Here’s Why Your Cup of Coffee Will Cost $25
With 400 billion cups served and enjoyed every year, there’s a chance that you’re drinking coffee right now. As you sip your delicious drink, you’ve probably wondered about the process it took to get to you. How many people have handled the beans that eventually turned into your cup of coffee in the morning? As it turns out, your coffee is actually extremely underpriced and in this post, we’ll see why you should actually be paying over $25 for every cup.
Coffee doesn’t just fall out of the sky
You may have noticed that coffee is starting to get more expensive. Just this year, Starbucks announced a price rise of 10 to 20 cents per cup across all of their stores for the base drip coffee they serve. But, that price rise has very little to do with how much coffee actually costs and has more to do with the inequality involved in producing it.
In fact, coffee trading prices have actually declined over the last 40 years. It costs less per kilogram of coffee in 2019 than it did in 1975, even after accounting for inflation.
So how can the price of coffee be going up for consumers when commodity prices are going down? To find the answer, we have to take a journey to some of the poorest countries in the world where coffee is grown. In other words, we have to understand the production side.
The coffee plant needs a very particular climate in order to mature and produce its valuable fruit in this climate happens to be found most often in the developing world. So much so that 90% of all coffee produced comes from developing nations. From seed to harvest, the plant takes four years to mature, grown in shady conditions under trees and on mountainsides.
These conditions make harvesting coffee one of the most labor-intensive processes and usually require handpicking to get the ripe fruits while leaving unripe berries on the bush. The harvest is so intensive that it usually represents 40% of a farmer’s total budget for growing coffee.
It gets even worse
Once harvested, the berry is sorted and dried to get to the coffee beans inside. Fun fact: the word bean is a bit of a misnomer as it’s actually the seed of the fruit, but I digress.
When the beans are at the correct moisture levels, they are packed into standardized 60-kilogram canvas bags which help regulate moisture levels and can be stored for up to a year.
Now, this is a very demanding process, as you can imagine, but at the end of the day, the farmers don’t really make a lot of money from it. In Colombia, for example, the recent price drops actually mean farmers are setting their 60-kilogram bags for just over half of what they need to break even on labor, fertilizer and administration costs.
If that sounds extreme, you can see the numbers. An average, a three-hectare Colombian farm that costs about $15,000 to maintain, can produce about 75 to 90 of those 60-kilogram bags per year. They can sell them for 30 million Colombian pesos, which when you convert into dollars amounts to less than $10,000.
Even at the current Colombian minimum wage, the commodity price of coffee is too low to sustain both the farmers and the laborers who work in the fields, which is why you often hear about forced labor and modern slavery being uncovered at the more unethical farms out there.
For those farmers who are ethical however, the only winning choice ends up being to simply walk away from their plantations. Interestingly enough, this problem is actually not new. Back in the 30s and 40s, the US was concerned that the price of coffee was too low and that coffee-producing countries would turn to the communist block for help. As a countermeasure, they created the Inter-American coffee agreement to sustain exporting levels from these producing countries into the Western world.
And what did the coffeemakers agree on?
The agreement evolved into the modern international coffee agreement to help stabilize prices. It has 42 exporting members and seven importing members in a bid to try and keep coffee production stable and regulated.
But even with the agreement in place, coffee trading prices have fluctuated greatly. In the late 1980s, the agreement couldn’t reach a consensus on quotas and from November 1998 to November 1992 the price drops to just a third of its value. Basically to avert such extreme price fluctuations, importing members like the US, Japan, and the EU have to step in and guarantee certain quotas.
That might come as a surprise to you considering just how much coffee is being consumed worldwide, but the problem isn’t a lack of demand. No, there’s plenty of that. The true issue stems from the whole chain of industries that separate the plantations from your mug.
Your coffee has to go from farmers to middlemen, exporters, and importers and then to roasters and retailers before it can finally come to you.
And at every stage, the market is saturated with companies competing for the same beans that they’re trying to sell to the same retailers.
How do prices affect quality?
The unfortunate loser is the quality of the coffee that we see on our shelves today. Even good beans can be roasted impurely just because wholesale roasters compete on razor-thin margins. And of course, if one farm demands more money per bag, another one will happily undercut it.
You might be thinking, “But what about fair trade coffee? Does that help the industry’s lagging prices?” Hardly.
Fairtrade only ensures that working conditions and local minimum wages are appropriately maintained, without really looking at the big picture. Ethically, it feels good to consume Fairtrade coffee, but it really doesn’t do anything to fix the underlying issue, which is that the coffee we buy today shouldn’t be as cheap as it is. As developing nations advanced, so to will their wage standards and economic opportunities and eventually there will be no one left to grow and sell coffee at these prices.
If coffee was produced using Western wages for the amount of labor it takes to grow and harvest, your morning coffee should cost $25 a cup at the very least. Thus, since the advancement of the developing world feels almost inevitable, you might have to brace yourselves for some pretty hefty price hikes if you’re into coffee. Of course, spending more on coffee won’t be a problem if your income increases as well.
If you enjoyed reading this content, click the 👏button for us (we’ll buy coffee and make even more content!) And be sure to subscribe to our YouTube channel, where you can watch plenty of other interesting videos.
