Enough to keep you awake
29 June 2006 15:43 | Global
Chris White
The next time you buy a cup of coffee, pause for a moment to contemplate “the coffee paradox” and to ponder its relevance to our own business in fresh fruits and vegetables.
According to a recent meeting of the International Coffee Organisation, global demand for coffee has doubled over the last 30 years. Demand continues to grow strongly, reaching a new high of some 119m sacks of the stuff in 2006.
Meanwhile, global supplies of coffee beans have kept pace with market demand, with a small surplus of some 120m sacks expected this year from the world’s major coffee producing countries including Brazil, Costa Rica, Mexico, Ivory Coast and Vietnam.
Yet inspite of this relatively narrow imbalance in supply and demand in the global coffee market, coffee prices have fallen through the floor, down by around a quarter since the start of this year alone.
As the author of a weekly commodities column in France’s Le Monde newspaper explains, the exclusiveness of the coffee bean is part of its problem. You see, the beans are good for making a cup of coffee and not for much else, not a problem for the world’s other big commodities, such as sugar cane or corn maize, both of which are now tipped as an alternative fuel source for our motor cars in the years to come as oil reserves dry up.
Indeed, coffee’s price position has got so bad that they failed to show signs of life on news that global coffee stocks have dropped to record lows in exporting and importing countries alike.
This disparity, which is the title of a new book that explains this so-called “coffee paradox” is most keenly felt when you look at the price you pay for your mocha or some other concoction whipped up at your local Starbucks or equivalent which characterises the coffee experience for consumers in places on the planet as different as Boston, Beijing and Bombay.
It seems that the money in the coffee business is being made at only one end of the supply chain. The people who have most to do with the consumers are the ones who are coining it in.
On the other hand, the coffee producers, those who merely pick the beans and pack them into sacks for sale, are beset by miserable returns that barely cover the production costs.
“The coffee that’s sold by the grower in Rwanda and enjoyed by the broker in Manhattan or Paris is not the same thing,” explains Le Monde. “They’re now paying for all sorts of extras, such as the comfortable cushions you sit on, the TV screens with the latest World Cup match to watch and the hi-speed internet connection you’re now provided with.”
So value in today’s coffee business is being created and enjoyed almost exclusively by the people who retail the bitter, black drink. What’s more, they’re also the ones setting the prices which, according to our coffee paradox, do not obey the laws of supply and demand. And growers just don’t get a look in.
Coffee aside, the paradox should be enough to keep fresh fruit and vegetable suppliers awake in their beds at night. They’re convinced that global oversupply is the real cause for the low market prices. Correct this and the rest falls into place.
The consequences on price of supply and demand in the coffee business suggests otherwise. Indeed, there are clear parallels for our business, especially for those growers who operate at the commodity end of the business. Apple, citrus and table grape growers will know what we mean.
If there is money to be made in coffee nowadays, it’s in those areas of the business supplying something different. So next time go for a large, organic, fair trade latte with extra cream.
The next time you buy a cup of coffee, pause for a moment to contemplate “the coffee paradox” and to ponder its relevance to our own business in fresh fruits and vegetables.
According to a recent meeting of the International Coffee Organisation, global demand for coffee has doubled over the last 30 years. Demand continues to grow strongly, reaching a new high of some 119m sacks of the stuff in 2006.
Meanwhile, global supplies of coffee beans have kept pace with market demand, with a small surplus of some 120m sacks expected this year from the world’s major coffee producing countries including Brazil, Costa Rica, Mexico, Ivory Coast and Vietnam.
Yet inspite of this relatively narrow imbalance in supply and demand in the global coffee market, coffee prices have fallen through the floor, down by around a quarter since the start of this year alone.
As the author of a weekly commodities column in France’s Le Monde newspaper explains, the exclusiveness of the coffee bean is part of its problem. You see, the beans are good for making a cup of coffee and not for much else, not a problem for the world’s other big commodities, such as sugar cane or corn maize, both of which are now tipped as an alternative fuel source for our motor cars in the years to come as oil reserves dry up.
Indeed, coffee’s price position has got so bad that they failed to show signs of life on news that global coffee stocks have dropped to record lows in exporting and importing countries alike.
This disparity, which is the title of a new book that explains this so-called “coffee paradox” is most keenly felt when you look at the price you pay for your mocha or some other concoction whipped up at your local Starbucks or equivalent which characterises the coffee experience for consumers in places on the planet as different as Boston, Beijing and Bombay.
It seems that the money in the coffee business is being made at only one end of the supply chain. The people who have most to do with the consumers are the ones who are coining it in.
On the other hand, the coffee producers, those who merely pick the beans and pack them into sacks for sale, are beset by miserable returns that barely cover the production costs.
“The coffee that’s sold by the grower in Rwanda and enjoyed by the broker in Manhattan or Paris is not the same thing,” explains Le Monde. “They’re now paying for all sorts of extras, such as the comfortable cushions you sit on, the TV screens with the latest World Cup match to watch and the hi-speed internet connection you’re now provided with.”
So value in today’s coffee business is being created and enjoyed almost exclusively by the people who retail the bitter, black drink. What’s more, they’re also the ones setting the prices which, according to our coffee paradox, do not obey the laws of supply and demand. And growers just don’t get a look in.
Coffee aside, the paradox should be enough to keep fresh fruit and vegetable suppliers awake in their beds at night. They’re convinced that global oversupply is the real cause for the low market prices. Correct this and the rest falls into place.
The consequences on price of supply and demand in the coffee business suggests otherwise. Indeed, there are clear parallels for our business, especially for those growers who operate at the commodity end of the business. Apple, citrus and table grape growers will know what we mean.
If there is money to be made in coffee nowadays, it’s in those areas of the business supplying something different. So next time go for a large, organic, fair trade latte with extra cream.
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