The Paradox of Coffee Pricing
Or what "Parks and Recreation" taught me about taking care of what you love.
Coffee suffers from a paradox of pricing. For many consumers, it’s seen as too costly; for farmers, however, it’s often priced so low as to be unsustainable to produce.
Recently, this paradox has come into focus in articles outlining the soaring cost of goods in 2022, due to supply-chain issues and growing inflation. Outlets from the New York Times to CNN to Fortune have decried the rising price of coffee, and emphasized the toll for the average consumer: That morning cup of joe risks becoming a luxury good.
I wanted to write this piece as a response to these kinds of stories. While none of the information they present is factually inaccurate, I feel that many stories that look at coffee in the context of present-day economic woes leave out the longstanding issues surrounding coffee’s price volatility and power inequity across the supply chain.
To begin, the narrative underlying these stories is both consumer-focused and company-friendly. Many of these articles cite higher-ups from big-name brands as their sources, fail to consult even one farmer1 (despite the fact that they are also suffering from supply chain issues and increased costs), and use tired tropes about the expense and frivolity of coffee to gloss over the bigger issues at hand: that coffee prices have been unfairly depressed for decades by large players, and that there is a flawed conflation between the work of multinational corporations and small, local roasters.
Let’s look at where the heart of this contradiction lies. On the producing end—which covers the growth, importing, and selling of coffee—people are struggling with a long-looming crisis. Simply put, farmers are not making enough money to cover the cost of growing coffee. My friends over at Juniors Roasted Coffee have covered this topic extensively, even producing a comic book illustrating the realities of coffee farming and how much of our daily habit relies on relics of colonialism, exploitation, and cheap labor.
The disparity between the price coffee is sold at and the cost required to produce it is further exacerbated by major roasters (think Nestlé, Starbucks, and Peet’s, three of the biggest roasters in the world), who buy coffee based on prices set by the commodity market. This isn’t to say they’re paying exactly the commodity price of coffee (since most of these players don’t make their green coffee prices easily accessible. For example: when coffee media outlet Sprudge asked Starbucks to share their average green coffee prices, they replied, “[We] cannot provide you with that information but can share that Starbucks always pays a premium, vs. paying the C-market price.”). Instead, the commodity market price is a bottom floor and prices are set by paying marginal premiums based on its ups and downs.
This is in contrast to many small, specialty roasters, some who buy coffee at significantly higher premiums based on its quality, longstanding relationships, and a vested interest in the future of the industry.
On the consuming end, customers often complain about the high price of coffee. Coffee consumption has become synonymous with gentrifying neighborhoods, snobbishness, and the ongoing Millennial calamity of not having enough money for a down payment because of lattes and avocado toast. Some of these arguments are patently ridiculous (no amount of money saved by making coffee at home will allow you to buy a home), some are real and legitimate complaints, like concerns about gentrification and rising neighborhood costs.
For a long time, specialty coffee folks have tried to reconcile these two ideas—that coffee should cost more but that customers may feel it is too expensive—by essentially telling consumers that they’re wrong, and attempting to explain the difference between commodity coffee and specialty coffee. “Look how special this thing is! It’s basically a miracle we even have it! With the acceleration of climate change, we might not have coffee around for much longer.”
Has this argument in favor of higher prices for certain coffees worked? Not really, and I’d argue it’s slightly misguided, albeit often made in good faith. To argue that a subset of coffee is better (i.e., is worth the “specialty” designation) and should command higher prices is missing the forest for the trees: Coffee prices should be higher across the board.
A lot of the “hope” in specialty coffee relies on small actors—the folks willing and actively going out of their way to pay more for coffee than the commodity market dictates. A lot of roasters even publish their prices, or share general guidelines for how they purchase coffees (this is not a perfect system, one which RJ Joseph brilliantly breaks down in a series written for Red Fox Coffee Merchants).
Starbucks, as an example of a large company doing the exact opposite, pays just a few cents above the commodity price for coffee, and their coffee prices change year-to-year based on the fluctuations of the C-market. For years where their coffee prices were publicly accessible, Sprudge reports that:
“[Starbucks] average yearly prices for 2012, 2013, and 2014 being $2.56, $1.92, and $1.72, respectively. For context, the average yearly C-market prices for 2011 (when many of the Starbucks contracts would have been signed) through 2014 are $2.53, $1.75, and $1.26.”
Because of the scale of businesses like Starbucks, who are able to use their influence and power to pay as little as possible for their product, the entire industry suffers from depressed coffee prices and undervalued expectations of what coffee should be worth.
What bugs me the most about the articles I mentioned above is a thing that happens in a lot of mainstream coffee coverage: The industry is still treated as a monolith, despite the fact that small roasters and large multinationals have completely different business practices, pricing standards, and global influence. Your local coffee shop isn’t reporting CEO salaries or returns to investors—obviously, because they don’t have them. But companies like Starbucks and Nestlé report staggering profits year after year. Instead of analyzing why Starbucks CEO Kevin Johnson made $15 million in 2021 or questioning corporate fiscal responsibility, these articles gloss over the specifics and apply a misleading, blanket understanding of coffee production and consumption..
It’s passages like this in an article in Mashed.com that really get me: “Whether you brew your coffee at home, enjoy it in a café or coffee shop, or both, you’ve likely flinched at the costs of your caffeine enthusiasm on more than one occasion. And, unfortunately, 2022 is bringing some bad news for java drinkers: the already-high price of coffee is going to go up even more in the new year.”
While I do think there’s an argument to be made for more variability and differentiation in price points (because everyone should have access to good coffee), big, multinational corporations have worked really hard to pay as little for coffee as possible. And now that there’s an actual crisis that directly affects their bottom line, they’re shifting the burden onto you—and making sure every news outlet knows it.
Nestlé is a company with a market cap of $353.59 billion—and yet, they’d have you believe that the rising cost of coffee is an annoyance the consumer must absorb; that the issues with the current supply chain during a global pandemic mean that their customers simply must pay more. They don’t want folks to ask the real question: Why aren’t you cutting into your astronomical C-suite salaries and investor shares to mitigate this crisis? And why not pay enough for coffee generally so that coffee-farming is actually sustainable?
This whole thing reminds me of the speech that Leslie Knope, played by Amy Poehler, gives during Season Four of “Parks and Recreation.” In the episode, “The Debate,” Knope is running for city council against Bobby Newport, portrayed by Paul Rudd, and they’re facing off in a town hall debate. In his closing arguments, Newport, who is the son of the city’s richest business owner, says that if Knope is elected, his father might have to relocate their business.
Knope responds slowly as she starts her rebuttal. “I’m angry. I’m angry that Bobby Newport would hold this town hostage and threaten to leave if you don’t give him what he wants. It’s despicable.” Her speech goes on to say that if you really love something—like Knope loves her city—that you wouldn’t threaten it. You’d care for it and do whatever you could do to save it.
There are so many problems with coffee, but I think the current moment provides a helpful lens to identify the problem-makers. Yes, small companies have their own litany of issues, but I want to step away from narratives that serve large companies—that coffee is expensive and there’s nothing they can do about it except pass that cost onto you. Large companies are holding us hostage. They’re making you believe coffee should be cheap because it serves their bottom line. And right now, they could be doing a lot more: a lot more to protect the environment, a lot more to protect workers, and a lot more to put money in the hands of farmers. But they don’t.
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In these stories written by major publications, I felt like the lack of quotes from farmers was a glaring omission, so I asked friend of the podcast, Ana Sofía Narvaez, how farmers are affected by rising coffee prices. This is a topic I hope to explore in the future.