La Lidia is a micro-business of coffee production based in Valle Central, Costa Rica. This small reality was born out of a family coffee tradition, which goes back to two generations of coffee production. Now Finca La Lidia is managed by Néstor Hernández Rodríguez.
Thanks to his background in agronomy, Néstor was able to evolve the approach of his farm to pursue only specialty coffees. He started in 2014 by first re-planting new varieties that were better adapted for their micro-climate, then, in 2016, he decided to build his own artisanal milling infrastructure.
The coffee plants from La Lidia grow at an altitude range between 1.310 – 1.530 masl. Over the years, Néstor Hernández Rodríguez has been expanding and improving the infrastructures of his farm, especially in its drying capacity. As you might expect from many coffee farmers in Costa Rica, once processed, the coffee is placed on raised beds to let it dry for a sufficient time.
Finca La Lidia is growing and producing several varieties, among which there is Villa sarchi. Did you know that this variety is a natural mutation from the Bourbon variety? It is well-adapted to the highest altitude conditions and tolerant of strong winds.
Last season (2020), we took a dive into the economics behind the beans, in our Quest for radical price transparency. Our origin researcher, Marian Osinga, set out interviews with producers, millers and authorities, and led the way into how The Coffee Quest sees price transparency in Costa Rica.
Costa Rica has a “coffee law – law 2762”, which stands at the core of a unique governing system which provides price transparency and fair practice for all Costa Ricans. ICAFE is the sector organisation meant to implement the law, and acts as police and development authority in the coffee sector. Through law 2762, ICAFE regulates transactions between farmers and millers, miller and exporters, and guarantees that the returns from coffee are fairly distributed between all stakeholders.
Fair distribution of coffee returns in Costa Rica starts with an export price. It is only when coffee is exported that all stakeholders in the chain know its final value. Then, they start counting backward to determine what slice of the pie goes to whom.
The farmer is tied to the land and grows coffee. He sells his red coffee cherries to a miller and pays pickers and other staff that help him on his farm. When a farmer delivers cherries to a miller, the cherries are measured in “fanega”, which is a measurement of volume (opposite to for example kg, which is a measurement of weight). The farmer then gets an advance for the cherries delivered but has to wait for the closing of the export season to see what the value of his cherries was (after the miller has made them into green coffee and the exporter has found a buyer who wants to pay a particular price). Eventually, the farmer will get around 80% of the export price (FOB) of the coffee.
The Miller buys cherries from farmers and processes them into green coffee ready for export. The coffee is then exported or sold to an exporter for consolidation with other micro mill lots. All producers on our list fall into this last category. A miller registers amounts of cherry purchased and delivers a declaration of production costs and sales. Then, it’s the turn of exporters with ICAFE. A miller can make a maximum profit of 9%.
The exporter buys coffee from a miller and sells it to an importer like The Coffee Quest. The exporter consolidates shipments, does sampling & paperwork, and plans logistical movements. The exporter will have expenses to complete the export, and declare the export costs and revenues with ICAFE. Exporters can make a maximum 2,3% profit on the export price.
ICAFE’s role in the chain is very interwoven with all stakeholders. The organization helps the farmer on various developmental themes, like: Agricultural production, quality, sustainability and economics. In collaboration with the farmers, they do soil analysis, suggest fertilization schedules, help plant shade trees, and do research in new varieties and agricultural best practices. Through FONECAFE, it also maintains a security fund, in case coffee prices fall below the cost of production for individual farmers. In order to fund their activities, ICAFE charges a tax or contribution on coffee business, which amounts to 1,47% of the export price.
At the end of the season, ICAFE will calculate a “Final Liquidation Price” from the revenues of all Costa Rica coffee exports, and the costs declared to make that revenue. Thereby they determine nationwide, how large the coffee pie actually was this year. A financial settlement then takes place among all coffee chain stakeholders, including the producers.
The Coffee Quest’s perspective
Price transparency is a complex promise to uphold. The result depends heavily on the structure of the sector, the amount of data available and the amount of time a company has to research and provide in this. If you buy coffee from a producer, who also processes, mills and exports, it’s more straightforward, however, this isn’t always the case.
In the Costa Rica context, it’s easy to get a FOB price that is paid to the exporter, or maybe even to the exporting miller. But that still doesn’t say anything about the price the farmer who grows the cherry actually gets.
The cherry farmer delivering to one of our micro-mill suppliers, will get 1 average price for his cherry as a result of the whole coffee season. The FOB price, The Coffee Quest pays to the exporter, will negatively or positively affect this average. We set out transparency ambition high at The Coffee Quest, and therefore that is exactly what we aspire to know.
Transparency is regulated by law in Costa Rica, and all internal prices and volumes as well as export prices and the final liquidation price per miller are published on ICAFE’s website. This means that we have been able to set up a calculation that derives the contribution of The Coffee Quest purchases in Costa Rica, to the final liquidation price to the farmer delivering cherry to the micromill. Being able to share this makes us incredibly happy!
The method we use is based on data on our suppliers in ICAFE publications of coffee commercialization, which can be found here; ICAFE/coffee sector/final settlement benefit, and ICAFE/coffee sector/commercialization/sales per zone. The calculation results are validated, and costs are adapted according to interviews with millers and exporters. The result is a farm gate cherry price in Colones per Fanega, which we have translated for you into a price in Euro per kilo, in green coffee equivalent.
Finca La Lidia is located in Valle Central, whose production area counts 21.000 ha of varieties like: Caturra, Catuai, Bourbon, Villa Sarchi, Villa Lobos, Gesha & SL-28. Those coffees grow at an altitude range between 1.000 and 1.400 m above sea level.
People visiting Costa Rica are often happily surprised by the abundance of nature and respect for animal life. Many farms are committed to cultivating high-quality coffee in a sustainable manner.