Preview
The goal of the below explanation is to help everyone understand how our business is being impacted by global trade interruptions and tariffs. While it's similar to what we went through during COVID, this change has a guaranteed impact on product availability and the price we pay.
How Fig Leaf Coffee is Impacted by Economic Changes
When a tariff is added to coffee, coffee equipment or the bags we use to pack our products, it is an added cost to the final price you pay. Until you buy the product (with the added tariff), someone else has to front that added cost first.
In my business (and most other small roasters), we use importers that negotiate the shipping, warehousing and delivery of the coffee. We just don’t have the resources to do it ourselves. As soon as the raw coffee hits our ports, that importer pays for the entire container of coffee immediately. That's just so the coffee can sit in a warehouse and wait for small roasters like Fig Leaf can pay them for our lot(s) of coffee. Normally, it's at a premium/up-charge of what they paid for the container.
Tariff Example:
If a container of coffee normally costs $150,000 and a 10% tariff is added, the importer pays an additional $15,000. Coffee is a lower margin business (meaning they don’t make much on each sale) so the importer will likely have to dip into their line of credit to pay this unexpected, additional $15,000. Now, that importer is paying interest on the additional $15,000 which gets passed onto us, the roaster. We also now have to dip into our line of credit and pay the difference of what we planned to pay vs. what the actual cost is for our lots.
We buy enough coffee to last for 6-9 months because coffee is a crop. Coffee from Ethiopia is not available all year long so we have to buy in advance. If we have to keep unexpected costs on our line of credit for 6 months, it will cost between 19-28% more than just the 10% tariff that was added. We have to pay the tariff plus the interest when using that line of credit.
This goes for just about everything in our shop. The grinders, espresso machines, Chemex products, and t-shirts. We have to buy all these products to let them sit in inventory expecting someone to buy them in the next 6 months.
Let's Just Grow Coffee in America
When we look at the coffee industry as a whole, America grows coffee in Hawaii and Puerto Rico which makes up 1/3 of 1% of the world's total coffee production. It's not because we don't want to grow more here, it's because we can't grow coffee in the states. Coffee needs a tropical environment with decent elevation to produce a high-quality product. Nebraska and Iowa don't have that tropical environment or elevation. A company tried growing it in Southern California but has run into issues like the cost of labor and water restrictions.
Right now, we carry 100% Pure Hawaiian Kona and it sells for $61 per pound. Sounds expensive, right? On that 1 pound of coffee, I make $2.35 of profit which is roughly 3.8%. In order to roast that Kona, I have to front the cost of that green coffee. This is around $1,600 per month just for that coffee to sit on a shelf. Will someone buy it? Maybe. What if no one buys it for months? Yep, more interest expense creating less profit for me.
How About Growing it in Greenhouses?
This might work for things like lettuce, tomatoes, strawberries and fast-growing foods but we have massive limitations with coffee.
• Coffee takes around 5 years to get established and produce a first crop in the best conditions.
• The majority of coffee we drink is specialty grade coffee. This is a measurement of quality which also equates to taste. Worldwide, only about 20% of coffee is specialty grade. (That’s all we buy at Fig Leaf)
• Each mature coffee tree produces between 5-10 pounds of coffee cherries annually. After processing and roasting, this totals between 1-2 pounds of roasted coffee.
• In ideal conditions, we could fit 500 coffee plants per acre. This would yield 1,000 pounds of salable roasted coffee. The US consumed 1.7 million tons of coffee in 2022 or 3.4 billion pounds. We would need almost 7 million acres of land to produce enough coffee for current US consumption. Imagine covering 7 million acres of land with greenhouses.
• The cost of labor in the US far exceeds that of coffee producing countries. For example, the minimum wage annual salary of a farm worker from Nicaragua is $2,784 (no, I didn’t forget a number) and Costa Rica is $13,600. The median wage for a US farm worker is $34,790.
Business Decisions and Next Steps
I support and buy American made products whenever possible. My father worked for the railroads and in Collinwood Rail Yard for 30 years– it doesn’t get much more American than that. I understand that there is some transition period associated with growing manufacturing in America. It will get worse before it gets better. These statements provide little comfort when my small business is now hanging on by a thread. If we have 2 or 3 weeks of slow business the entire year, we don’t get a cost-of-living increase for that year. We may not be able to buy new coffee lots for the 3rd or 4th quarter leaving us very short for the holiday season. I have yet to mention price increases from climate related problems but those are significant as well.
Businesses like mine don’t have big savings accounts or deep pockets to fall back on. We really do run on day-to-day profits to survive. If I don’t get paid then I can’t spend money with other small local businesses or more specifically, made in America products that are vastly more expensive to buy. It’s a crippling and difficult cycle to overcome.
I have put almost 10 years of hard work, dedication and sacrifice into growing this business for a community of awesome people. Watching the business slip away because we're caught in the crosshairs of a trade war is beyond upsetting and exhausting. We don’t have years to wait for companies to bring back new manufacturing to the states. Businesses like mine have weeks or months
Every other small business owner running day-to-day like us is going through the same struggle. We’re not looking to get rich. We do what we do because we have passion for the community and believe in the products we sell. My American Dream has now become the dream to just survive.
What’s the solution?
Let’s all remember that I started this place because I know we all love great coffee! Great coffee is hard to find - Let’s agree on that. I truly don’t care where you stand in the political realm – I care that you love what you drink and that we remain part of your community.
Here is what will help our business survive:
- Please be compassionate to our situation and that when prices increase, we’re likely eating a larger portion of the cost than you’re seeing in the price increases.
- When prices go up, please understand we are specialized and offer a very high-quality product. We are unlike anything around. Remember how my business operates and I am fighting to remain open.
- Sign up for a coffee subscription through our website. If you’re buying coffee weekly/monthly anyway this helps us predict how much coffee to buy in 3 to 6 months.
- Continue spreading the word about our business. We need to keep our existing customers but also need new customers.
- If shopping in the store, use cash when you can. Our credit card fees are very high.
If you made it this far, thank you for reading. I take pride in the information I provide and want everyone to know where business stands in an ever-changing environment.
Stay Caffeinated!