Whether it’s at the supermarket, in your local cafe, or here at 19grams, coffee has a price – and it’s not always the same. We explain what determines it and why you pay more with us than at the supermarket.
A trip into the past: the coffee crisis
To understand coffee’s current pricing system, we need to look at the old rules.
The fall in prices, 1998 to 2004
Originally, coffee prices were determined by quotas. In 1962, an agreement was passed at the International Coffee Organisation (ICO) to regulate the production and consumption of coffee worldwide. It set quotas for every coffee producing country, aiming to protect against a collapse in coffee prices by preventing overproduction. In 1989, however, the US withdrew from the agreement, causing the rules to be lifted. Around the same time, the World Bank had started subsidising countries with heavy foreign debt to help them increase their coffee output – so much so that Vietnam, until then a small player in the global coffee market, was second only to Brazil in coffee output by 1999.
These two decisions led to overproduction. Supply was substantially higher than demand, sharply pushing down the price of coffee. The consequences were catastrophic: thousands of farmers lost their livelihoods, children couldn’t go to school because they had to help on the farm, and, most tragically, in Ethiopia it led to a famine.
The intervention of the World Fair Trade Organisation
In 2006, in response to this crisis, the World Fair Trade Organisation took action to try and introduce a system of controlled trade. Its goal is to ensure a stable income for producers, even if the market price is low. Read more about what fair trade is and why you shouldn’t blindly grab anything with fair trade stamped on it here.
What is the global coffee price, and who sets it?
Firstly, there is no single, all-embracing price of coffee. There are however guiding prices for different varietals set by the ICO. They observe the market and move the price, following the long-term changes in supply and demand, giving traders a point around which they can orient themselves. There is also an average price derived from the most-traded varietals.
Trade in Arabica and Robusta
Arabica and Robusta make up the vast majority of coffee traded worldwide, and they are traded on separate exchanges. Coffee is traded just like any other commodity, showing how important it is as a resource, behind only oil in terms of how fruitful it has been as an investment for importers.
Like any other traded resource, the price is set by supply and demand. Arabica is traded at the New York Board of Trade (ICE Futures US) – the biggest and most important coffee exchange – while Robusta is traded in London at the NYSE Liffe. Producers can, with a given quality and at a given time, sell their coffee at a set price, even before its harvest, a quirk of the coffee exchange. Another factor specific to coffee is the impact of external factors like floods or droughts on its price, which invites heavy speculation and can have adverse impacts on the price and its stability. Market speculation leads to very volatile prices as investors can rush to, and flee from stocks and commodities very quickly: a bad weather report, for example, can have a huge impact on the price. The price is also tied to the US dollar, meaning the price of coffee in Germany and other markets sways with the exchange rate.
Why is the price of coffee so high at the moment?
The price of coffee has exploded over the past year. According to the ICO, prices rose by more than 50% in 2021, compared to the previous year. You’ve probably noticed that you’ve been paying more too. This price spike has two causes: climate change, and the growing consumption of coffee.
Brazil is the biggest coffee producer in the world. Each year, more than 300,000 tonnes are shipped to Germany alone. In 2021, the weather was a massive drain on producers’ bottom lines: across the year, they had to fight drought and frost alike, with many losing huge swathes of their harvests. This slashed the supply from the biggest coffee exporter in the world, a problem that will only become more severe as the climate continues to change in the coming years.
Despite the pandemic – or maybe because of it – the consumption of coffee grew worldwide. The market principles took hold of the price: when demand is greater than supply, prices rise. The German Coffee Association reported that domestic consumption of coffee rose by about 11%, while consumption in cafes, restaurants and offices fell. The impacts of the pandemic on gastronomy were therefore more or less compensated for by people drinking more coffee at home.
The impact for farmers
To consumers, price increases can come across as a good thing for farmers, but it is by no means certain that a higher price translates to a bigger income for farmers. With commodity coffee – the type you buy at the supermarket and the vast majority of the global coffee trade – most farmers can barely cover their costs, and only because the whole family helps out. This is why direct trade is so important: it means that small farmers with a high-quality product can get a fair price for their work. Find out more about how it works in this article.
We’re fans of direct trade
You might have already figured it out: we don’t just value high quality coffee, but also a fair price for the people who grow it.
Our coffee is about quality, not quantity, and like so many others in the specialty coffee world, we think fair trade directly with producers is the way forward. This way, we can account for the needs of both sides of the ledger, so that everyone can make not just a living, but a profit from coffee. And it’s about more than just business: we’re all about tight, fair, and above all long-term relationships with our partners.