Who earns most on the coffee we consume?

by | Oct 10, 2021 | Business Experiences, Life Thoughts

The things we do and consume on a daily basis, we mostly take for granted. Did you ever wonder where your coffee beans are coming from? Who is putting in all the hard work? And who is earning on it? To be fair with you, I didn’t do that on a daily basis, but when I saw the earning breakdown for a cup of coffee, I was rather shocked. The farmer, who is putting all the effort in growing the beans for our coffee, a luxury item for us, is having hard times making a living.

We can almost not live without coffee

Coffee is one of the world’s most popular beverages and 80% of it is produced by 25 million smallholder farmers. These are individual persons owning or managing an agricultural holding smaller than a farm. Around 125 million people worldwide depend on coffee for their livelihoods. It is one of the most valuable and widely traded tropical agricultural products. However, many of the smallholders are unable to earn a reliable living from the coffee they produce. (Source: Fairtrade International)

Where is the money going?

The coffee supply chain is rather complex as beans pass through growers, traders, processors, exporters, roasters, retailers until finally reaching the consumer. In another post I have shared an infographic showing this complex supply chain.

The question for this post is which part of the chain is earning the most. What’s your guess?

The answer to this question was rather shocking to me.

Coffee farmers earn only 0.4% of the price consumers pay for a latte or cappuccino (Source: UNCTAD).

Most of the money goes to the coffee chain. Is that how it should be? Is that fair?

Coffee price breakdown

Even buying Fair does not always solve the problem

Even when you think you buy “ethical” coffee, which is coffee with a certain certification label, it is highly likely the farmer will not profit the most from it.

Too often it is being used for marketing purposes. The “premium” the consumer is willing to pay “to do good” often results in a better margin for the coffee label.

Dick Durevall has already published several reports regarding ethical models and in 2020 he among others concluded that that roasters and retailers get 61% of the premium, while producer countries get 31% (Source: MDPI.com).

Basically, this means that most of the money earned remains in the Western countries.

It is time to provide a basic living standard for all

This issue is not limited to coffee alone, as it applies to many of our (non)food items being produced in developing countries. The situation for cocoa farmers for example isn’t much better. In the 1980s, they got about 18% of the value of a chocolate bar. Today their share is less than 6%.

Many farmers earn so little that they have an issue earning a basic income, even though the resulting products generate huge profits in global markets. These farmers have little chance of improving their share in profit focussed business world, controlled by powerful multinationals.

They will have to hope for alternative business models.

Fortunately, many good initiatives are taking place within among others The Living Income Community of Practice initiative. Ultimately this should result in decent Living Income (for the farmers) and Living Wages (for the employees). 

WHAT IS CONSIDERED A LIVING INCOME AND HOW IS IT CALCULATED?

Living Income is the net annual income required for a household in a particular place to afford a decent standard of living for all members of that household.
(Source: The Living Income Community of Practice)

How you can help? By buying responsibly, although not all “ethical” labels might be the final solution, for sure it is a good first step. In addition, buying from a local speciality coffee roaster, who is rather transparent about the origin of his beans, can be a good first step as well.

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