What is the Real Cost of Our Coffee?

Published on by Green Initiatives

As I set up my laptop to write this article, the next thing I did was to open the Starbucks mini-program and look for a coffee that, I supposed, would help me to get out of the Sunday afternoon laziness and hopefully, get productive.

Overview

Coffee drinking seems to have become an essential part of modern Chinese life in most cities in China. The biggest beneficiaries of this rapidly growing trend are Starbucks, and China’s homegrown ‘unicorn’ and the closest competitor to the former, Luckin Coffee.

Luckin is reported to continue opening new stores while burning its investors’ money, despite financial misconduct that saw suspension of its CEO and COO last month.

“China consumes nine times as much tea as coffee, but Qian (Luckin CEO) saw that statistic as an opportunity. Luckin promised low-priced coffee, ubiquitous store locations, and delivery to your home in 30 minutes,” according to another article that analysed Luckin’s fall.

According to a Statista report, Starbucks currently operates 4,123 stores in China, making it the country with the most stores worldwide, after the United States. However, what might be even more staggering to read is Starbucks’ China strategya new store every 15 hours!

While international companies make their ambitious move into the dragon country, homegrown brands, although a bit late, are joining the fight. There are very few commodities that have been manipulated as much as coffee.

But how much do we know about the global supply network that the cup of coffee in our hand is based on? I wondered how unregulated the market might and continued my research.

The ‘Coffee Economy’ and the global supply network of coffee

According to Business Insider, coffee is the second most sought-after commodity in the world, with an industry that is worth over $100 billion across the globe.

In terms of exporting alone, the industry is valued at $20 billion and continues to be on the rise. On average, 2 billion cups of coffee are consumed globally every day.

The most prominent companies within the coffee market include: J.M. Smucker Company, Kraft Heinz Inc., Starbucks Corporation, Nestle S.A., and Dunkin’ Donuts. Still, the price of coffee fluctuates dramatically. Weather is often a factor, as a forecast of droughts or frosts in Brazil might also forecast a coffee shortage, thus increasing the price.

Most coffee is traded by speculators in New York City, who trade up to ten times the amount of coffee that is actually produced each year. Ten times! Little wonder that the British Coffee Association said that “for an average cup of coffee consumed in the UK, up to 76% of its value is estimated to be produced in the UK.”

Because surely, coffee beans don’t grow in England. How about the rest 24 percent?

The ‘behind-the-scenes’ of coffee farming and its link to poverty.

Coffee, as we can imagine, is based on the agriculture.

Over 90 percent of coffee production takes place in developing countries – mostly South America, while consumption primarily happens in the industrialized economies. Brazil, Vietnam, Indonesia, Colombia and Ethiopia are the top 5 green coffee producers in the world. Among that, 60% of coffee production comes from smallholder coffee farmers with less than 5 hectares. Almost half of these smallholder farmers can be found in Ethiopia, Uganda and Indonesia.

These smallholder farmers rely heavily on coffee as a source of income but have little bargaining power in terms of selling price. Since the fall of International Coffee Agreement in 1989, the coffee price fell to about half their previous levels and hasn’t really recovered till the early 21st century when the documentary Black Gold was made.

statistic from Enveritas shows that 44% of the world’s smallholder coffee farmers are living in poverty and 22% are living in extreme poverty. The majority of coffee farmers living in poverty are concentrated in six East African countries. The region is characterized by low coffee yields that result in low income to these farmers.

Facts are hard digest. 30% of farmers earn less than $100 per year from coffee production. While we urbanites enjoy the perceived productivity that a 20RMB cup of coffee brings, each day there are coffee farmers in Ethiopia who have to abandon their fields and look for other ways to provide for their families.

Change can start with awareness. With us, consumers.

Green Initiatives is screening the documentary, Black Gold, to limited seats on Thursday, 21 May 2020, to increase awareness and change on this issue.

In the film, Tadesse Meskela, who grew up in the countryside outside Addis Ababa in a poor family, is determined to find a way out of poverty, for over 74,000 coffee farmers. He looks for coffee buyers around the globe who will pay his farmers a better price than that set by the international commodities exchange.

Tadesse hopes that “one day the consumer will understand what they are drinking. Consumers can bring a change if awareness is given to them”.

Although the film was made 14 years ago, we think that bringing out the story of Ethiopia’s coffee farmers to the community is extremely important. As coffee consumption continues to soar, increased awareness will allow for better purchase decisions. Knowing where our coffee comes from, as well as, labels and certifications will be extremely important.

After all, like Tadesse himself mentions in the film; this is not just an issue that affects coffee but all the products coming from the poorest of countries.

After all, the free Luckin coffee promotion may be happening right now. Let us not assume that zero is the real price of that cup of coffee.

References

  • https://www.nanjingmarketinggroup.com/blog/luckin-coffee-madness-marketing-strategyhttps://carto.com/blog/enveritas-coffee-poverty-visualization/
  • https://www.britishcoffeeassociation.org/coffee-in-the-uk/coffee-facts
  • https://thecolgatemaroonnews.com/23640/commentary/luckin-coffee-runs-out-of-luck/
  • https://www.npr.org/sections/goatsandsoda/2019/05/17/723193259/what-does-chinas-luckin-coffee-have-that-starbucks-doesnt
  • https://globaledge.msu.edu/blog/postamp/55607/the-global-coffee-industry