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How the coffee industry works
Coffee cultivation is closely linked to colonialism and is one of the most important commodities in world trade. For this reason, today the main producing countries are those colonized by European empires. More than 90% of coffee production takes place in developing countries, while the coffee is mainly consumed in developed countries.
Exploiting actors in the global coffee industry
A cup of coffee is an example of how much money the actors behind a cup of coffee (producer, intermediary, roaster and seller) receive at each stage of the value chain.
If a cup sells for $3, the seller gets to keep 79% of the value ($2.37) and the roaster 13% ($0.40). The middleman or carrier earns 5% ($0.14), while the farmer keeps 3% of the total value of the cup ($0.09).
Those at the bottom of the coffee value chain, such as roasters or final sellers, can benefit from the creation of new products, the integration of multiple companies to collaborate and the presence of companies in more and more countries. The top 10 roast and ground coffee companies are:
- Tata Consumer Products Ltd (TCPL)
- Hills Bros
- Kraft Heinz Company
- Death Wish Coffee Company
- Kicking Horse
- Hilo Rojo
- Cafe Folgers
- Royal Kona
Who are the winners in the coffee industry?
They control more than 90% of the value of the coffee industry, which is worth over $200 billion.
Big producers like Nestlé (known for Nescafé and Nespresso) benefit from operating on a large scale and with positive profit margins due to the low cost of the raw material (green coffee) and the much higher price of roasted coffee.
Coffee is typically roasted in Europe, in countries like Switzerland, Germany, Italy and France, and in North America. The high profitability of this sector has recently led to a series of consolidations, with the larger roasters buying up smaller roasters to control their market share.
End sellers are also among the biggest winners in the coffee business. Starbucks is the best example of how the company has grown from its humble beginnings in 1971 to a $90 billion coffee empire that dominates the entire coffee value chain. Starbucks buys coffee around the world, but also owns coffee farms in Latin America and roasters around the world.
Economic control of the value chain has enabled Starbucks to maximize profit margins while controlling product quality and building a brand that today dominates the coffee retail sector with a widespread presence of nearly 30,000 stores worldwide.
Who are the losers in the coffee industry?
Small coffee farmers in developing countries often do not receive adequate support from their local governments and can be exploited by large for-profit corporations throughout the value chain.
The growers can barely survive. A 5-acre farm yields about 10,000 pounds of coffee. Latin American coffee farmers who sell their coffee at fair trade prices of around $1.40 a pound only make a profit of $2,000 a year, which equates to $160 a month. When not protected by Fair Trade, farmers often trade at a lower price.
Exploitation and coffee
Coffee farmers often live in poor rural communities that depend on the coffee harvest as their main source of income.
They are also dependent on the development of the coffee price on the stock exchanges. When prices fall below the cost of production, farmers can struggle to meet their month-to-month financial commitments.
You should be aware that growing and harvesting coffee involves intense manual labor, including picking, sorting, pruning, fertilizing and even transportation. Factors over which farmers have no control. So e.g. B. the world market prices for raw materials, the economic policy of the free market, unfavorable weather conditions and changes in market shares, lead to fluctuations in world market prices for coffee.
When the world market and international coffee companies push the price down, the lack of stability in coffee prices can lead to exploitative labor relationships, where workers and their families have no choice but to work in exploitative or unhealthy conditions for a meager income to achieve.
Economic abuses by large coffee companies
In the early 2010s, market diversification and the explosion of specialty coffees helped growers get better prices for their coffee. However, in recent years this picture has changed as global coffee buyers and roasters have moved to acquire smaller specialty roasters around the world. You can save costs by outsourcing the roasting process.
Large coffee companies like Nestlé pay international distributors who buy the product for resale to customers in one or more foreign countries up to a year later. This means that the international traders act as bankers for the big coffee roasters, and these additional financial costs are passed on to the growers, who earn less than they should.
Profitability of coffee cultivation
It takes 3 to 5 years for the coffee tree to reach maturity, although the trees can be economically viable for up to 60 years.
