Cost of Production Covered Template
Image: Ask Me About Cost of Production Panelists, April 2023.
If you believe that all businesses involved in a coffee supply stream should profit from transactions, you're in the right place. Farms are businesses just like us. If you're a green coffee buyer from a business that believes that contract prices should be based on something more meaningful than quality based metrics alone, you're in the right place. A coffees value should be based on what it costs to produce it.
We've put together a questionnaire and template to help green coffee buyers from companies of all sizes identify the cost of production and farmer gross margin on their production costs. This questionnaire and template could serve as a roaster's starting point for building accountability and equity into the supply stream. Those using the questionnaire and template should build on and improve the format by adding cost of production gathering questions. They should do it collaboratively with the collaborating producer partner(s), as well as the importing/exporting partners that are helping facilitate the farm partnerships.
We share our spreadsheets and the process directly with the producers or through collaborating importing partners. We ask all users to do the same. To truly build equity into the supply stream, negotiations must be transparent and producers must be present to set their contract prices.
- Update your graphics! Click "Customize Theme", and under "Header" you'll be able insert a new graphic.
- Click "Send". After sending the link to collaborating importers/farms, click the "Responses" tab. You'll be able to see individual responses. For each response you'll be able to "View in Sheets".
- After clicking "View in Sheets" You'll be taken to the Open CoPC Template Google Sheet. You will see a tab entitled "Form Responses". To use the Google Sheet CopC template we've created, you'll need to create a new tab.
- Copy this link: https://docs.google.com/spreadsheets/d/165CG6g4mDhC8YPQ4htcYVPCZBsHZq0zkQaQFlcatTz8/copy, copy the CoPC Template tab, and then add it to your newly created tab from step 3.
- The first tab, "Form Responses", lists respondents' answers in a row with a timestamp. Copy that entire row, and paste it in the CoPC Template tab in row 2.
- The CoPC template crunches the cost of production, and shows you what a healthy gross margin on those costs would be (30%). Cell E22 will give you the cost of production, and E23 will give you the 30% gross margin on those costs.
- If the importer and/or exporter partner you work with ensures that the producer receives more than this price, incredible! This means that the producer partner is making at least a 30% gross margin on their costs. If not, we'd suggest adding a premium into the contract that makes up the difference.
- Follow up. Cost of production is going to change with every year, with every farm, with a changing economy. Just like you're own changing business costs, producers' businesses are dealing with ever fluctuating financial realities. Please note that you will need to copy the template tab for each new producer partnership.
- There will be some back and forth in this process. First of all, you'll need to work with producers that you can obtain "farm gate" pricing for. Ask your importer partner if this is feasible to obtain. Cost of Production Covered (CoPC) premiums, if there is one, depend on the difference between producer cost of production and the price they received directly for their coffee.
- If you or the other project participants think that something seems off, there's a good chance that there is. Make sure all costs are in the same currency (if the currency is in Colombian pesos, the value in cell B3 would be .00021. If the currency is in usd, list "1" in cell B3). You'll have to decide on the exchange rate date, because it changes often. You'll have to settle on an exchange rate date. Keep in mind that ball park cost of production is a more helpful starting point than arbitrary quality based metrics as far as producer business profit is concerned.
- Make sure you're getting responses in pounds. If you get responses in kilograms, you'll have to make the conversion in row 2 (kilogram multiplied by 2.2). It's important that participants are factoring in direct costs related to producing all of their coffee; it doesn't have to be just for the coffee you receive.
- When should you send this questionnaire and template to producer partners and importer partners? Ideally it would be between end of harvest and prior to forward contracts being drawn up. We need to be able to identify all of the direct costs pertaining to production, and ideally the CoPC premium would be built into the contract price beforehand so that importers can do what they do best; facilitate!
Read the blog post for more info!