an adventure in coffee, economics and pricing

by Tim Dale

Introduction Assumptions Espresso Value Calculator Resolution 1: Profitability Resolution 2: Sustainability Resolution 3: Transparency Thanks Links

Coffee is on the rise, both in terms of demand, and price. In April 2011 coffee prices hit a new high at 302.50 US cents per pound, a 34 year high in trading history. Coffee farmers and their communities, however, do not always see the benefit of trends in the marketplace. Consider that coffee accounts for 50% of Ethiopias exports, and 20% of the governments revenue. Furthermore, 25% of Ethiopias population depend directly or indirectly on coffee*. Ethical and sustainable consequences behind price, and who benefits from the profit in the coffee value chain, have never been so crucially important.
*

An Espresso: drawn from a tamped bulk of coffee grounds weighing seven grams. A single Espresso is priced in line with the leading UK coffee retailer. Exchange Rates: we are using spot rates as at the end of 2010, where: 1 ETB = 0.03855 GBP 1 GBP = 0.64785 USD

me R e nt an tu d Far rnin Fair me g to Wa ge rs s

Retail Operating Income Retail Costs

6%

Inv

est

89%

Wholesale Roasted, Ground and Retail Packaged

50/50 Profit Share Farm Gate Premium Direct Trade

Average Price, Coffee Futures Average Price, ECX

3% 1% 1% % Breakdown, Cumulative
Ie. Coffee Futures is 2% Wholesale is 5%

Source: SBUX Annual Report for 2010

Price Pressure

Yeild

Ensure Farm Profitability: While a focus will remain on price paid, the key focus shifts to farm profitability and yeild.
Source: Fairtrade Foundation

Microfinance and Community Infrastructure Development Coffee Crop to Market

Consistent Quality Robust Organic Farming Rainforest Preservation Clean Water Sources

Financially autonomous and self-directed coffee communities

Ensure Long-Term Sustainability: While a focus remains on short-term supply, the key focus shifts to surety of supply over the long-term, with robust coffee farming practice and investment in coffee-growing communities.

Coffee Grower

Coffee Cooperative
*Fairtrade Price measured here

Commodity Exchange or in-country Broker

Country of Origin Exporter

Importer

Commodity Exchange or in-country Broker

Importer

Country of Processing Exporter

Roaster / Packager / Processor

Commodity Exchange or in-country Broker

Distributor

Coffee Retailer

You

Transparent Supply Chain: While a focus remains on the market performance of the coffee retailer, the key focus shifts to an increasingly transparent coffee value chain.

Todd Sattersten Andrew Rugasira The Etheopian Commodity Exchange Lawrence Solomon

Lawrence Solomon

Good African Coffee

Ethical Addictions Coffee