When enough people ask the same question, it’s probably time to write down an answer, especially when your mom asks. And it’s this: “Will you be raising your BBotE prices because of Trump’s tariffs? How much?”
ANSWER: Not at this time, nor can I even guess how much of an increase might be needed if I did. When you change one number in networked, dependent complex system, the answer is almost guaranteed to not have a linear relationship and that’s frustrating.
Before getting too far into things, I would like to share the BANI model that my friend Jamais Cascio came up with to supersede the old VUCA one that didn’t seem quite up to snuff anymore. You may recall VUCA, or at least one person’s highly idiosyncratic interpretation of it, if you’ve had the misfortune to be talked at by members of the executive caste who somehow think they are mighty warrior philosopher-kings. But let’s revisit Jamais’ framework of how things go funny because I’ve been thinking about it a lot lately.
- Volatile ⇒ Brittle: change, sometimes rapid, exceeds the ability of systems to cope, with the possibility of collapse
- Uncertain ⇒ Anxious: what you didn’t know is now something to fear, which can either paralyze needed reactions or cause responses that are out of proportion or wholly inappropriate
- Complex ⇒ Non-Linear: what was once merely difficult to understand now drives first and second order effects that are wildly out of expected proportion
- Ambiguous ⇒ Incomprehensible: situations that were once merely hard to discern become impossible to even guess at for behaviors much less outcomes
In my opinion, things haven’t broken yet but we’re deep in BANI country. I am reminded of the logistics explainer I wrote a six days before COVID lockdowns hit California in 2020 because container shipping was already grinding to a halt, fucking up all the Just-In-Time supply chains. I stand by the remark I made that a Q -like finger snap to eliminate COVID would still mean months of logistics snarls needing to unwind forth and who knows how long for “normal” to return…if it ever does and did we even understand how “normal” worked in the first place? Flipping the tariff switch on and off repeatedly at different levels may have generated Trump’s desired first order effect “I’m bored, world leaders talk to me NOW!” But we don’t know the second order effects of what vigorously shaking the snow globe of the world economy is going to be, nor how fast they’ll propagate, nor how long they’ll persist. It’s that tremor in the strands that lets you know the spider is coming.
But let’s think about coffee in particular and the factors that go into it and see how vulnerable they are.
Coffee is, obviously, an agricultural crop and should be thought of as something closer to orchards than corn fields. This means you have a longer lead time than merely putting a crop in the ground and wait for harvest in the fall, as you need those coffee cherry trees to grow and mature. This is a 2-4 year long maturation process before your coffee will actually yield anything and not ideal until ~7 years, which is why farmers with orchards are always playing the long game, why they’re always looking for stability and making very conservative bets. A tree is a serious investment of time and resources and you want a guarantee on the return or you aren’t gonna do it. All that said, the youngest possible trees that are now producing went in the ground as Trump left office the first time.
ASIDE: Could be worse, could be olives. As the old adage goes “You plant an olive for your grandchildren” as it won’t even begin to produce useful fruit for 30 years, much less hit maturity and full production. This is why mentions of cutting down or burning an olive tree or orchard in ancient works come up so often. It is meant to shock the reader/listener. It is an unthinkable atrocity, The Thing You Do Not Do, obliterating the hard work of generations and destroying the future itself! Clearly, the perpetrators are monsters practicing Total War.
To plant an arabica coffee tree, you need the right to some land to plant it, which means you either own or are leasing it. Either way there’s taxes that need to be paid on it, though governments tend to give farmers a bit of a break on the grounds that they know it’s a loss at the beginning. Next, you’re going to make sure you’ve got the water and nutrients you need for that tree grow. It helps if you chose the location of your farm to give you these things by default.
Arabica coffee is a finicky plant that wants plenty of rain for one part of the year and it to be dry the rest of the time. Also, it want’s just the right temperature and soil conditions and altitude, such a diva of a tree. Basically, arabica is constantly telling you that you’ve taken it away from the highlands of East Africa and it’s mad about it. We’d mapped all the places that match arabica’s preferred growing requirements and figured out the optimized growing preferences of arabica by the 19th century, establishing what’s called the Coffee Belt. These are generally in tropical/sub-tropical areas, generally mountainous, generally on good volcanic soils on the slopes of volcanoes, or downwind from rather active volcanos, with monsoon-like rainy & dry cycles.
