Breaking Down the Economics of Coffee
What goes into your morning cup of coffee, and what makes it possible?
The obvious answer might be coffee beans, but when you start to account for additional costs, the scope of a massive $200+ billion coffee supply chain becomes clear.
From the labor of growing, exporting, and roasting the coffee plants to the materials like packaging, cups, and even stir sticks, there are many underlying costs that factor into every cup of coffee consumed.
The above graphic breaks down the costs incurred by retail coffee production for one pound of coffee, equivalent to about 15 cups of 16 ounce brewed coffee.
The Difficulty of Pricing Coffee
Measuring and averaging out a global industry is a complicated ordeal.
Not only do global coffee prices constantly fluctuate, but each country also has differences in availability, relative costs, and the final price of a finished product.
That’s why a cup of 16 oz brewed coffee in the U.S. doesn’t cost the same in the U.K., or Japan, or anywhere else in the world. Even within countries, the differences of a company’s access to wholesale beans will dictate the final price.
To counteract these discrepancies, today’s infographic above uses figures sourced from the Specialty Coffee Association which are illustrative but based on the organization’s Benchmarking Report and Coffee Price Report.
What they end up with is an estimated set price of $2.80 for a brewed cup of coffee at a specialty coffee store. Each store and indeed each country will see a different price, but that gives us the foundation to start backtracking and breaking down the total costs.
From Growing Beans to Exporting Bags
To make coffee, you must have the right conditions to grow it.
The two major types of coffee, Arabica and Robusta, are produced primarily in subequatorial countries. The plants originated in Ethiopia, were first grown in Yemen in the 1600s, then spread around the world by way of European colonialism.
Today, Brazil is far and away the largest producer and exporter of coffee, with Vietnam the only other country accounting for a double-digit percentage of global production.
|Country||Coffee Production (60kg bags)||Share of Global Coffee Production|
How much money do growers make on green coffee beans? With prices constantly fluctuating each year, they can range from below $0.50/lb in 2001 to above $2.10/lb in 2011.
But if you’re looking for the money in coffee, you won’t find it at the source. Fairtrade estimates that 125 million people worldwide depend on coffee for their livelihoods, but many of them are unable to earn a reliable living from it.
Instead, one of the biggest profit margins is made by the companies exporting the coffee. In 2018 the ICO Composite price (which tracks both Arabica and Robusta coffee prices) averaged $1.09/lb, while the SCA lists exporters as charging a price of $3.24/lb for green coffee.
Roasters might be charged $3.24/lb for green coffee beans from exporters, but that’s far from the final price they pay.
First, beans have to be imported, adding shipping and importer fees that add $0.31/lb. Once the actual roasting begins, the cost of labor and certification and the inevitable losses along the way add an additional $1.86/lb before general business expenses.
By the end of it, roasters see a total illustrated cost of $8.73/lb.
|Net Profit (%)||7.1%|
When it comes time for their profit margin, roasters quote a selling price of around $9.40/lb. After taxes, roasters see a net profit of roughly $0.44/lb or 7.1%.
For consumers purchasing quality, roasted coffee beans directly through distributors, seeing a 1lb bag of roasted whole coffee for $14.99 and higher is standard. Retailers, however, are able to access coffee closer to the stated wholesale prices and add their own costs to the equation.
One pound of roasted coffee beans will translate into about 15 cups of 16 ounce (475 ml) brewed coffee for a store. At a price of $2.80/cup, that translates into a yield of $42.00/lb of coffee.
That doesn’t sound half bad until you start to factor in the costs. Material costs include the coffee itself, the cups and lids (often charged separately), the stir sticks and even the condiments. After all, containers of half-and-half and ground cinnamon don’t pay for themselves.
Factoring them all together equals a retail material cost of $13.00/lb. That still leaves a healthy gross profit of $29.00/lb, but running a retail store is an expensive business. Add to that the costs of operations, including labor, leasing, marketing, and administrative costs, and the total costs quickly ramp up to $35.47/lb.