Coffee cultivation therefore involves a significant capital investment. It costs the farmer at least 3 years without income on his first plantation; once in business, he continues to plant coffee trees for that period. And coffee farmers can’t switch coffee crops in the same way other farmers grow soybeans one year and switch back to corn the next.
Also, in difficult times they cannot, like less specialized farmers, switch to subsistence production or do their work as a substitute for market purchases. In other words, coffee is not intended to cover the entire consumption of a coffee-growing family, as is the case with other products such as coffee. B. vegetables, the case.
Child labor in coffee plantations
Child labor is any type of work that deprives a child of their childhood, potential and dignity. It is work that exceeds a minimum number of hours and is detrimental to the physical and mental development of the child.
Child labor is common in the global coffee industry. In order to meet the daily harvest quota (which in some cases is 45 kilos per day), many coffee farm employees bring their children to help them.
These child laborers are not officially employed and therefore do not enjoy labor protection. It also keeps children away from school and exposes them to the dangers of work at an early age. Dangers of working on the coffee farm include working in intense heat, carrying heavy loads, and working with sharp tools and pesticides.
However, child labor is often the only way for families to secure a just enough monthly income, since adults usually do not have an ideal, resp. receive adequate wages.
Forced labor on coffee farms
Forced labor occurs when a person is forced or threatened to perform a job or service and is not free to stop. It often occurs when employers take advantage of vulnerable people, e.g. B. People affected by poverty, high unemployment, discrimination, corruption, political conflicts or a lack of education or knowledge of their rights.
Workers on the coffee farms may be subject to verbal or physical abuse and threats of losing their jobs, wages or food if they fail to perform a specific task. They may be exposed to hazardous working conditions and may be denied a job contract, regular wages, protective clothing or adequate medical care.
Combating exploitation in the coffee industry
The global coffee industry is built on exploitative labor practices, human rights abuses and economic injustice. However, the work of Non-Governmental Organizations (NGOs), companies, sustainable industry initiatives and growing consumer demand for ethically produced coffee have all contributed to increasing scrutiny of this. Here are some industry initiatives to combat exploitation.
Fair trade in the coffee sector
A fair market approach is increasingly being pursued to promote better trading conditions and sustainability for farmers and producers in developing countries.
The Fair Trade movement aims to improve labor and environmental standards and train workers to improve their skills, their products and therefore their profits, both through practical measures and through reforms of the international Politics.
As for fair trade in the coffee sector, among other things, the farmers who are members of Fair Trade cooperatives receive a higher price for their coffee than the average market price and work under better conditions that prohibit exploitative labor practices.
Civil society / organizations against coffee exploitation
A number of global organizations such as The Borgen Project or Human Trafficking Search have launched several programs to improve the living conditions and livelihoods of farming communities. This includes:
- Programs to improve farmers’ access to markets to sell their produce.
- The organization of cooperatives so that small farmers can compete with large landowners.
- Supporting communities to work with ethical certification schemes.
- Education about child labor.
What is ethical coffee growing?
The goal of the ethical coffee movement is to address the ideals of responsible consumers. This includes, among other things, the safety and fair wages of workers and the minimization of possible environmental damage during coffee production.
However, not all coffee farm owners can afford to pay a fair wage because they do not receive a fair price for their coffee. This is due to government regulations that favor corporate profits over farmers, and the effects are long-lasting.
The ethical coffee movement aims to foster mutually beneficial relationships between growers and retailers, and between businesses and consumers.
The dynamics of exploitation make coffee cultivation a difficult livelihood. In a recent study, the International Coffee Organization concluded that growing coffee is not economically viable for many growers, and those who can make a profit are struggling to cover the costs of growing it.
In addition, production costs are steadily increasing over time, while international coffee prices fluctuate wildly without a clear upward or downward trend, meaning that coffee cultivation is becoming increasingly unprofitable.
A single year of good prices will not improve this situation, and those countries whose exports depend to a large extent on coffee will continue to depend on world market prices.
On the other hand, running a coffee shop can be very profitable. A coffee shop that focuses on premium coffee and is roasted in-house can be a good idea in a location with sufficient demand. However, profitability can vary greatly by country and local trends.