Enjoyed all over the world, coffee is a truly global commodity—and the actual cost of this simple drink is complex and far-reaching. According to the International Coffee Organization (ICO), the coffee industry had an estimated gross value of about US$173.4 billion in 2012, while worldwide coffee consumption has grown an average of 2.4 percent per year since 2000. From the fields of Ethiopia and Guatemala to trendy coffee shops in the United State and Spain, the coffee industry has a worldwide social and economic impact.
A study presented at the 2014 International Coffee Council asserts that production costs have steadily increased over time, while the recent decline in world coffee prices forced many producers to sell their product at a loss. The study identifies the social repercussions of this trend, noting that “when prices are lower than production costs, opportunities for the rural population to renew itself are diminishing given the lack of interest in farming among young people and the exodus to urban centers and developed countries.” This pattern threatens the economic stability of countries for which coffee is a principal export.
Farmers typically make only a fraction of the market price, much of which goes to paying workers and absorbing farm costs. The ICO pinpoints labor, fertilizers, and farm products (such as pesticides) as the industry’s top three production costs. The National Coffee Association defines 10 steps in the labor-intensive harvest and production process; however, the market value of cheap coffee can’t cover the total cost of that same coffee’s many transformations from grower to exporter to roaster and, finally, to market.
A January 2015 market report from the ICO shows the composite daily price fell from US$1.85 per pound in October 2014 to US$1.30 in February 2015. The ICO expects production to decline as well. In the 2014-2015 crop year, world production hit its lowest level in three years. Variations in production of coffee are difficult to anticipate, as they may be due to factors as varied as agricultural and climatic conditions, labor availability, and production costs.
The ICO also identified a negative correlation between global availability of coffee and its consumption (quantified by pounds of beans roasted). The market had average ratio of 1.5 bags of raw beans to one bag of roasted. Thus, more coffee exists than the global population can drink; indicating that, despite high production costs, there is no market incentive for prices to increase. According to the same Januray 2015 report, continuation of this trend has put the coffee market at a deficit for the current year. A saturated market favors the consumers and brings prices down to below true cost. Your favorite coffee may have traveled thousands of miles before reaching your cup, and you may be getting a bargain.
