rising coffee prices

Rising Coffee Prices: Challenges and Causes

The global coffee market has experienced a sharp increase in prices, primarily due to adverse weather conditions and supply shortages in key producing nations like Brazil, India, and Vietnam. This trend has led to higher costs for consumers, yet coffee farmers, particularly in the Global South, receive only a small fraction of these increased revenues due to their limited bargaining power.

Stark Disparities in Coffee Pricing

Processed coffee sells at an average of $14.30 per kilogram, in stark contrast to the $2.40 garnered by unprocessed coffee. This discrepancy points to a significant decline in the share of market value for producers in the Global South. From capturing one-third of the coffee market's value in 1992, their share dwindled to under 10% by 2002. Coffee farmers themselves earn less than 1% of the retail price of a cup of coffee and about 6% of the price of packaged coffee in developed markets.

Coffee's Role as a Global Commodity

Historically, coffee has been one of the world's most traded commodities, at times ranking only behind oil. This has led to various government policies impacting its global trade, though not all aspects of coffee trade benefit all parties involved.

Imbalance in Global Coffee Trade

Countries in the Global South primarily export unprocessed coffee, such as raw beans and dried, seedless coffee, controlling about 70% of this market. Meanwhile, the Global North, led by nations like Switzerland and Germany, dominates in exporting processed coffee products, including roasted beans and instant coffee.

Dominance of Major Firms in Coffee Sector

The coffee sector is significantly influenced by a few large companies, such as Nestle, Starbucks, and JDE Peet. These firms dominate the market, affecting pricing and value distribution in the coffee supply chain.

High Tariffs as Barriers to Value Addition

Producers in the Global South face challenges in increasing the value of their exports due to high tariffs imposed by developed countries on processed coffee imports. These tariffs represent a significant barrier to moving up the value chain in coffee production.

Strategies for Developing Countries

Developing countries could adopt strategies like subsidizing processed coffee exports or imposing export tariffs on unprocessed coffee. Addressing non-tariff barriers, such as international sanitary standards, is also crucial for enhancing the competitiveness of coffee exports.

The Need for Market Entry Strategies

Branding and marketing efforts represent the highest value-added segment in the coffee market. However, entering consumer markets in developed countries is challenging due to high entry barriers and the need for significant resources to establish new brands.

Collaboration and Innovative Approaches

Strategic collaborations between private firms and public research institutions could help enhance the quality of coffee exports and alter the current value distribution within the coffee market. Examples of such successful collaborations can be found in other commodity markets.

Considering Radical Solutions

The idea of forming a coffee cartel, similar to OPEC, could be a radical but potentially effective strategy. Such a cartel could wield significant bargaining power in negotiations over prices and tariffs with the Global North. This approach would require major coffee-producing countries of the Global South to collaborate closely, potentially leading to significant changes in the global coffee market.