page_title: Economics of coffee
section_title: Pricing
hierarchical_section_title: Economics of coffee / Pricing
context_page_description: Coffee is a popular beverage and an important commodity. Tens of millions of small producers in developing countries make their living growing coffee. Over 2.25 billion cups of coffee are consumed in the world every day. Over 90 percent of coffee production takes place in developing countries - mostly South America, while consumption happens mainly in the industrialized economies. There are 25 million small producers who rely on coffee for a living worldwide. In Brazil, where almost a third of the world's coffee is produced, over five million people are employed in the cultivation and harvesting of over three billion coffee plants; it is a more labour-intensive culture than alternative cultures of the same regions, such as sugar cane or cattle, as its cultivation is not automated, requiring frequent human attention.
  Coffee is a major export commodity and was the top agricultural export for 12 countries in 2004; the world's seventh-largest legal agricultural export, by value, in 2005; and "the second most valuable commodity exported by developing countries," from 1970 to circa 2000, which is frequently misstated—see coffee commodity market.
context_section_description: According to the Composite Index of the London-based coffee export country group International Coffee Organization the monthly coffee price averages in international trade had been well above 1000 US cent/lb during the 1920s and 1980s, but then declined during the late 1990s reaching a minimum in September 2001 of just 417 US cent per lb and stayed low until 2004. The reasons for this decline included a collapse of the International Coffee Agreement of 1962–1989 with Cold War pressures, which had held the minimum coffee price at US$1.20 per pound.
  The expansion of Brazilian coffee plantations and Vietnam's entry into the market in 1994 when the United States trade embargo against it was lifted added supply pressures to growers. The market awarded the more affordable Vietnamese coffee suppliers with trade and caused less efficient coffee bean farmers in many countries such as Brazil, Nicaragua, and Ethiopia not to be able to live off of their products, which at many times were priced below the cost of production, forcing many to quit the coffee bean production and move into slums in the cities. (Mai, 2006).
  The decline in the ingredient cost of green coffee, while not the only cost component of the final cup being served, occurred at the same time as the rise in popularity specialty cafés, which sold their beverages at unprecedented high prices.
  According to the Specialty Coffee Association of America, in 2004 16 percent of adults in the United States drank specialty coffee daily; the number of retail specialty coffee locations, including cafés, kiosks, coffee carts and retail roasters, amounted to 17,400 and total sales were $8.96 billion in 2003.
  Specialty coffee, however, is frequently not purchased on commodities exchanges—for example, Starbucks purchases nearly all its coffee through multi-year, private contracts that often pay double the commodity price.  It is also important to note that the coffee sold at retail is a different economic product than wholesale coffee traded as a commodity, which becomes an input to the various ultimate end products so that its market is ultimately affected by changes in consumption patterns and prices.
  In 2005, however, the coffee prices rose (with the above-mentioned ICO Composite Index monthly averages between 78.79 (September) and 101.44 (March) US Cent per lb). This rise was likely caused by an increase in consumption in Russia and China as well as a harvest which was about 10 to 20 percent lower than that in the record years before. Many coffee bean farmers can now live off their products, but not all of the extra-surplus trickles down to them, because rising petroleum prices make the transportation, roasting and packaging of the coffee beans more expensive. Prices have risen from 2005 to 2009 and sharply in the second half of 2010 on fears of a bad harvest in key coffee-producing countries, with the ICO indicator price reaching 231 in March 2011.
caption: A coffee plantation on a hill near Orosí, Costa Rica.
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