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.

Visualizing All of Earth’s Satellites

For centuries, humans have looked to space and the stars for answers. The fascination is more than philosophical—it’s coupled with the need to solve problems here on Earth.

Today, there are seemingly countless benefits and applications of space technology. Satellites, for instance, are becoming critical for everything from internet connectivity and precision agriculture, to border security and archaeological study.

Space is Open for Business

Right now, there are nearly 6,000 satellites circling our tiny planet. About 60% of those are defunct satellites—space junk—and roughly 40% are operational.

As highlighted in the chart above, The Union of Concerned Scientists (UCS), determined that 2,666 operational satellites circled the globe in April of 2020.

Over the coming decade, it’s estimated by Euroconsult that 990 satellites will be launched every year. This means that by 2028, there could be 15,000 satellites in orbit.

With SpaceX’s planned Starlink constellation of 12,000 satellites and Amazon’s proposed constellation in the works, the new space race continues its acceleration.

Let’s take a closer look at who operates those satellites and how they apply their technology.

Technology with a Purpose

Humans have long used space for navigation. While sailors once relied on the stars, today we use satellites for GPS, navigation, and various other applications.

More than half of Earth’s operational satellites are launched for commercial purposes. About 61% of those provide communications, including everything from satellite TV and Internet of Things (IoT) connectivity to global internet.

Second to communications, 27% of commercial satellites have been launched for Earth Observation (EO) purposes, including environmental monitoring and border security.

Commercial satellites, however, can serve multiple purposes. One week, a satellite may be ‘tasked’ to image a contested border. It could later be tasked to monitor the reclamation of a mining site or even the aftermath of a natural disaster.

Government and civil purposes make up 21% of all of Earth’s operational satellites, and military purposes come in at 13%.

Who Owns Earth’s Orbit? Space Operators

SpaceX—founded by Elon Musk—is not only a disruptive launch provider for missions to the International Space Station (saving NASA millions). It’s also the largest commercial operator of satellites on the planet.

With 358 satellites launched as of April, part of SpaceX’s mission is to boost navigation capabilities and supply the world with space-based internet.

While the company operated 22% of the world’s operational satellites as of April, it went on to launch an additional 175 satellites in the span of one month, from August to September 2020.

Following its series of summer launches, SpaceX announced that it had deployed enough satellites to support the beta version of its satellite-based internet service, Starlink.

Every Commercial Satellite in One Table

Since December 2005, the UCS has compiled data on every operational satellite in Earth’s orbit. In the table below, you’ll find every commercial satellite in orbit, as of April 2020.

Cubesats, microsats, nanosats, and more—the new space race is all about small satellites.

With its flock of small EO satellites, or “doves”, Planet Labs now has more than 150 satellites in operation (however, in April 2020, the number exceeded 250, as per above data).

Even Amazon is preparing for space. In July of 2020, the FCC granted approval for Jeff Bezos’s tech empire to launch and operate an internet constellation of 3,236 satellites.

Nations that Dominate Earth’s Orbit

It may be no surprise that the United States, China, and Russia top the list of countries with operational satellites.

The U.S. and Russia (then the USSR) piloted the space race throughout the 1950s and 1960s. Both nations are found in the top three of current satellite operators, with the U.S. operating nearly half of all satellites—1,308 as of April 2020.

China trails the U.S. with approximately 356 satellites. Taking third spot, Russia has 167 satellites in operation, and the UK comes in at a close fourth with 130 satellites.

Collectively, the above five countries operate roughly 76% of the world’s satellites.

The New Space Race

Where the original space race was a nationalistic competition between Cold War rivals, the new space race is collaborative and commercialized.

Today, international cooperation allows for the deployment of satellites, as well as space-based science. Before SpaceX, NASA and the other space agencies that operate the International Space Station had been reliant on Russian Soyuz rockets for hundreds of missions.

With the success of its famed reusable rockets, SpaceX is on track to reduce launch costs by as much as US$6 million per flight—which is likely to support the proliferation of satellites in the coming years.

With improved technology and commercial partnerships, all signs point to a crowded orbit.