting pressure on small businesses. In the worst case scenario, credit disappears from the market, making the buying and selling impossible. Small businesses, with relatively few cash reserves, cannot function when this happens. Some are likely to die.
So the $700 billion rescue plan under consideration in Washington this week does not just speak to Morgan Stanley, Merrill Lynch and Goldman Sachs. This bill also speaks to the fate of some of our favorite boutique coffee roasters.