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

Coffee is one of the world's most important primary commodities. With over 500 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 sugar cane 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

[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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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.

The decline in the ingredient cost of green coffee, while not the only cost component of the final cup being served, occurred at the same time as the rise in popularity 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.

Specialty coffee, however, is frequently not purchased on commodities exchanges—for example, Starbucks purchases nearly all its coffee through multi-year, private contracts that often pay double the commodity price^[1]. It is also 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 affected by changes in 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)

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 said to be 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.^{[citation needed]} Fair trade coffee is produced by small coffee producers who belong to cooperatives; guaranteeing for these cooperatives a minimum price, though with historically low prices, current fair-trade minimums are lower than the market price of only a few years ago. 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.

[edit] Reference

1. ^ Rickert, Eve (December 15, 2005). "Environmental effects of the coffee crisis: a case study of land use and avian communities in Agua Buena, Costa Rica". M.Sc. Thesis, The Evergreen State College.

[edit] External links

• Coffee commodity price quote - Fast and simple site to get the market price of coffee
• CoffeeNetwork