3 Common Misconceptions
It’s interesting when you get to talk to somebody on the phone who, even after following our progress for years, listening to various podcasts and reading our newsletters since day 1, still have some fundamental misconceptions about our business model.
We get it, our Newsletters can be long and if you are like me you get a LOT of emails so it can all get lost in the noise.
At the suggestion of a new parcel Owner, and to help add some clarity, here are the 3 most common misconceptions or misunderstanding that we see. Once addressed on a consultation call, the usual result is an “Aha” moment and a happy new Parcel Owner!
#1 Coffee prices are at a record low, how can we reach these projected returns?
#2 The Projections are for 20 years…do we still receive returns after that?
#3 What if the Company loses interest down the road and gives up managing our parcels?
In this email we will cover the first point.
#1.. When people watch Bloomberg and see the ticker-tape across the bottom of their screen they see coffee at around $1 a lb and think …”How come that Irish guy in Panama says they sold their coffee for $3 a lb last year?”
There is a huge difference between Commercial coffee and Specialty coffee.
The $1 a lb. coffee is Commercial, low quality coffee. This Robusta varietal is grown at very low altitudes, in gigantic open fields with no inter-cropping or shade cover and is harvested by machines. It is designed to produce Quantity not Quality.
Post-harvest the coffee is all dumped into one processing facility and mixed with coffee from hundreds of other farms (with rocks, dirt and branches thrown in for good measure) and ends up in a can on your supermarket shelf.
This coffee is also a Commodity, so it is traded in futures and the market is manipulated to keep it suppressed.
Commodity coffee is NOT the business we are in.
Specialty Coffee is very different. This Arabica varietal is grown in micro-lots, on small, high-altitude farms, with plenty of shade cover and in a diverse eco-system. The coffee is cared for and harvested by hand, one tree at a time.
Each and every batch of coffee is tracked and labeled from the seed at the nursery, into the farm and eventually through the mill and to the coffee roaster. In our store-room you will see micro-lots marked by the farm, varietal, micro-lot, altitude and time of the year it was harvested.
This coffee is carefully grown and nurtured to produce Quality not Quantity.
After harvest, when the coffee is properly rested, it is then roasted, cupped and graded by very strict worldwide guidelines set by the Specialty Coffee Association and only coffee that scores above 80 points out of 100 can be considered Specialty Coffee.
Specialty coffee is a purely Supply & Demand driven market. With increasing demand and limited supply.
Most of the specialty coffee in Panama is sold at the Best of Panama annual auction. With the best coffee selling for an average of $30 to $50 a lb., and as high as $801 a lb.
In our projections we only reach $11 a lb. by year 20. Right now, we are selling coffees for $3 and $4 a lb. and neighbors of ours with the same altitude and natural conditions are selling coffee for $15.
So, we are very confident in reaching and exceeding our projected returns.
We hope this has cleared up the difference with Specialty Coffee and Commercial coffee while explaining the prices projected.
If you want to receive a full set of 20-year financial projections and see if owning a parcel is for you, click here or contact me for details.
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