The Exchange: Episode 8 - The Coffee Roaster & Green Coffee Terminology Part 1
- Whose idea was this anyway?
- One of the favorite parts of our job.
- Important if you're buying direct trade.
- Where is the warehouse?
- Coffee landing vs. coffee availability.
- Secure your cost of goods.
- One of the greatest tools in your tool shed.
- What you own at any given time.
- Hard working, underappreciated term.
- Todd is worried.
- Feeling it vs. legitimate reasons.
- Better hope that Kenya is that good.
- Long Journey.
- 25 boxes of Annie's white cheddar mac and cheese.
- Judge and jury.
- Basis for contracts we write.
- Give that thing a wack.
Available on iTunes and Full Transcript Below
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The Exchange is Presented by Olam Specialty Coffee
Hosted by Mark Inman and Todd Mackey
Directed by Mike Ferguson
All music is used under Creative Commons:
Opening Theme, Coffee by Sean T. Wright | cc-nd cc-nc cc-by Closing Theme, Coffee Talk by Anitek | cc-nd cc-nc cc-byEmail Mark and Todd with thoughts and questions, or to arrange to send in your roasted coffee for review at:
Mike Ferguson: (singing) Hello. Here we are once again at The Exchange, presented by Olam Specialty Coffee, hosted by Mark Inman and Todd Mackey. I'm Mike Ferguson. This is episode eight and because we just can't help ourselves, it is again the first of two episodes on one topic, Green Coffee Terminology. Our hosts are spinning the Green Coffee Lingo Wheel just like the Wheel of Fortune and they're sharing their thoughts not only among the definitions but what they mean to coffee roasters, and now, here they are, Mark and Todd.
Mark Inman: Hi, and welcome again to The Exchange. The Coffee Podcast presented by Olam Specialty Coffee. I'm Mark Inman, and with me always is Todd Mackey. Todd, how are you doing?
Todd Mackey: I'm doing well, Mark. Hey, happy to be here. It's a fun episode ahead. I've been looking forward to this one on our calendar so, yeah. I mean, I guess we should start with our proverbial opening segment here and I can pose a question to you first.
Mark Inman: Sure.
Todd Mackey: What's in your cup? What's in your glass?
Mark Inman: Well, like the last time we recorded, we are doing this in the evening versus the morning hours that we had been recording, and so I tend to do a little bit of an adult beverage at the night time and tonight is a wine from a very good friend of mine, Mike Lucia, who has Rootdown Cellars here in Healdsburg and this is his new releases 2017 Mourvedre Dry Bone Ranch, which is amazing.
Mark Inman: I guess the best equivalent to this is a very good Sumatra. It's very earthy. It has that forest floor character. It just has a little bit more fruit character than a normal Sumatra but it's your very heavy bodied savory with good tannin structure. It's a fantastic evening wine. How about you?
Todd Mackey: Very cool. Yeah. No. It's funny, you kind of posed this as an adult beverage. I'm drinking where I'm about to open what is a truly adult beverage and I'm going with what is a fourth-generation family company here. Seltzer flavored sparkling water is all the rage and I, like most, am a fan, and I'm on board but I always go back to what is a local company to us out here in Providence in nearby Worcester, Massachusetts. We have the Polar Company, and they make all-natural Seltzers.
Todd Mackey: I'm going to be drinking cranberry lime specifically, but the company was founded in 1882. It's the largest independent canning soft drink company in the country. Yeah, great products. Really interesting was a whiskey distiller up until prohibition, and then launched, still some of their namesake soda products, "the dry series" still out there today, really interesting. But, again, cranberry lime Polar Seltzer, 100% natural. It's delicious. I'm going to open that for me.
Mark Inman: Wow. A little sound effect. We're going into ASMR recordings now.
Todd Mackey: Real good. But, yeah. If you want to give an introduction on how we're getting into our episode tonight, that'd be awesome.
Mark Inman: Sure.
Todd Mackey: Stirring the wheel, right?
Mark Inman: Spinning the wheel, how did we come up with this idea? Was this something brought up by our producer or was this something that you came up with? Where did this wheel idea-
Todd Mackey: No. This is 100% Mike Ferguson. 100%.
Mark Inman: Oh, okay.
Todd Mackey: Our acclaimed producer at this stage, Mr. Mike Ferguson. I can't take a bit of the credit.
Mark Inman: Well, yeah. Tonight, I mean, what are the issues that many people have in the industry especially as you're up-and-coming is that you hear a myriad of terms being thrown around and if you're a normal person, that can be intimidating to ask, "Well, what does that actually mean?" Usually, you try to pick up what that means through conversation or if you overhear somebody explain it, but most people are too embarrassed just to flat out ask what these terms mean.
