At this point I’ve pretty much explored almost every aspect of coffee, but there’s still
one last aspect I wanted to explore as a final wrap up to our series.
In our usual quest to...basically force myself to learn to appreciate everyday items, I traveled
all the way to Mexico to make my own cup of coffee, starting from the tree.
Using the usual method I use to calculating the total cost, for this cup of coffee it
cost around $1500.
The actual labor involved in processing the beans for a single cup of coffee was actually
pretty small, in total about an 8 hours.
So the bulk of the expense was mostly just having to get there, which coming from the
flatness and coldness of the midwest, was definitely a necessity.
However I didn’t actually grow the tree myself as it takes 3-4 years, but if I had
been able to just stay in Mexico for a full growing season and been involved in the actual
weekly maintenance of the the tree I harvested, it’d probably add an extra 52 hours (1 hour
per week), raising the price to a little over $1900 then.
So what does this number mean?
It’s mostly just tells you the price of a ticket to Mexico, which definitely illustrates
the difficulties you’d face without today’s modern infrastructure and trade networks for
an international commodity like coffee.
But it’s also worth mentioning that I calculated the value of labor using the Minnesota
state minimum wage of $7.75/hour.
However in Mexico, the minimum wage is around $4.30...a DAY.
This economic disparity is definitely a factor in how cheap we get our coffee.
So now that I’ve meet some of the coffee farmers one on one, like Froilán (who gave me this awesome hat), and hearing
their struggles, it left curious: when I buy a cup of coffee, how much of that actually
makes it back to the original coffee farmer?
So I turned to Wendover Productions for some help with this economics question
On average a 16 oz cup of coffee in the United States costs $2.70
Obviously the numbers can vary widely from shop to shop, but I'm going to give you a rough approximation of the cost breaking down.
From the $2.70 you hand the barista for your cup of coffee, the material costs
such as the cup, lid, sugar, etc account for around $0.27
About $0.45 of your payment goes toward paying the salary of everyone at the coffee shop,
while $0.79 goes for paying general operational costs of the shop such as rent, utilities,
advertising, taxes, etc. $0.32 goes toward actual profit for the business.
That leaves around $0.87 to actually spend on the coffee beans.
However, by the time a coffee shop is buying their beans, they've already changed hands several times
from farmer, to exporter, to importer, and then finally to roaster.
Each middleman charges a bit more, so that they can make a profit.
Backtracking from the coffee shop, the first step is the roaster who is likely to charge
around $0.58 markup for the shipping and handling of beans, as well as the operational and
salary costs of roasting the beans themselves.
The roaster would get their beans from a coffee importer, who handles the international shipping
importing fees for bulk sales of beans.
Around $0.13 of our initial payment will end up going to them to cover these expenses.
A coffee importer will usually receive their coffee from exporters at the origin country.
They usually charge around 10% for their services to the farmer, which means they’ll receive
$0.02 from us.
That leaves around $0.14 for the farmer, which is actually a pretty generous rate.
At the moment, current commodities market values coffee at around $1.49/lb, but how much
a farmer actually makes is widely variant to the deals he has with his co-op, exporters
and importers.
If they are lucky, farmers can strike a direct deal with buyers and negotiate a better rate.
For example, Starbucks has supposedly pays double the commodities price to the farmers
they have contracts with.
Others sometimes face less ideal situations.
At $0.14 from our cup of coffee, this is assuming the farmer is receiving double the commodity rate.
If they were paid the fairtrade minimum, it’d be $0.11
and if they were paid market value, they’d receive only $0.07.
With only that amount of money going to the farmer, that means only around 3-5% of
your initial coffee purchase actually makes it back to the original coffee farmer.
And even then, there can be extra middlemen that farmers could be forced to go through that
could cut that amount in half.
Obviously there is a lot of value that's added along the way as it goes through various steps
Before it goes from green coffee beans on the remote village on the side of a mountain
All the way to your cup of coffee in your home, as you can see from
my crude experiment in making it from scratch, just getting the beans to my kitchen back
home ended up being the majority of my costs.
