How Coffee is Priced and Traded – do you want the good stuff or the floor sweepings?

There are two pouches of coffee perched on top of my espresso machine. The first was bought for a measly 80 cents from a discount chain in a major city in the North of England. The second was purchased for the princely sum of $5.60 from a corner shop in the rain-soaked valleys of north Wales, only five miles from where it was produced. Both pouches contain an identical quantity (250 grams, or about half a pound) of ground beans, and when tamped into the two-cup filter, both produce drinkable, if not exceptional, coffee.

What could possibly account for a price gap of nearly $10 per pound? Neither coffee is bad, but neither coffee is kopi luwak — produced from the half-digested excretions of the force-fed civet cat in Java and Sumatra. Why the difference? The answer is (sort of) complicated.

Worth it | Credit: Kaffiend CC SA

Coffee is traded on the open market often before it has even been harvested. Coffee futures is big business, and advance information about the state of the harvest can yield huge dividends to investors. Information about the quality and quantity of the beans can be gleaned from weather reports — where a freeze or frost can wipe out entire plantations — or from news reports, which tell of political unrest in coffee growing regions.

Price swings can be wild — both in the futures market and in wholesale trades.

The less of something there is, the more it’s worth, and scarcity, to some degree, drives demand. As with kopi luwak, which is subject to a particularly difficult manufacturing method, the limited availability forces prices higher.

I’ll take three beans please | Credit: MarkSweep

Regardless of how scarce the resource, few coffee drinkers would pay outrageous prices if the end result tasted like used dishwater or the inside of a cat. Growing good coffee is difficult — it will only flourish in the tropics, requires a lot of water (but not too much), loves the heat (so long as it’s not too hot), and requires specific soil conditions. There are more than 100 different types of coffee beans, and most are of the higher quality ​Arabica ​type. They are more difficult to grow and more prone to disease than the less expensive, more bitter ​Robusta ​varieties. Naturally, they command a higher price.

Buying in bulk is more cost efficient. Suppliers know that they have a sure thing and won’t end up with their product gathering dust on the shelves, taking up valuable warehouse space. In the coffee world, around 50 percent of all beans are purchased by just four companies: Sara Lee, Kraft, Procter & Gamble, and Nestle. They own the beans and the infrastructure to keep prices low, if they choose to do so. Smaller producers, creating their own blends, don’t have this luxury, and prices will naturally be higher.

Having exacting standards often means throwing away a large portion of the product if it doesn’t meet the mark. Some coffee producers adhere to that standard of excellence, while others let it slide and allow coffee of variable quality to bear their label. Substandard coffee grounds are often sold to third parties, rebagged, and can be found on the shelves of discount stores.

This article was originally written for Coffee or Die – the magazine of the Black Rifle Coffee company and published August 23 2019.  As the author is still awaiting payment eight months later, we’ve pulled permission for them to use it. And we’re not buying any more of their coffee. They are no longer on our list of cool people.

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