COFFEE INDUSTRY & CUSTOMERS

CHARACTERISTICS OF COFFEE BREWING INDUSTRY

Coffee brewing industry is becoming more and more popular nowadays, due to the fact that coffee is a popular beverage. Over 2.25 billion cups of coffee are consumed in the world every day. Over 90% of coffee production takes place in developing countries, while consumption happens mainly in the industrialized economies. 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 labor- 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.

THE WORLD COFFEE MARKET

Experts on the world coffee market often make reference to the “coffee paradox”.
A coffee crisis in producing countries with a trend towards lower prices, declining producer incomes and profits with important consequences for the export revenues of leading coffee exporting countries and the living standards of millions of people in developing nations
A coffee ‘boom’ in consuming countries with rising retail sales and profits for coffee retailers
A widening gap between producer and consumer prices

The World Bank estimates that out of the total 141 developing countries, 95 depend on exports of commodities for at least 50 percent of their total export earnings. Coffee is a very good example of such “commodity-dependency” representing, for example, 75% of the total exports of Burundi and 54% in Uganda, and about 22% in the case of Honduras. About 20 to 25 million families produce and sell coffee for their livelihood and most of them are small-scale farmers with limited financial resources and scope to diversify out of coffee production.

COFFEE PRODUCTION

Globally, coffee sales each year exceed $70 billion, but coffee producing countries only capture $5 billion of this value, with the bulk of revenues from the coffee trade retained by developed countries. Coffee farmers in producing countries only obtain a fraction of the final retail price of coffee. A recent Oxfam research report showed that Ugandan coffee farmers only get about 2.5 percent of the final retail price of their coffee in the UK market. One strongly positive sign has been the surge in demand for FairTrade coffee in the UK and other countries. The FairTrade organisation claimed in July 2006 that one in five cups of filter coffee drunk in the UK are now being supplied from a "fair" source. Sales of Fairtrade coffee in the UK totalled £65.8m on 2005, up from £34.3m in 2003 (5 % of the UK market) although FairTrade coffee sales account for only 0.5% of the global market.

COFFEE PRICES

There have been no price controls in the global coffee trade since 1989, when the buffer-stock system run by the Internationak Coffee Agreement broke down. The main reason for the decline in prices in the early years of the current decade was a gradual and continuous increase in coffee production throughout the world, particularly the new coffee exporting countries entering the international market, a good example being Vietnam. Global coffee production grew faster than demand leading to large surpluses of production. Our chart below shows the average monthly price for coffee in the world markets. The price chart shows a composite price for the different grades of coffee such as Robusta and Arabica beans. From the second half of 1997 through to the trough of prices in 2001, the average price of coffee collapsed from $180 per lb to less than $40 per lb. Prices remained very low until 2004 since when there has been some recovery in prices, but they remain well below the levels witnessed in the mid 1990s.

Sources:

[1] First Research Industry Profile, http://www.firstresearch.com/

[2] http://findarticles.com/p/articles/mi_m4021/is_2001_June_1/ai_76579399

[3] First Research Industry Profile, http://www.firstresearch.com

[4] First Research Industry Profile: Coffee Industry

[5] http://www.espressobusiness.com

[6] http://en.wikipedia.org/wiki/Economics_of_coffee

[7] Mergent Coffee Industry