In fact, when accounting for additional costs for interest and taxes, the SCA figures give retailers a net profit of $2.90/lb or 6.9%, slightly less than that of roasters.
A Massive Global Industry
Coffee production is a big industry for one reason: coffee consumption is truly a universal affair with 2.3 million cups of coffee consumed globally every minute. By total volume sales, coffee is the fourth most-consumed beverage in the world.
That makes the retail side of the market a major factor. Dominated by companies like Nestlé and Jacobs Douwe Egberts, global retail coffee sales in 2017 reached $83 billion, with an average yearly expenditure of $11 per capita globally.
Of course, some countries are bigger coffee drinkers than others. The largest global consumers by tonnage are the U.S. and Brazil (despite also being the largest producer and exporter), but per capita consumption is significantly higher in European countries like Norway and Switzerland.
The next time you sip your coffee, consider the multilayered and vast global supply chain that makes it all possible.
The World’s Top Coffee Producing Countries
Coffee is the third most consumed beverage globally. Here we visualize the countries that have the highest coffee production in the world.
The World’s Top Coffee Producing Countries
In many cities around the world, there’s a café on every corner, so it comes as no surprise that coffee is one of the globes’ top commodities. As the third most consumed beverage globally, after water and tea, coffee beans are in high demand almost everywhere.
The top producing nations each produce billions of kilograms of coffee beans that find their way into the hands of eager consumers. According to the International Coffee Organization, a total of 169.6 million 60-kilogram bags of coffee were produced worldwide in 2020.
So, why does the world universally love coffee so much?
For The Love of Coffee
As most coffee lovers would tell you, drinking coffee is a complex and nuanced experience—there’s the rich aroma, the comforting warmth, and the loveliness of the ritual of sitting down with a fresh cup.
With the variety of ways it can be served and the jolt of caffeine it provides us, it’s not hard to see why the world loves its coffee. In fact, we love the beverage so much that humans have conditioned themselves to associate the bitter taste of coffee with a bout of energy and positive reinforcement.
So, where does the journey of each cup of joe originate? Let’s get to know the world’s top coffee producing countries.
The World’s Coffee Production Leaders
At the end of 2020, the top 10 biggest coffee-producing nations held 87% of the commodity’s market share.
Here is a list of the top 20 largest coffee-producing nations in the world:
|Rank||Country||Production in 2020 |
(Million 60-kg Bags)
|Total Market Share|
|13||🇨🇮 Côte d'Ivoire||1.8||1.1%|
|14||🇨🇷 Costa Rica||1.5||0.9%|
|17||🇵🇬 Papua New Guinea||0.7||0.4%|
|19||🇸🇻 El Salvador||0.6||0.4%|
While some of the world’s top coffee-producing nations are well known, others may come as a surprise. More than 70 countries produce coffee, but the majority of global output comes from just the top five producers: Brazil, Vietnam, Colombia, Indonesia, and Ethiopia.
Meet the Top Coffee Producing Countries
Brazil is a true powerhouse of coffee production. The country single-highhandedly produces nearly 40% of the world’s coffee supply.
Many areas in Brazil have a climate perfectly conducive to coffee farming. Coffee plantations cover about 27,000 square kilometers of Brazil, with the majority located in Minas Gerais, São Paulo, and Parana.
Brazil distinguishes itself from most other coffee-producing nations by drying the coffee cherries in the sun (unwashed coffee) rather than washing them.
The country is so influential to coffee production that the 60-kilogram burlap bags historically used to export beans from Brazil are still the worldwide standard for measuring production and trade.
Vietnam found a niche in the international market by focusing primarily on the less-expensive Robusta bean. Robusta beans can have up to twice as much caffeine as Arabica beans, giving the coffee a more bitter taste.
Though coffee has been grown in the region for well over a century, production skyrocketed through the 1990s after Vietnam’s communist government introduced economic reforms (known as Đổi Mới).
Today, Vietnam accounts for more than 40% of the world’s Robusta bean production.
