Coffee News: from Seed to Cup

Forward vs Spot Coffee Buying: The Pros & Cons

Do you know what coffee you’ll be selling next season? Or will your team be ringing around, requesting samples, negotiating prices, and hoping that you can secure the best lots for both your menu and budget?

This is, at its core, the difference between forward and spot buying. Whereas it’s often commonplace for roasters to buy bags of green coffee from their importers on the spot (“spot buying”), we are seeing more roasters, producers, and importers committing to buying coffee months or years before it is even harvested (“forward buying”).

But the impact of forward and spot buying extends far beyond how the purchase is made. Let’s look at what these systems mean for green coffee buyers, roasters, and producers.

Lee este artículo en español Compra A Plazo Vs Compra Al Contado: Los Pros Y Contras

viewThe view from Finca La Isla, Tolima, Colombia. Credit: Edith Enciso

What Is Spot Buying?

Spot buying means that a roaster buys green coffee, typically from an importer, without a prior commitment to doing so.

On the importer’s side, they buy the coffee from producers and store it in a warehouse. They then send samples to the roasters they work with and, when a roaster is prepared to buy the coffee, it’s ready and waiting. “It is immediate,” Badi Bradley, US Sales Director of Caravela Coffee, explains, “and the sample you just got is the actual coffee, not just a characteristic of a coffee.” It also requires very little planning.

On the other hand, spot buying tends to cost more because the importer is taking on financial risk. It can be a bit older since it sits until it sells. Lots are often larger, so the importer may lose some traceability. Additionally, it may also be on other roasters’ menus, while forward buying means you can arrange to buy the whole lot.

“It’s also important to ask, ‘Is the coffee I like always going to be on the menu?’” Badi urges. If you’ve had great success with a certain coffee in your roastery or café and decide you want to buy more, the importer may have already run out.

You might also like: Micro vs Macro Lot: What’s The Difference?

coffee farmerA producer inspects drying coffee beans on a Colombian coffee farm. Credit: Angie Molina

What Is Forward Buying?

Forward buying means that you commit to buying a particular coffee in advance, whether that’s as little as two to three months or as much as three years ahead of the delivery date. Badi explains that it will arrive six to eight weeks after the harvest, sometimes quicker, meaning that it will always be fresh.

“This method is good for planners; it takes some skill,” Badi says. “Plan to overlap (one to two weeks’ worth) and plan for success.”

Steve Kirbach, a green coffee buyer with Stumptown Coffee, agrees that it is a great forecasting tool. “It helps us plan out our costs, profits, and set our menu,” he says. With forward contracts, roasters know exactly coffee they will be able to offer, including the point, cup profile, and origin. From here, they can plan menus that appeal to their target market all year round.

This process also gives the roaster a clearer idea of where the coffee originates from. It’s normally done for specialty coffee, not commodity coffee, and can result in strong relationships along the supply chain. “Our relationships with contract-producers are far superior [to that of spot purchase producers]. These coffees are our ‘single origins,’ and we are building their brand too,” Steve says.

Badi does caution that it requires some flexibility, as there can be delays due to port strikes, ships breaking down, and late harvests. Good importers have procedures in place to open dialogue with roasters and ensure that the coffee delivered is as close to the original request as possible.

Communication is key in situations like these, as both Badi and Steve emphasize. “Our importers keep us informed,” Steve says. “If there are issues, we support the producers so they can continue. It makes the relationship more reciprocal.”

raised bedsWashed coffee dries on raised beds at Finca la Isla in Tolima, Colombia. Credit: Edith Enciso

What’s The Impact on Producers?

We reached out to Edith Enciso, a producer that both Caravela and Stumptown work with, to learn about the impact of spot and forward buying on the farm. She owns Finca La Isla, which lies in Tolima, Colombia, and has previously won the top place in the Colombian Cup of Excellence. Since 2011, she has sold a significant portion of her harvest to Stumptown through Caravela, in a three-year contract that has already been renewed twice.

Edith tells us, “There has been a huge shift since we began selling coffee through forward contracts. The payment method is more efficient, as well as other benefits in terms of technical support, a new warehouse, and financial assistance to improve infrastructure.”*

Forward selling has also reduced risk, both financial and physical, for the farmers. They used to ship samples to Bogotá (about ten hours from the region where Edith lives) and wait a long time for feedback from cupping and analysis. “It would take ages to know whether our coffee had sold,”* Edith explains. With this uncertainty, it was difficult to manage the business.

Additionally, they were paid in cash and so risked being robbed, losing everything that they’d worked so hard for. This happened to Edith once as she traveled back from Bogotá. Now, however, they have access to a coffee lab in a Caravela warehouse in their town. This means they don’t have to travel far. What’s more, payments occur through electronic transfers.

Regarding finances, long-term contracts also give farmers credibility. “It helps the producers get financing,” Steve explains. “To banks, it reduces fear often associated with the agricultural process, to see that they have contracts.” This can help when applying for loans for farm improvements and infrastructure.

In fact, since entering into a forward contract with Stumptown via Caravela seven years ago, the additional security has enabled Edith and her family to make several investments. They’ve improved the wet mill infrastructure and also installed wastewater treatment technology, which helps protect the environment. Even more important to them is the fact that they’ve been able to send their children to study Civil Engineering and Biomedical Engineering.

And they have also bought another farm, Finca Villa Sofia, under their son’s name, Wilson Eduardo Rodriguez – something that, as Edith explains, “has allowed him to start working in this industry and provide more income to the family.”*

coffee familyEdith and her family on their farm, Finca La Isla, in Tolima, Colombia. Credit: Finca La Isla

The Quality Question

Having the security of selling their coffee in advance allows farmers to focus on quality, instead of constantly worrying about the future of their business. “We feel supported and committed to; we have a lot of professional support and are in constant contact with our importers,” Edith says.*

There is also greater incentive to make these improvements. In the past, when their beans were often sold at market rates, there was little reward for improving the cupping score. Now, they have a long-term relationship with a buyer who, knowing that they will purchase this coffee for years to come, is inclined to invest in them. For example, an agronomist and a cupper with Caravela works with Edith and her team to help them understand how to grow and process their coffee to an even higher standard.

The stability of forward purchasing enables farmers to build relationships with their buyers, which in turn can provide the support and motivation needed to produce exceptional coffee.

As Steve says, “Growing coffee is a long investment. It takes four years to the first harvest. To buy year-to-year seems like a blind spot.”

coffee farmEdith Enciso and her husband on their farm, Finca La Isla, in Tolima, Colombia. Credit: Finca La Isla

Spot vs forward buying: it’s not a decision to be made lightly. How you purchase your coffee can have a far-reaching impact on how your business operates, your menu and the quality of the coffee on it, and the producers you partner with.

Both systems have their pros and cons and both can result in good-quality coffee. Spot buying can offer quick, immediate purchases. However, forward buying aligns itself with traceability; a positive impact on producers; and a supply of fresher, high-quality, and potentially unique coffee for years to come.

Remember, to be successful at forward-buying, you should be good at planning and willing to invest in strong relationships with producers. In this way, you’ll ensure the best possible result for you, your roastery, and your partners.

Enjoyed this? Check out: Micro vs Macro Lot: What’s The Difference?

Written by Danielle Kilbride. *Interview with Edith Enciso translated from Spanish.

Please note: This article has been sponsored by Caravela Coffee.  

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