Mark Inman: Trust me, there's plenty of Industry specific terms that would not make sense to anybody outside the industry or new to the industry unless you've really studied up on this stuff. Well, one of the favorite parts I believe, Todd, of both what you and I do is actually answering those questions for customers or people at trade shows and trying to take that stigma away.
Mark Inman: Tonight, we thought we'd make it a fun game where we would spin the wheel and take turns explaining what these terms mean and see if one of us gets stumped tonight. I don't know, that that could be possible.
Todd Mackey: Yeah. I haven't even taken a look at the wheel, to be honest.
Mark Inman: [crosstalk 00:05:18]
Todd Mackey: I was hoping [crosstalk 00:05:19]
Mark Inman: This could be bad.
Todd Mackey: This will be fun. Yeah. We'll have a good time. All right. I suppose, we should just spin the wheel and see what we'll get and we'll start there.
Mark Inman: Is there an interesting sound effect that goes along with this wheel spin or is it just going to spin?
Todd Mackey: Let's see what happens, and there it goes.
Mark Inman: It's making little noise. It landed in between two.
Todd Mackey: Oh, there we go.
Mark Inman: Oh, I see what it does. FOB. FOB, Todd.
Todd Mackey: I'll happily take this one.
Mark Inman: It's not a key fob.
Todd Mackey: Yeah. No. No. Though you could spin it that way. We could be talking about our entry into like a more secure office space, what have you. No, but in this case, we're talking Free on Board. This is what I believe would be tossed around in logistics speak as an incoterm but it's intended to depict a term or a place, for example. Where liability, ownership, risk, responsibility are transferred.
Todd Mackey: In any given contract that we might write either for the purchase of coffee or the sale of coffee, there's going to be this term. It's not always going to be FOB, but we would use this term when we're buying coffee from a country of origin and we would be using it where we, the buyer, would take over the ownership and the liability and responsibility for the coffee as its passing over the rail of the ship to make its departure from port.
Todd Mackey: This is a term that shouldn't be unknown to the roaster buyer because especially in the days of more direct trade purchasing, wanting to have greater transparency. If you're interested in how a cost breakdown might work across the value chain, this is going to be one of the sort of architectural points that separates a segment if you will. But, yeah, to you, Mark, thoughts on FOB, necessary details that anybody listening should have in their pocket when they see this pop-up.
Mark Inman: Yeah. In addition to what you mentioned there and you started to dance upon for the direct trade side of the business. If you're going to be involved in direct trade, it's important to know when a price is quoted to you as a roaster where that price is being quoted from. Some caveats if you were quoted FOB that is passage to the ship, and then, from there the costing would be transit into the US, if that's where you're based into the warehouse and either it goes into X warehouse pricing or an FOT, Free on Truck pricing.
Mark Inman: But the trick is here, I would say this is where I wanted to add to the FOB. Many times in countries like Burundi or Nicaragua. They're actually quoting you FOT mill, not FOT the warehouse in the United States, and that would mean the coffee is being transferred from there to the truck in their mill in that country and in the case of Burundi, that can add a significant amount of cost to get it from that mill all the way to port to the free on board status.
Mark Inman: There can be a pretty good additional cost associated with direct trade if they're quoting you FOT mill. Don't always assume when you're getting price quotes from growers or from coops or exporters that it's necessarily going to be FOB even though that many times is the term that is used. There are countries that do sell FOT mil.
Todd Mackey: Yeah. In addition to the cost, which is really an obvious one. The added time spend-
Mark Inman: True.
Todd Mackey: … if you find yourself being offered FOT mil. If it's not the customary place that coffee would be sold, i.e. Burundi or [crosstalk 00:09:27]-
Mark Inman: Uganda, land lock countries.
Todd Mackey: Yeah. You have a significant time allocation that needs to be considered in addition to the strength of whatever partnerships you might have in that country to be able to pull that coffee out. Certainly, no small detail involved. But last call on FOB, any last gems we should pass along?
Mark Inman: No. We tend to wrap it up there with that one.
Todd Mackey: All right. Let's spin it again. It's pretty dramatic.
Mark Inman: Yes.
Todd Mackey: Strip. I let you [crosstalk 00:10:07]-
Mark Inman: Okay.
Todd Mackey: … Mark.
