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  • QA 157
    Question:
    What margins do importers make?
    Background:
    What margins do importers make on Brazilian coffee they resell to European roasters? And where can I find addresses of coffee importers in Europe?
    Asked by:
    Anonymous - Hungary
    Answer:

    Importer margins differ from transaction to transaction and can only be estimated.  Although value chain analysis is not a Coffee Guide function we can offer some general comments - we also recommend to read Q&A 142 in the Archive that deals with more or less the same subject… *

    First of all, there are no 'guaranteed' margins. Some transactions may even end up showing a loss… Value chain analysis does provide some insight in costs and margins in the coffee chain but, it is not exact because of fluctuating prices as well as variable terms and conditions that make each transaction more or less unique. 

    Secondly, not all 'importers' fulfil the same functions. Traditional 'importers' purchase coffee for their own account, import it physically into the country and then resell/distribute it to local roasters. This entails both market risks (prices fluctuate) and credit risk (most roasters do not pay cash). The 'margin' between their cost and sales price therefore includes many cost factors (ocean freight, insurance, landing costs, warehousing and transport, risk management, interest etc) and can be quite substantial. But their 'profit' might only be a small part of this.

    The vast majority of today's leading 'importers' are in fact trade-houses that provide logistics and supply services to roasters by sourcing agreed qualities and quantities of coffee in producing countries, and delivering these at an agreed price, location and date (!) for roasting. Such contracts can spread over 6 to 12 months! Some trade-houses even help manage the roaster's green coffee inventory by replacing stocks as and when these are drawn down for roasting. Here again the 'margin' includes many cost items of which 'profit' is just one.

    Profit margins also depend on the type of coffee traded…

    Prices for widely traded standard qualities, such as much of Brazilian coffee for example, are generally also fairly well known. This makes it difficult for an importer to achieve substantial profits on relatively risk-free or back-to-back transactions. If higher profits are required then more services must be provided.** Different studies suggest different levels of trading profit for importers but as a norm we would not estimate anything higher than 1 to 2 % on  straight forward, large volume transactions.

    Importers of non-standard coffees such as specialty coffee (see Q&A 085 and 131 in the Archive) on the other hand have the advantage that not every importer carries them. And prices for such coffees are not always widely published either. This allows for higher profit margins but specialty coffee importers are also accepting higher risks. And, whereas profit margins can be substantially higher, turnovers on the other hand are smaller.


    * For ways to identify coffee importers and roasters please see the box 'I want to sell coffee/I want to buy coffee' on our homepage.
    ** Of course such services are not offered for free and carry a certain profit margin. But such margins do not constitute trading profits. For example, warehousing or trucking are not trading operations…

    Posted 29 June 2007

    Related chapter(s):
    Related Q & A:
    072, 085, 131, 142,156