Coffee farmers overall end up being some of the worst treated in the world.
They end up taking on the majority of the risks, with very small profits.
A bad crop or a drop in price can easily ruin the farmers.
The average coffee farmers has two hectares of land, yielding around 4,000 lbs of green
coffee a year (or about 85,000 cups) Meaning at those rates, an average coffee
farmer might have $6,000-12,000 yearly revenue.
After subtracting the costs of production (which can vary widely), that means
$1,200-7,200 total income per year for what is usually an entire family working the farm.
And that is still be fairly optimistic, as some reports say coffee farmers make as little
as $500-$1,000 a year for their coffee.
With an average income in Mexico being around $10,000/year, that puts them pretty low in
the economic ladder.
So, what can you do about it?
How can you best give farmers their fair share?
There are a variety of different organizations that are attempting to remedy it through different methods,
such as Fairtrade
Probably the most commonly known, I’ll let Noah from Cafe Imports describe it:
It means that a group of producers have joined together
in what's called an association or a cooperative.
And then those producers collectively both charge a premium, so we pay a premium
that is then decided democratically how to be dispersed with in the community
so they can do things like build new infrastructure needs,
invest in potentially new varieties of coffee
any number of things that basically they decide as a group they want to spend their money on is where that premium goes
Fair Trade however has some criticisms.
Some claim less money actually ends up reaching the farmers as the cooperatives can eat up the
extra money meeting Fairtrade political standards and Fair Trade buyers can pocket some of the
premium pricing.
Some argue that the premiums don’t go far enough and only gives a small amount over
standard market price, where much more is needed.
Noah also explained another approach Cafe Imports takes to insuring they pay their farmers a
fair and sustainable rate:
The majority of the coffee that we have, which is not fair trade certified,
We're paying quality premiums for,
so we're paying premiums above where the coffee market's at
to incentivize essentially a higher quality production of coffee.
And the same is true with the fair trade coffee that we have.
We're never just buying coffee because it's fair trade certified.
It's fair trade certified plus it's also delicious.
So usually we're paying premiums above and beyond even that fair trade premium for their coffee.
Anytime that you're dealing in a trade that crosses
many different cultural lines and is typically grown in poor rural areas
there is going to be opportunity for corruption.
For people to not be paid fairly for their product.
In our world in the high end coffee speciality world usually there's us and 10 other people that are all trying
to buy the same coffee
so ultimately they're selling that coffee to the best partner for them longterm.
and the fact that we're buying their best coffee
also puts us in a good position
to be able to compensate them fairly because they are going to make what they want to make.
Another method used is “Direct Trade” Which is a method used by some roasters to cut
out some of the middlemen, and buy their beans directly from the farmers and make sure they
receive a larger cut of the profits.
Another option is what’s done by Thrive Farmers Coffee, an organization taking yet
another approach, where the profits gained later in the trade of coffee is shared back
with the original farmers.
Instead being paid for the green coffee beans, they aren’t paid until after it’s been roasted, exported,
packaged and sold.
The markup added at these steps is then split 50-50 with the farmer, and supposedly can
yield 4 times as much money as fair trade for the farmers.
The downside to this structure is that the farmers don’t get paid until later, and
take on additional risks, with the thin profits of farming coffee, can leave them short on
money for next years crops.
Fair trade and other ethical considerations is not something I've honestly taken the time to consider in the past.
But now, after meeting farmers like Froilán
and learning how little they can get paid.
It's something I definitely want to be more mindful about in the future
Thanks to Wendover Productions for his help with this video.
Be sure to check out his channel for other great videos covering travel, economics, geography, marketing, and more.
If you haven't seen it yet, check out the full video where I attempt to make a cup of coffee entirely from scratch.
But if you have already seen it, you may be getting as sick of coffee as I am, but good news: we're moving on to a new subject in a couple of days
Hard Cider
Another beverage
By "Everything", we really just mean drinks.
"How To Make Drinks"
We're also starting a new Audible partnership which we'll be using to recommend some books relative to the topics we cover in future episodes
But for now, if you haven't yet, try a free 30-day trial of Audible on the link below.