Mark Inman: Okay. Strip is a term or stripping is used as a term when coffee is taken from a ship as it arrives into port, and then stocked into a warehouse. If it's taken from port in Oakland, it is stripped in, that is the paperwork's done, the coffee's unloaded, stocked into a warehouse where you would then start to release from.
Todd Mackey: Yeah. Important to note with this is that there's actually a few steps ahead of the coffee stripping into the warehouse that takes time, right? If we land the coffee in the port of New Jersey, for example, we still have to clear customs, and then there's going to be drayage, which is going to be the movement of the coffee from that position physically to the warehouse, at which time, the coffee could then be stripped and physically put in the warehouse. Separated into sub-lots, more often than not in our side of the business.
Todd Mackey: Then, given the necessary codes and cargo numbers where we can start sampling and releasing the coffee.
Mark Inman: Yeah, and this can take time. A lot of people when they're, if they're doing direct trade for example, and they're asking you, "When does this coffee land?" It may land let's say today's what? September the 4th. The ship pulls in September the 4th, but by the time it strips in, it can be September the 14th and if it gets an FDA hold for some reason. I mean, there's a lot of reasons why coffee would be put into an FDA hold for search. It could take even longer.
Mark Inman: Don't assume that the ETA landed on a ship necessarily means that … In fact, you could count on, it does not mean it's the ETA of when you can release this coffee and pick it up.
Todd Mackey: Absolutely. Let's spin the wheel again. All right, your favorite and mine, buying forward.
Mark Inman: Yes.
Todd Mackey: Yeah. This is a critical term, a critical concept that as you're growing as a roaster, you absolutely have to know even if it's not maybe an opportunity or an option, you might express at any given point so buying forward is essentially securing physical inventory at some point in the future. In a time where there is a particular coffee that's on offer that maybe you've been dealing with this producer, this farm, a particular cooperative or mill and buying forward might allow you to have a future holding or delivery of this coffee.
Todd Mackey: It also would allow you in a market where quality and price is a match for you. It would allow you to essentially buy that coffee into the future to secure your cost of goods and shore up your margins as it relates to selling your coffee out forward to your customers.
Mark Inman: Yeah. This is one of the greatest tools in the tool shed of the buyer, if you work well with an importer and you trust the relationship buying forward is a way to secure coffees that are in short supply in high demand, high quality. It allows you to, if you have a good relationship, get your foot in the door very early on some very good coffees.
Mark Inman: Again, you're not obligated for these coffees. You still have to cap them and approve them upon arrival, but it's a fantastic way to get coffees especially ones that people get really excited about way in advance.
Todd Mackey: I feel like we need a more dramatic name for the wheel.
Mark Inman: Yeah.
Todd Mackey: Green Coffee Lingo Wheels, it's a little safe. Position is the next term. Position. Mark, go ahead. I'll let you take this one.
Mark Inman: Position is basically what you own in coffee at any given time. This would be an accumulation of your forward contracts, stuff you have sitting that you have not yet released or stuff that you have had sitting around that you have taken time to pick up. It is your entire ownership position within that company. Usually, within your position report, it would show you when the dates of the free period is where you're not charged carry, and our finance and storage charges or ETAs on when the coffee should land, information on what you paid for the coffee, what the market level was.
Todd Mackey: Yeah. This is one of those terms that is coming out of a more cross product or cross-business trade jargon, right? Where this would most typically be applied to the physical position like you're outlining that a roaster might have, but as you grow and you start having a sort of futures position or futures coverage, you might actually have your physical position, which would be the inventory you stand to take or that you've committed to buying, perhaps subject to sample, replace, SAS, NANS, what have you, but you might also at certain volumes start to have a futures position which would be essentially your market levels out ahead that you kind of have in your pocket to apply later to the differentials that you have, your green coffee, your physical position again.
Todd Mackey: Essentially, looking at your standing at any given time, and so one of the most valuable things I feel like I hear from the people I'm working with is, "Hey, can you send me my position?" That is just a breath of fresh air, it's something that any buyer no matter how small, at the moment you start buying forward or keeping holdings with any of your suppliers, that should be something that you're checking in on at the minimum once a month.
Mark Inman: Without a doubt because what ends up happening a lot of the times, roasters will say, "Wow. I didn't know I had this coffee sitting there forever." Then, they sheepishly want to try to not have that coffee anymore but whether or not you've realized it or not, it's coffee you own so it's … Yes, it's important to ask for your position on a regular basis to see exactly what you own with what importer.
Todd Mackey: I think the reality is on our side of things the more we know that a customer's self-managing, watching their position, thinking about how they're drawing their stocks, the more competitive we can be because it's more collaborative in that regard. There's less maintenance when it comes time to quoting out spreads and offers. It's a much easier account in that regard and that can come back to you, which is great.
