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Coffee Economics – Explained

Analysing the Economics of Coffee

There are so many different components to a cup of coffee and so many procedures that make your morning cup of coffee possible for you to drink. You may think it’s just a few coffee beans and some hot water, however, there is so much more that goes into it when you look outside the box. When you start to take into consideration the scale of the $225 billion dollar coffee industry, it spans over much more than coffee and water.

Ranging from labour costs of growers to exporting the coffee beans; there are many costs that you need you need to take into consideration. Not forgetting the cost of packaging, cups & stirrers that are used in the coffee hospitality industry.

Problems of Pricing Coffee

Global coffee prices tend to fluctuate massively, and the cost of coffee differs from country to country. Coffee varies in terms of availability & the final cost of the final product. This is why coffee prices are different in the UK compared to the US. The price of the coffee can also be different domestically as companies have different levels of access to certain coffee beans, this will have an impact on the final price of the coffee. The average cost for a cup of espresso around the world is around $2.80, however it’s very hard to give an average as the cost varies on the country of origin.

Growing Coffee to the Exportation Process

To grow coffee, it’s crucial to have the correct condition for perfect growth. The two most popular coffee beans: Robusta and Arabica are both produced in locations just outside equatorial regions. Coffee was first produced in Yemen in the early 1600’s and then was distributed across the world due to European expansionism. In recent times, Brazil have become the big hitters in terms growing coffee with Vietnam the only country coming close in terms of global coffee production. The South American country are the world’s largest exporters of both instant & grounded coffee, both types are exported to the US. There are also no taxes on coffee exports from Brazil.  Last year the worldwide coffee exports totalled just over $30 billion in 2019, which surprisingly dropped by 0.9% over a five-year period from 2015.  

The Cost of Roasting

Coffee roasters around the world may be charged $3.24/lb of green coffee beans from exporters, however that’s a long way off the price they actually pay. To start off with the coffee beans need to imported to the roasters. On top of that you need to take into consideration the shipping and importer costs. Once the roasting starts, you must understand the labour costs and common business expenses that you would expect to lose along the way. By the end the roasting process it could cost them up to $8.73/lb per pound of coffee.

Retail Pricing Strategy of Coffee

The pricing strategy of coffee sold in the hospitality industry is determined by the margin and profits that can be made. One pound of coffee will result in around 15 cups of 16 ounce of brewed coffee for a coffee shop. This results in an average cost of a cup $2.80/cup translating in a yield of $42.00 per pound of coffee. This sounds like a good profit, however, when you take into account the fact you need to pay staff, buy cups, plastic takeaway cups & many more pieces of equipment for your coffee shop to function, it can add up to be an expensive investment.

Coffee – A Huge Global Sector

The coffee industry is one of the biggest sectors in the world, with over 2.5 million cups of coffee consumed every minute. By the total number of sales, coffee is in the top 5 most consumed drinks in the world. The coffee sector is dominated by Jacobs Douwe Egberts & Nestlé, their sales reached over $80 billion in 2018. Some countries consume more coffee than others with USA and Brazil the biggest coffee consumers in the world. Although, in terms of per capita consumption is higher in parts of Northern Europe in countries like Switzerland & Norway. The next cup of coffee is drink, take into account the vast supply chain that created the drink for you to enjoy.

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