There are two problems with the Coffee Belt as defined in the 19th century. First, climate change is moving the ideal moisture and temperature regimes to higher latitudes (where the soil might not be as good) or higher altitudes (where there’s less arable land on the mountain as you go up, AKA the Jamaica Blue Problem). Second, we kinda sorta already turned the all the Coffee Belt that we could into plantations a century ago. So, making new farms outside of optimum Coffee Belt regions is economically risky. Arabica will grow in places that are missing some of those preferred components but you will also notice the difference in the flavor. In my experience, growers can get away with skipping out on one of arabica’s preferred qualities but if lose two or more it really starts to show in the quality. And when you start messing with preferred growing conditions, you stress the plants in a way that doesn’t just effect flavor, but its disease resistance and farmers already have so many problems with blights.
In the last decade or so, searching for more land, most of that planting was in Brazil. Brazil, in case you weren’t paying attention, is big. There is a certain development bias of “there’s always more land, just go clear some jungle” that has generated not just giant cattle ranches but coffee plantations. As has been related many times before about jungle clearcutting, most of the nutrients in a given hectare are sitting in the trees, not the soil, as the jungle continually recycles itself. Once the trees are gone and you plant a crop, you don’t have very long until that soil is depleted and you have to either add fertilizers (another logistical input and expense) or you have to move your farm to a new plot of cleared forest, repeat ad nauseum. Brazil’s has a decent amount of rain, but it’s iffy on soils, altitude, and volcanic quality. They can grow A LOT of coffee, but good coffee? Not so much, which is why most of it get used as bulk for blends.
Bulk sale of lots of coffee, even if it isn’t the best, does has a distorting effect on markets to depress prices over all. One of the things USAID did in their counter-narcotics functions in Central & South America was to encourage farmers to plant coffee, by supporting that lag time to productivity, rather than go with the fast but dangerous drug cartel crops & money. They also supported a connoisseur marketplace that cared about the terroir of given countries and specific growing regions within them. Hell, part of the reason I make BBotE the way I do as a region sampling is an outgrowth of this. But when you pull that support and Brazilian bulk coffee floods the market, there’s no easy way to compete as a small farm in Guatemala. So you fold up shop, or the cartel outright takes your land over, and you may need to flee. I couldn’t help but notice that as bulk coffee prices progressively dropped, the “crisis at the border” in Trump’s first term seemed to intensify with migrants mostly from Central America. With no particular details, this is more or less the story of how a neighbor’s friend ended up in America.
And all that is just for arabica. There are other varieties of coffee but we chose arabica as our primary cultivar because it is the best flavor for the least effort. Robusta is very easy to grow and tolerant of conditions arabica would swoon like a waif prima donna and die in. It’s practically a weed to the point we’ve had to destroy it in the Rio Grande Valley more than once, but most people don’t like the flavor nearly as much. It has a higher caffeine content but also is regularly described as tasting like a tire store smells. Like many other crops, hybridization with more robust varieties can make arabica more versatile and blight resistant, something we’ve done many times. The excelsa & liberica varieties taste wonderful in my opinion, but they require closer to a decade of growth to start yielding useful fruit and their trees are in the 10-15m tall range which makes harvesting much more difficult; you need a cherry picker lift rather than a ladder. This also means that a disaster that wipes out an excelsa farm, like Taal erupting yet again or another supertyphoon, will take that farm out of production for at least decade if it ever comes back at all.
Now multiply all that by the supply chains for both farm/transportation fuel, coffee roasters, ship & truck parts to keep transportation moving, bottles, and even the paper & ink for shippers and goddamn stickers. So I have a few more things for you to consider:
- Most of the cost of coffee in America is transportation or real estate, not beans.
- Single geographic origin beans are more tariff vulnerable than bulk blends.
- Fuel costs are likely to not change much for producers or transport, but they certainly may on fertilizers.
- The supply chains for all the support equipment that makes a cup of coffee all become more expensive and/or unreliable. That’s a lot of metal and manufacturing the US doesn’t do. As an example, consider where the bulk of the coffee roasting machines and their parts are made. That’s right, China, Italy, and Germany.
I am just a humble safety professional, not any kind of economist or farmer, but I do pay attention to stuff. The coffees you love tend not to become expensive when things get tough, they instead just vanish into bulking. I have no idea what this means for the future price of BBotE as we are very much in brittle, anxious, non-linear, and incomprehensible territory.