Mark Inman: DO.
Todd Mackey: DO. All right.
Mark Inman: DO.
Todd Mackey: Let me … Go ahead.
Mark Inman: DO is short for delivery order. It's when you want to have copy released, a delivery order is generated which then goes to the warehouse who prepares your coffee for release, whether or not we're releasing to a trucking company that we're going to ship to you or you're coming to pick up at the warehouse on your own in your own truck.
Todd Mackey: Yeah. Delivery order is one of those hard-working, underappreciated terms in the coffee business. But if you're a small roaster, retailer, the best thing to relate this to is like if you have a complex point of sale that'll spit like a drink order over by the espresso machine, when it goes in the front like point-of-sale, this is essentially the function of the DO. That ticket that pops up.
Todd Mackey: It's not the charge. It's not the receipt but it's that thing that's generated that actually gets the work moving on getting a coffee out. I got to say, Mark, there is one term floating around on this Green Coffee Lingo Wheel that I am worried comes up. I'm just going to cross my fingers and hope it doesn’t.
Todd Mackey: NANS, this gets back to all the way back to our first episode. Those glory days. We talked about it a lot but this is No Approval No Sale, and this is going to be firmly fixed in the sampling terms on any given coffee contract. If you've agreed with your supplier to pend the function of the contract on sample approval, if you are not going to replace it if it's rejected. This essentially gives the buyer the option to reject the coffee with zero obligation if it does not hold essentially the character and quality as expressed by someone in Mark's position or my own.
Mark Inman: Yes. As we said in the … Was it the first episode we talked about this or the second episode?
Todd Mackey: Well, one and two were a twofer.
Mark Inman: One and two, yeah.
Todd Mackey: Yeah.
Mark Inman: The NANS part works if you don't abuse the system. You can't reject the coffee because you're not feeling it or it didn't speak to you. Those aren't terms to reject. We understand what you mean when you say that, but you have to have a real technical term. The coffee came in moldy, it did not, it had a defect, phenol or-
Todd Mackey: Or it was legitimately three points off like what sold as, right?
Mark Inman: True.
Todd Mackey: But that's [crosstalk 00:20:31]-
Mark Inman: We sold it to you as an 85 cup and it came in an 82.
Todd Mackey: But that's even more delicate, right?
Mark Inman: Yes.
Todd Mackey: It's more like, "Cool." To offer on that sort of thing, and then to accept that as a rejection is sort of a special case. I mean, it requires a lot [crosstalk 00:20:46]-
Mark Inman: Again, the death knell of the ability to use the NANS benefit is saying I need it, saying in your mind, "I need five bags of Kenya for the year," and you booked 25 bags of 5 lots, 5 each, 5 bags each. When they come in, you reject four of them and keep the best one. Everybody knows that trick and you will get away with it just once in your career and that will be it.
Todd Mackey: Better hope that Kenya that you do take.
Mark Inman: Yeah. It's that good.
Todd Mackey: All right, give it to us Green Coffee Lingo Wheel.
Mark Inman: I want to find out what your term is that you're afraid of. I'm going to stick you with that one.
Todd Mackey: Yeah. I'm really [crosstalk 00:21:33]-
Mark Inman: Was it GrainPro?
Todd Mackey: GrainPro. Yeah. I'd love to hear from you on this. This is a ubiquitous green coffee [crosstalk 00:21:42]-
Mark Inman: Yes.
Todd Mackey: … now, but how does Mark [crosstalk 00:21:45]
Mark Inman: Well, GrainPro is an actual polypropylene liner that would go inside a coffee jute sack, and they would pack the coffee in the GrainPro liner. They can seal it, but it's a plastic barrier that keeps the coffee fresher longer as it makes its long journey to the point of your warehouse. In the cases of long trips, Indonesia, Africa, Papua New Guinea to the United States, it's well worth the investment of adding GrainPro liners to your coffee because coffee definitely starts to degrade on those long journeys.
Mark Inman: It also is great for eliminating water damage where the jute can get water damage from a hole in the container or moisture in the container. It can you know leaves, giant stains and signs of water damage on the jute, but the coffee is dry and safe inside the GrainPro liner. The key to the GrainPro liner is that the coffee is dried to the proper humidity.
Mark Inman: You can create a fantastic condition and environment to develop mold at an extremely rapid rate. It's essential that mills who use GrainPro or Ecotact is another brand of liner. If they use these liners that they understand how to dry coffee properly and ship it as such. The additional cost per pound over a normal jute bag is roughly three to five cents, but in the case like I said of some of these better coffees coming from faraway places, it's well worth the additional investment.
