FOB stands for Free On Board. It is a term that is used in the shipping industry. It refers to when goods are loaded on a ship and the point of responsibility for those goods passes from the shipper to the carrier. Let’s look at FOB and wholesale coffee business
FOB in the coffee business means it includes the price paid to the farmer (including local transport and milling costs). Also the amount the exporter is charging buyers who take control of the coffee as it’s loaded onto the vessel at the point of origin. Simply, FOB price is the standard reporting metric for assessing whether a producer was paid fairly for their coffee.
The Supply Chain:
We all know that coffee passes through numerous participants of the supply chain, and each step adds to its cost. However, each producing country has a different supply chain model.
It’s not hard to see why FOB is such an appealing metric for summarizing the fairness of a supply chain: it’s clear cut. FOB is used as a benchmark value to help create an accurate price comparison.
Under FOB, the seller (the coffee exporter ) assumes full responsibility for the coffee until it is on the shipping vessel.
In other words, the exporter manages every step before shipment, including green coffee storage, transportation to port, and customs clearance.
The Ultimate Question is: Is your supply chain traceable to the farm level?
FOB price helps compare origin versus non-origin supply chain costs, and compares one supply chain to another.
However, a large criticism of FOB prices is that it can be misleading about fairness. For instance, a high FOB price does not necessarily guarantee a high farmgate price.
Let’s look at transmissions ratios on coffee at – https://intracen.org/– the International Trade Centre shows producing regions from FOB to farmgate
We have to understand that many factors affect these ratios . Namely: the number of participants in the supply change, or the infrastructure of a country.
For example poor road infrastructure at origin affects farmers’ pay as FOB is used to pay for the higher production and transportation costs.
Therefore, drawing conclusions purely from price points may not be sufficient. To determine how prices can truly be sustainable for producers, it is vital to contextualize the data.
We think the most important is to trust your sourcing partners or have these conversations with them about fairness or to pay fair prices to farmers.