Economics of coffee

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Top Ten Green Coffee Producers - 2005 (million metric ton)
Brazil	2.18
Vietnam	0.99
Indonesia	0.76
Colombia	0.68
Mexico	0.31
India	0.28
Ethiopia	0.26
Guatemala	0.22
Honduras	0.19
Uganda	0.19
World Total	7.72
Source: UN Food & Agriculture Organisation (FAO)[1]

Main article: Coffee

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Coffee is one of the world's most important primary commodities. With over 400 billion cups consumed every year, coffee is one of the world's most popular beverages, comprising about a third of tap water consumption. Worldwide, 25 million small producers rely on coffee for a living. For instance, in Brazil alone, where almost a third of all the world's coffee is produced, over 5 million people are employed in the cultivation and harvesting of over 3 billion coffee plants; it is a much more labour-intensive culture than alternative cultures of the same regions as soy, sugar cane, wheat or cattle, as it is not subject to automation and requires constant attention.

Coffee is also bought and sold as a commodity on the New York Board of Trade. This is where coffee futures contracts are traded, which are a financial asset involving a standardized contract for the future sale or purchase of a unit of coffee at an agreed price. The world's largest transfer point for coffee is the port of Hamburg, Germany.

World Map based on Coffee imported by country. Map shows gross imports, not how much coffee stays within the country. Some countries re-export significant portions of their coffee imported

1 Consumption
2 Pricing
3 Classification
4 Reference
5 External links

[edit] Consumption

Coffee consumption on average makes up about a third of tap water consumption in most of North America and Europe.[2] In the year 2000 in the US, coffee consumption was 22.1 gallons per capita.[3]

[edit] Pricing

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Pictoric pie chart showing the distribution of the wealth created by the production of coffee (rose - taxes, transport, toll; pink - vendors; blue - roasters and merchantes; yellow - planters; green - workers

According to the Composite Index of the London-based coffee export country group International Coffee Organization the monthly coffee price averages in international trade had been well above 100 US cent/lb during in the 70s/80s, but then declined during the late 90s reaching a minimum in September 2001 of just 41.17 US cent per lb and stayed low until 2004. The reasons for this decline included a collapse of the International Coffee Agreement of 1975-1989 with Cold War pressures, which had held the minimum coffee price at USD$1.20 per pound. Moreover, the expansion of Brazilian coffee plantations and Vietnam's entry into the market in 1994 when the United States trade embargo against it was lifted added supply pressures. The market awarded the more efficient Vietnamese coffee suppliers with trade and caused less efficient coffee bean farmers in many countries such as Brazil, Nicaragua, and Ethiopia not to be able to live off of their products, which at many times were priced below the cost of production, forcing many to quit the coffee bean production and move into slums in the cities. (Mai, 2006).

A coffee plantation on a hill near Orosí, Costa Rica.

Ironically, the decline in the ingredient cost of green coffee, while not the only cost component of the final cup being served, was paralleled by the rise in popularity of Starbucks and thousands of other specialty cafés, which sold their beverages at unprecedented high prices. According to the Specialty Coffee Association of America, in 2004 16% of adults in the United States drank specialty coffee daily; the number of retail specialty coffee locations, including cafés, kiosks, coffee carts and retail roasters, amounted to 17,400 and total sales were $8.96 billion in 2003. It is important to note that the coffee sold at retail is a different economic product than wholesale coffee traded as a commodity, which becomes an input to the various ultimate end products so that its market is ultimately effected by changes in the ultimate consumption patterns and prices. The market for soft drinks has been steadily climbing, passing the consumption of coffee in terms of mass of product consumed in the early 2000s.

In 2005, however, the coffee prices rose (with the above-mentioned ICO Composite Index monthly averages between 78.79 (September) and 101.44 (March) US Cent per lb). This rise was likely caused by an increase in consumption in Russia and China as well as a harvest which was about 10% to 20% lower than that in the record years before. Many coffee bean farmers can now live off their products, but not all of the extra-surplus trickles down to them, because rising petroleum prices make the transportation, roasting and packaging of the coffee beans more expensive. Prices are expected to either remain constant or rise in 2006. (Mai, 2006)

Coffee is often mentioned along with other primarily agricultural goods and production of primary inputs (like raw minerals) as one of the main government-controlled economic goods under historical regimes of imperialism, mercantilism, and protectionism, (along with attempts at supporting free trade pricing using a country's core government-estimated comparative advantage), within an overall economic pattern in which some developing countries have had a very large investment in one product made primarily for export, and thus become somewhat dependent upon the demand and world market price for coffee. For example, Brazil's government tried at many times to stabilize the national income from coffee production through methods such as regulating new plantations, production levels, imposing tariffs and subsidies, keeping its own stocks, paying a fixed price to farmers, controlling export prices and by controlling currency exchange rates with a long series of complex controls in which the rates were determined with combinations of the free trade rate and statutory rates in tiers depending upon the type of product being sold (for example, to try to favor coffee over sugar or cotton cloth production or vice versa depending upon the current goals of the government). There is much controversy around the idea that these countries are unstable and subservient because of their large dependence on the free trade price of products like coffee. Much has been done in the late 20th and early 21st Centuries to diversify production in countries like Brazil, and many countries today are much closer to being fully free-trade regimes with coffee and other products.

Shade trees in Orosí in Costa Rica. In the background (red) shade trees and in the foreground pruned trees for different periods in the growth cycle.

[edit] Classification

A number of classifications are used to label coffee produced under certain environmental or labor standards. For instance, bird-friendly or shade-grown coffee is produced in regions where natural shade (canopy trees) is used to shelter coffee plants during parts of the growing season. Organic coffee is produced under strict certification guidelines, and is grown without the use of potentially harmful artificial pesticides or fertilizers; conventional coffee is grown with more pesticides than any other agricultural crop—cotton comes second. Fair trade coffee is produced by small coffee producers; guaranteeing for these producers a minimum price, though with historically low prices, current fair-trade minimums are lower than the market price of only a few years ago. Fair trade provides the farmers higher yearly incomes, though, as the price does not move up and down with the market prices.TransFair USA is the primary organization currently overseeing Fair Trade coffee practices in the United States, while the Fairtrade Foundation does so in the United Kingdom.