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.

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.

Roasting Economics

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.

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%.

Retail Margins

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.

A Snapshot of U.S. Personal Finances During the Pandemic

If you’ve felt that you’ve needed to penny-pinch more during the pandemic, you’re not alone.

In the past seven months, 42% of U.S. consumers have missed paying one or more bills, while over a third (39%) believe they will need to skip payments in the future.

This visualization breaks down the state of U.S. consumers’ personal finances during the COVID-19 era, and projects into future concerns around savings.

Pandemic Personal Finances: Key Takeaways

Based on data from the doxoINSIGHTS Bills Pay Impact Report across 1,568 sampled households, three themes emerge:

• 57% of consumers’ incomes have taken a hit in the past seven months
• 70% have delayed discretionary spending on big purchases
• 75% continue to be very worried about their future financial health

How do these anxieties translate into day-to-day consequences?

Pandemic Postpones Bill Payments

Unsurprisingly, worrying about personal finances also means that more Americans are deferring their bill payments during the pandemic. However, these vary depending on the type of bill, total amount, and immediate urgency.

Over a quarter (27%) of U.S. consumers report having missed a bill on their auto loans, followed by 26% for utilities and 25% on cable or internet costs.

The average cost of the above three bill types is $258—but that’s still a fraction of the two most expensive bills, mortgage or rent, which come in at $1,268 and $1,023 respectively.

Prioritizing Payments

While 20% of Americans say they’ve missed a rent payment over the past few months, what’s even more alarming is that 28% of U.S. consumers believe they will most likely skip paying rent in the future.

Another clear trend is that many Americans are prioritizing insurance payments, particularly health insurance. This is good news during a global pandemic—only 10% have missed paying this bill type, although 15% expect to skip it in the coming months.

According to the report, some U.S. consumers seem to prioritize the bill types which come with strings attached, from late-payment penalties to accrued interest.

While missing a single payment might seem harmless, a pattern of missed payments over time have the potential to negatively impact your credit score.

Enough Savings To Stay Afloat?

Finally, Americans are wary about how much they have stashed away in the bank to weather the tumultuous months ahead.

While unemployment figures are recovering from historic troughs, the fear of losing one’s job remains prevalent. How many months’ worth of savings do U.S. consumers think they have if this were to happen?

No one knows how long the COVID-19 chaos will last. In order to adapt to this economic uncertainty, consumer priorities are shifting along with their tightened budgets.