Coffee cultivation in Vietnam is also extremely productive. The country’s coffee yields are considerably higher than other top coffee-producing countries.
A popular advertising campaign featuring a fictional coffee farmer named Juan Valdez helped brand Colombia as one of the most famous coffee-producing nations. A coveted drink of choice, Colombian coffee is prized for its aromatic, mild, and fruity flavors.
Some of the rarest coffees in the Western world originate in Indonesia, including Kopi Luwak—a type of bean that has been eaten and defecated by the Asian palm civet. Coffee made from these coffee beans might cost you anywhere between $35 to $100 per cup.
Known for its full-flavored, down-to-earth, and full-bodied coffee beans, Ethiopia is the country that gave us the Arabica coffee plant. Today this type of coffee is considered to be the most widely sold in cafes and restaurants across the world.
All of these top producing countries are found in the so-called “Bean Belt”, which is located between the Tropic of Cancer and the Tropic of Capricorn.
The Future of Coffee Production
With global temperatures on the rise, good coffee may become increasingly challenging to grow. To future-proof good and continued growth of coffee beans, finding newer and hybrid blends of coffee beans is essential.
Several studies and research missions have found wild species of coffee growing off the coast of Côte d’Ivoire and in certain regions of Sierra Leone, which could be the answer to our coffee production problems. Coffee from these coffee plants tasted similar to the famous Arabica bean and also grew at higher temperatures.
Though the future of coffee production around the world is somewhat uncertain, our collective love of the morning cup of coffee will drive innovative solutions, even in the face of changing climate patterns.
Animated Map: U.S. Droughts Over the Last 20 Years
The Western U.S. is no stranger to droughts. But this year’s is one of the worst yet. Here’s a historical look at U.S. droughts since 1999.
Animated Map: U.S. Droughts Over the Last 20 Years
The Western U.S. is experiencing one of the worst recorded droughts in the last 20 years.
Temperatures from California to the Dakotas are currently hovering around 9-12°F above average—but how bad is the situation compared to past years?
This animated map by reddit user /NothingAbnormalHere provides a historical look at droughts in the U.S. since 1999, using data and graphics from the U.S. Drought Monitor (USDM).
What is the U.S. Drought Monitor?
Over the last two decades, the USDM has been tracking, measuring, and comparing droughts across America.
While droughts can be difficult to classify and standardize, there are various factors that can be used to gauge when a region is experiencing drought. These include measurements of snowpack levels, soil moisture, and recent precipitation.
To track these conditions (and make sense of them), the USDM synthesizes data from a plethora of meteorological sources, including the Palmer Drought Severity Index and the Standardized Precipitation Index.
From there, conditions are broken down into categories, ranging from D0 (abnormally dry) to D4 (Exceptional Drought). A map is released each week that shows which states are experiencing drought, and to what degree.
Where Are The Most Drought-Prone Areas?
According to a map created by climatologist Becky Bolinger (which is published on Drought.gov), Arizona and Nevada are the most historically drought-prone states—the two have experienced drought more than 50% of the time tracked by the USDM.
California is high on the list as well, with the state experiencing drought at least 40% of the time.
As the historical data shows, the West is no stranger to droughts. However, this year’s drought has become particularly worrisome because of its intensity and breadth.
Right now, more than a quarter of the West is experiencing a D4 level drought—a new record. To help put things into perspective, here’s a look at how much overall land area in the West has been in drought, since 2000:
When a region is experiencing a D4 drought, possible impacts include:
- Water Scarcity
Lower reservoirs, combined with decreased snowpack lead to water shortages.
- Crop losses
Water shortages mean less water for fields, which can lead to acres of fallow (unused) farmland.
Dry conditions and lack of moisture increase the risk of wildfires.
Is This the New Norm?
This record-breaking drought is wreaking havoc across the West. In California, reservoirs have about half as much water as they usually do, and crop failures are happening across Colorado.
The worst part? Some experts believe that this could be the new normal if human-driven climate change continues to increase average temperatures across the globe.
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