Todd Mackey: Yeah. Compared to the differentials that you're going to pay for that increased cup quality and better prep. I mean, three to five cents is almost forgettable in so many ways so that's GrainPro. That was not the one I was worried about by the way.
Todd Mackey: SPOT. I love this. SPOT would essentially indicate coffee available here, and most typically, SPOT coffee would indicate that coffee, at least, in the US or in a conventionally consuming market, SPOT would mean this coffee has arrived and it's on the shelf here. Think of it like, you go to the grocery store, there are exactly 25 boxes of Annie's White Cheddar Mac and Cheese available SPOT. Don't know why my mind is going there.
Mark Inman: Versus Captain Crunch or-
Todd Mackey: A good example.
Mark Inman: Yeah. Okay. It's very politically correct here with Annie's [crosstalk 00:24:40]-
Todd Mackey: It's a reasonable … I have young children, Mark. It's a staple in the household. But, anyway, so SPOT, the difference and the only sort of detail that I would mention is that SPOT can indicate that a coffee is available in a warehouse anywhere. If someone is offering you a coffee SPOT and it's not like the regular supplier you go to all the time, just be cautious, kind of similar to what Mark was mentioning with FOT when you're getting offers from origin.
Todd Mackey: You can be offered SPOT, Santos or something like that. Something where the coffee's done, ready. It's in warehouse and it's SPOT there. Any elaboration there, Mark, in your experience or anecdote stories?
Mark Inman: No anecdotal stories but if you are buying coffee SPOT, you want to ensure that it's SPOT, a warehouse near you. Many importers store coffee in multiple warehouses so if you're based in Colorado, SPOT coffee in New Jersey isn't as good of a deal as SPOT coffee in Oakland California or Houston Texas.
Mark Inman: The GCA. That's the Green Coffee Association and that is the underlying arbiter, the judge and jury who sets the rules of coffee contracting and if you were to ever have a dispute that was beyond the negotiations between yourself and the importer or yourself and the grower or yourself and the exporter, you can go to the GCA and go to what they call arbitration and just like going to court, raised your concerns, have them make a decision, a judgment that would have to be followed from that point forward.
Mark Inman: Now, if you were to go that road and this does happen and it happens more often than you can think. If you were to defy the GCA and not honor the judgments, it can actually do irreparable harm to your company to do business in the coffee industry within the United States. But the GCA contract is the basis for the contracts that we write, whether … Even if you're buying coffee SPOT, you're buying it in an online platform. The basis for how that coffee is bought and sold is using the GCA contract.
Mark Inman: It defines the terms for storage and finance. It defines the terms for reweighs, the terms for reweighing coffee if it's older coffee, things like finance charges, movement costs, anything like that is covered under the GCA. It's well worth it to take a class on green coffee contracting that the GCA puts on or at least get there the extended version of the contract.
Mark Inman: When you're handed a contract, it's a one-page document but it is based in references, a much larger document that outlines the details of each term. It's similar to buying a house and the amount of pages involved in selling coffee, even if it's one bag.
Todd Mackey: Yeah. I mean, I think the GCA contract document, a PDF is just about 130 pages long. You can even as a non-member because most small specialty roasters probably aren't dues-paying members of the GCA, the actual association. But you can download that document without charge. You can search Green Coffee Association, standard Arabica contract and you can download this, throw it on your e-reader, iPad, and your next international flight. Just give that thing a whack.
Todd Mackey: But, yeah, I think it's crucial, it gives you all that terminology and it's really important what you're outlining that you're essentially by signing that document if there were a non-negotiable dispute between you and your counterparty, you're essentially submitting yourself to this arbitration panel that the GCA would have organized and essentially hand down a result that you'd then be obligated to follow.
Mike Ferguson: You've been listening to The Exchange, presented by Olam Specialty Coffee, hosted by Mark Inman and Todd Mackey. Directed by Mike Ferguson. Our opening theme was Coffee by Sean T. Wright. Our closing theme, more appropriate than usual, Coffee Talk by Anitek.
Mike Ferguson: All music is used under Creative Commons. If you would like to see the Green Coffee Lingo Wheel for yourself, visit blog.olamspecialtycoffee.com/spin. We'll be back in two weeks when Mark and Todd will spin the wheel again and define another nine terms. Thank you for listening and we'll see you next time on The Exchange, presented by Olam Specialty Coffee.
Speaker 4: The Exchange at olamnet.com.
