Threat of coffee supply: who gets what in the value chain

As consumers drink more coffee than ever before, it should be a good time to become a farmer. However, the price of Arabica beans – the higher quality and softer flavor of the two main coffee beans – exchange at just over $ 1 a pound on the New York ICE price, far less half of its value five years ago because of a bean deluge from the leading producer, Brazil.

Many producers around the world have to abandon their farms or turn to illicit crops such as coca. This, in turn, casts doubt on the future sustainability of supplies – and could ultimately be costly for consumers.

Why are producers struggling at a time when the price of a cup of coffee seems to increase?

Consumers may badume that at least part of any price increase of their morning cup of coffee is pbaded on to the farmer. According to a consulting company, Allegra Strategies, the coffee itself represents only 4% of the cost, about 10 pesos, while rent, labor and taxes represent three quarters of the total price.

The long coffee value chain means that only a fraction of the 10% spent on coffee grounds goes back to the farmer.

What does the value chain look like?

Many things happen after the coffee berries are picked in the tree.

Processors wash berries to extract raw beans, dry them and prepare them for export. Bagged green beans are then transported through intermediaries – importers, traders and exporters – and finally end up in the hands of roasters.

Based on a 2012 test case cited in the International Trade Center Coffee Exporter's Guide as a reference, roasters end up taking nearly 80% of the wholesale price of coffee. The producer takes a little over 10%, the equivalent of 1 pence for a cup of coffee of £ 2.50.

Over the years, the margin left by middlemen, such as traders and logistics companies, has further shrunk. "Since I started 30 years ago, the prices we charge have been lowered and margins are tightening," said Raf Roggerman, commercial director of Pacorini, a logistics group specializing in commodities.

Who makes the biggest margin in the coffee value chain and why?

While coffee shops and retailers end up taking the essentials of the margin of a cup of coffee, roasters are the main beneficiaries of the wholesale value of coffee.

Experts say that roasting not only transforms green coffee beans into a drinkable food, but that roasters spend time and money researching and blending coffees that meet consumer tastes.

"Research and development costs are important in understanding the taste preferences of different consumers," says Dan Webber, founder of specialty coffee roaster.

Jamie Banwell, Director of Sales in Europe at Diedrich Roasters, said that a good roaster had already bought coffees, visited farms and that he would be able to taste and understand their product in a consistent manner and objective. They are also able to roast coffee with more precision and professionalism.

Roasters also bear a large part of the risk, often being left to the consumer's expense, as they only recover the cost of the beans when they are ready to be sold.

Who are the big roasters?

Nestle and major retailers such as Starbucks have been profiting from roasting margins for some time, but small coffee chains are now starting to do the same.

"At one point, the roasters were the ones who were hoping to own a coffee, but now, it's the opposite that's happening. virtually all cafes with more than one store wish to start roasting, "says Webber.

With the growing popularity of coffee, money continues to pour into the area. "Coffee has exploded in the last 10 years. It's often like a bubble, but even smart money invests and takeovers always take place, "said Banwell.

The consolidation followed the craze for coffee, with major players acquiring smaller roasters and distribution chains. The world's top 10 roasters – led by Nestle, JAB (an investment company owned by the German Reimann family, which builds a world coffee empire), and Lavazza – process about 35% of the world's coffee, according to the barometer Coffee. Report of a group of sustainable development NGOs.

Why is my coffee so expensive?

Costs affecting the price of a cup of coffee vary considerably from country to country.

"Coffee is a marketable product, but not coffee in a coffee shop," says Michael Schaefer, Global Head of Food and Beverage at Euromonitor International. "Most of what you pay in any market is the space you are in, the expertise of the people who make the product, and the value of the brand compared to other products. "

For example, a large Starbucks latte in Russia costs four times more than the same drink ordered in the United States. In some markets, where Starbucks is still positioned as a luxury brand, it is found in high-rent areas of larger cities. Customers tend to be affluent relative to average income and people are willing to spend more on the brands they love.

Elsewhere, personnel costs can be a significant part of the costs, and in other markets the currency effects are significant: a strong local currency may give the impression that a slat is enough. expensive compared to the dollar.