The Cost Of A Cup: Economics Of Coffee

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the cost of a cup:
The economics of coffee

Sipping a hot, steaming cup of coffee first thing in the morning is an intoxicating pleasure that so many people enjoy. The rich, aromatic flavour and boost of energy is a welcome treat any time of the day. As one of the world's most popular drinks, 2.3 million cups of coffee are consumed worldwide every minute. In 2021, global revenue for coffee reportedly amounted to £338,982 million.

Many people have their favourite variety, such as Arabica, Robusta or Liberica, but how do the economics of the coffee beans that go into your cup break down?

Here is an exploration of the various costs associated with delivering your cup of coffee:

It All Begins With The Beans

The long process that occurs from bean to cup starts with the growth of the coffee beans. In order to produce flavourful coffee beans, they must be grown in the right environment and not every country offers the right conditions to do this. There are two main varieties of coffee, Arabica and Robusta, and they originated in Ethiopia and sub-Saharan Africa. Today they are mostly grown in sub-equatorial countries, with Brazil proving to be the largest grower of coffee beans in the world.

With 37.5% of the world's coffee beans grown in Brazil, the Latin American country dominates the market. Vietnam, Columbia and Indonesia also produce a sizable share. However, despite millions of people depending on the growing process for their livelihoods, according to research conducted by the Speciality Coffee Association on the economics of the coffee supply chain, if you purchase a cup of coffee at a cafe priced at $2.80 (about £2), the growing process only contributes $0.07 (about £0.05), or 2.5% to the final retail price.

Harvesting, Processing And Exporting

Once the green coffee beans have been harvested, they are processed and milled ready for exportation. In 2018, $19.2 billion (around £13.9 billion) of coffee beans were exported in standard 60kg bags. This totals 7.2 million tonnes of coffee beans. Contributing $0.16 (£0.12) to the price of a typical coffee, the arduous process does not net a significant sum for those who work for it.

Green Beans To Brown Gold

It is during the roasting process that coffee beans darken to the brown colour that coffee drinkers are most familiar with. When the beans are roasted, they double their original size and start to take on that aromatic flavour that makes coffee such a globally popular beverage. Approximately 12.5% of the ultimate retail price comes from this segment of coffee's journey to your cup. Sales, importation and administration costs account for the majority of this, with direct labour and packaging only demonstrating a negligible increase in the price. 

Roasters typically enjoy a net profit of around 7% on the coffee, but with countries like Switzerland exporting $2.5 billion (£1.8 billion) of coffee annually, this can prove to be a sizable revenue. There is a long journey to make from harvesting to using freshly roasted coffee beans in cafes and coffee shops. But the journey is worth it when some of the highest quality coffee is produced and sold all around the world.

Distributing Coffee To Cafes And Consumers

Following the roasting process, the beans are finally ready to be distributed to their final destinations. A portion of the beans are sold for use in the hospitality industry, such as restaurants and cafes, whilst some are sold to retail stores for direct purchase by consumers.

The price mark up from roasters to distributors only accounts for 1.4% of the end-price of a cup of coffee in cafes and coffee shops. Accounting for 22.3% of the market share, Nestlé is currently the world’s dominant purchaser of roasted coffee beans from distributors.

High-quality coffee beans can be used for a variety of different cafe and coffee shop drinks including short espressos, cappuccinos, and americanos. Whether the beans are to be used by consumers at home, or with commercial coffee machines in cafes, coffee shops and restaurants, coffee is distributed and enjoyed in almost every part of society.

Retail Mark-Up In The Coffee Sector

A substantial portion of the price you pay at a coffee shop comes from the retail markup. Around 77.5% of the ultimate cost is due to various costs involved with operating and delivering the retail service. There are diverse costs associated with running retail premises.

A portion of the price you pay per cup of coffee must account for the wages that need to be paid to the barista who serves you. Some of the costs go toward rental on the premises where you are drinking your beverage. Consumables, repairs and maintenance, coffee cups and lids and other necessary expenditures are all factored into the price you pay for a cup of coffee in retail establishments.

Of course, retailers also want to make a profit. On average, almost 16% of the price you are paying for cups of coffee amounts to profit for the retail outlet. Though in real terms, this actually only amounts to retailers making 6.9% profit in their business, which is actually a similar level to roasters but still substantially more than others involved in coffee production. With the compound annual growth rate forecast at 8.28% between 2021 and 2025, the worldwide coffee industry is showing that it will continue to boom.

In the journey of coffee, there are many steps to take in the long process from growing the beans to serving the final delicious product to consumers. Each step in the process involves adding value to enable fresh coffee to be enjoyed by drinkers the world over. The next time you order a cup of your favourite coffee beverage, will you think about the long and winding journey it underwent to make it into your cup?