This morning, as I sat down with my usual cup of espresso, I couldn’t ignore the latest headlines about the surging price of coffee. The thought crossed my mind—how much longer will this daily ritual remain affordable?

Yet, beyond the immediate impact on my wallet, a more significant question emerges: who really benefits from these skyrocketing prices?

The reality is complex. While coffee prices on global exchanges are reaching new highs, the farmers who cultivate the beans are often the last to see any of the gains. In fact, they are struggling with rising costs for inputs like fertilizers and labor, all while facing increasing pressures from climate change and stringent new regulations.

Even the major industry players, like coffee roasters and retailers, are feeling the squeeze as profit margins thin.

So, who actually wins in this scenario? And more importantly, how can we address the growing inequities within the coffee supply chain?

The solution may lie in rethinking the way we trade coffee. By fostering direct trade partnerships and ensuring a fairer distribution of value across the entire supply chain, we can begin to build a more just and sustainable coffee industry—one where the benefits are shared more equitably from farm to cup.

But who dares to take that first step? I fear that those with real influence might hesitate, afraid to sacrifice even a slice of their profit. Yet, if we are bold enough to make these changes, we might just ensure that we can all continue to enjoy our daily treat.

Climate Change and Coffee: A Volatile Mix

Brazil has been at the center of recent market turbulence. Over the past week, reports of frost in key coffee-growing regions have sent prices soaring. Though the frost was less severe than initially feared, the potential for crop damage has driven speculative trading, further inflating prices. This reflects a broader issue: the coffee market is increasingly sensitive to climatic events. In a recent interview in the Financial Times, Giuseppe Lavazza, chairman of the Lavazza Group, highlighted that the coffee supply chain is “dramatically under pressure” due to climate change, shipping disruptions, and new EU regulations.

The new EU Deforestation Regulation (EUDR), which aims to stop deforestation by enforcing stricter supply chain transparency, adds another layer of complexity. While these regulations are critical for environmental sustainability, they impose additional costs on both producers and processors, who may struggle to comply with the new requirements.

Speculation: The Hidden Driver of Price Volatility

Speculation in the coffee futures market is another significant factor contributing to price volatility. Investors and hedge funds, rather than those involved in the actual production of coffee, are driving up prices. Lavazza pointed out that this speculative behavior has significantly inflated the cost of coffee, leading to unprecedented price levels for robusta beans. This speculation, while profitable for investors, does little to benefit the farmers who are the backbone of the coffee supply chain.

Recent research by Solidaridad and the Global Coffee Platform underscores this point. Their study, “The Grounds for Sharing,” reveals that the current economic model of the coffee industry is not viable for all stakeholders. Although the coffee market generates substantial value, this value is concentrated away from farmers, who often see little of the profits. The study found that while the average price of coffee products in German retail stores is €9.71 per kilogram, the net income for farmers is a mere €0.41 per kilogram.

Smallholder Farmers: The Overlooked Link

Despite the rising prices, smallholder farmers are not gaining the rewards. Instead, they face increasing production costs due to higher prices for fertilizers, labor, and compliance with new regulations. The Coffee Barometer 2023 highlights that the concentration of wealth within the coffee supply chain is primarily in consuming countries like Europe and North America, leaving producers in Africa, Asia, and Latin America with diminishing returns.

This disparity is starkly illustrated by Fairtrade International’s recent findings, which show that while the global coffee market generates over $200 billion annually, coffee farmers receive only $0.04 from a $4 cup of coffee. This inequity is alarming, especially as farmers face rising costs due to climate change and inflation. Although the Fairtrade Minimum Price increase in 2023 is a step in the right direction, it only impacts a small fraction of farmers. The broader system continues to fail those who need it most.

The Coffee Value Chain: An Unequal Distribution of Wealth

The economic model of the coffee industry is fundamentally flawed. As the Grounds for Sharing report reveals, there is enough value within the coffee supply chain for all stakeholders to profit, yet this profit rarely reaches the farmers.

The study shows that while the retail, roasting, and coffee cultivation stages each account for approximately 21% to 23% of the total value of coffee products, the cumulative net profit margins are heavily skewed towards the retail and roasting stages. This leaves farmers with little bargaining power and limited opportunities to capture a fair share of the value they help create.

The situation is further complicated by the fact that family labor, which constitutes a significant portion of farm costs, is often unpaid and unaccounted for. This misleads the perceived profitability of smallholder farms, masking the economic challenges these farmers face.

Conclusion: Towards a More Equitable Coffee Industry

The recent surge in coffee prices underscores the vulnerabilities and inequities within the global coffee market. While climatic events and market speculation can drive up prices in the short term, the long-term sustainability of the coffee industry depends on a more holistic approach—one that rethinks and reinvents the entire system to ensure that these gains are distributed more equitably.

Smallholder farmers, who are essential to the supply chain, must be supported through fair pricing, sustainable practices, and better market access. But this alone is not enough. We need to introduce systemic change that goes beyond simple adjustments; it requires a fundamental reinvention of how the coffee industry operates. This means among others moving towards a model where value is added at the origin, where pricing is transparent and fair, and where direct trade partnerships are the norm rather than the exception.

As Giuseppe Lavazza emphasized in his interview with the Financial Times, the coffee industry is under unprecedented pressure, and without a comprehensive rethink of the entire value chain, these pressures will only intensify. The Coffee Barometer 2023 and the Grounds for Sharing report provide crucial insights into how value is distributed within the coffee supply chain and offer a starting point for this reinvention.

To build a truly sustainable coffee industry, it is essential that all stakeholders—roasters, retailers, consumers, and policymakers—commit to a fairer distribution of value and embrace this holistic approach. Only by addressing these systemic issues and reimagining the entire coffee ecosystem can we create an industry that is not only profitable but also just and sustainable for everyone involved—and ensure that we may all continue to enjoy our daily treat.

But who will take that bold first step towards this reinvention? The time to act is now.

Sources

This article has been inspired by and based on the following sources:

• Reuters – Light frosts reported in some Brazilian coffee areas, prices surge, external link
• Bloomberg – Coffee jumps most in five weeks as market eyes Brazil frost risk, external link
• Nasdaq – Coffee Prices Jump on Renewed Frost Concerns in Brazil, external link
• Financial Times – Coffee prices set to rise even higher, warns Italian roaster Lavazza, external link
• Coffee Barometer 2023, external link
• Solidaridad – Research reveals coffee industry’s current economic model not viable for all, external link
• The Grounds for Sharing: A study of value distribution in the coffee industry, external link
• Fairtrade International – The Inconvenient Truth About Coffee Prices, external link