Investing in a Caffeinated Planet – Part IV

By: Nicole Kruz

 

[In the Part I of this series, Virginia Tech Center for Leadership in Global Sustainability alumni Nicole Kruz provided a short Coffee Basics tutorial. Part II and Part III offered an overview of the environmental and social impacts, respectively, of climate change on coffee cultivation and production. Next up, Nicole will discuss the economic impacts of coffee and climate change.].

Coffee & Climate Change – Economic Impacts

Coffee is an enormous global industry worth $30.6 billion USD (Workman, 2017). The crop is a key income generator for many producer countries, especially Brazil, Vietnam, Indonesia, Colombia, and Ethiopia. In Colombia alone, the crop accounts for 7.2% of exports and 8% of GDP (Newton, 2017).

Export & Trade

Export availability of the coffee crop fluctuates year over year due to severe weather events (e.g., droughts, floods, disease outbreak). Latin America currently dominates the export market for Arabica beans whereas Asia dominates in Robusta beans. Within Latin America, Brazil and Colombia lead the pack in volume of exports. Within Asia, Vietnam and Indonesia top the list.

According to the World Bank (2015), the international coffee trade, trade houses and importers alike, plays a major role in the marketing and distribution of coffee, often providing services that are out of the reach of local exporters. Much of the world’s coffee imports, especially mainstream, are delivered ‘just in time’ at roasting plants and many importers have to guarantee ‘quality on delivery as per contract’ failing which they have to arrange for a replacement.

As a commodity, coffee is traded in USD because prices are historically volatile and the US currency offers stability. International trade is largely dominated by multi-national trade houses. The top 3 houses are Neumann Kaffee (Germany), Ecom (Switzerland), and Olamm (USA). In order of size, the world’s largest coffee roasting companies are: Nestle, Mondelez, DE Masterblenders, J.M. Smuckers, Strauss, Starbucks, Tchibo, and Kraft. These companies rely on coffee intake from multiple sources to meet their demands.

Global Supply Chain

There are several steps involved in getting coffee off the plant and into your cup. Because there are so many countries involved in the production, export, and import of the coffee crop, the global supply chain is often complex. It incorporates:

  • Farmers/Growers – can be either smallholders or larger plantations
  • Laborers – are divided into primary categories: fixed-salary, temporary/migrant, casual. Migrant workers often live in poor conditions and earn low wages
  • Intermediaries
  • Processors
  • Exporters
  • Importers/Distributors
  • Roasters- often large companies like Tchibo, Nestle, Starbucks
  • Retailers

While the focus of this project is to look at how coffee production and its impact on global poverty, it is important to note that the crop also plays a strong economic role in developed countries like the US. In a recent study commissioned by the National Coffee Association (NCA), researchers found that the total impact of coffee on the US economy reached a whopping $225.2 billion in 2015, which comprises 1.6 percent of the country’s total GDP (NCA 2017).

Similar to developing countries, the US coffee industry generates millions of jobs: 1,694,710 of them to be exact (NCA 2017). The major difference? Coffee jobs in the US are primarily linked to food sector preparation, although the industry does also generate roles in roasting and packaging, importing, and equipment maintenance.

[In the fifth and final installment of this this series, available November 30th,Virginia Tech’s Center for Leadership in Global Sustainability student Nicole Kruz will examine poverty and sustainability as they relate to the coffee industry.]

Literature Cited:
  • National Coffee Association. 2017. Ten steps from seed to cup. Accessed August 4, 2017: http://www.ncausa.org
  • Newton, T. 2017. Study confirms many coffee farmers don’t earn enough to live on. Accessed August 8, 2017: https://www.perfectdailygrind.com
  • Workman, D. 2017. Coffee exports by country. Accessed August 10, 2017: http://www.investopedia.com