|
The Coffee Quandary: Why does a vente latte still cost $4
when bean prices are plunging?
By Kevin Peraino
NEWSWEEK
June 25, 2001
Drinking exotic coffee may be the new national pastime, but producers
are fighting off one serious caffeine headache. In the past year,
overproduction has caused the price of unroasted coffee to plunge
more than 40 percent, devastating the small farmers who produce
most of the world¹s crop. In Colombia, some predict destitute
farmers will turn to growing coca or poppies, and the plight has
even created coffee refugees. The 14 Mexican migrants who died
crossing the Arizona border a few weeks ago were mostly failed
coffee pickers. ³This thing is a disaster for these countries,²
says Starbucks president and CEO Orin Smith.
But as suppliers suffer, Starbucks is having a blockbuster year,
recording $629 million in sales in the second quarter. In fact,
while the price of unroasted coffee beans fell, Starbucks raised
its rates. ³Why in the hell aren¹t farmers getting more if we¹re
paying four bucks for a cup of coffee?² asks Robert H. Bates,
a coffee expert at Harvard. According to Starbucks, the answer
is simple: coffee beans account for only a minuscule fraction
of the price. The biggest expenses are paying salesclerks and
rent bills. Still, some say big coffee companies like Starbucks,
which has aggressively sought to position itself as a socially
conscious firm, should do more to make sure small producers share
its good buzz.
Blame the weather for the crash in prices. In Brazil, a major
frost in the mid-1990s cut supply and encouraged runaway planting.
At the same time, Vietnam and Indonesia have undertaken ambitious
development programs, flooding the market with cheap coffee. ³In
a lot of poor societies they think coffee will be their salvation,²
says Judy Ganes, a coffee analyst at InterCommercial Markets.
³But it just drives the prices lower.² Meanwhile, consumption
has been relatively flat. A Starbucks on every corner doesn¹t
mean people are drinking more coffee; the proliferation of gourmet
offerings has come mostly at the expense of instant brands. And
tastes are continuing to get more rarefied. One coffee retailer
in Atlanta sells something called ³luwak² coffee, which it claims
is picked by a civet, an Indonesian bobcat-like animal. The beans
ferment in the civet¹s stomach, and then are collected from its
droppings. The price: $300 per pound.
Starbucks is eager to avoid the impression that it¹s shortchanging
farmers. In October the company began selling ³Fair Trade² coffee,
the product of a network of suppliers that guarantees farmers
a good price. And Starbucks¹ Smith points out that the company
has never paid less than a dollar for a pound of coffee (current
futures price: about 60 cents). Yet producers in some countries
are already starting to rip out their coffee plants and replace
them with other crops, which would eventually prop up prices‹though
even Smith admits that¹s ³a very harsh² solution. In the meantime,
here¹s one suggestion for remaining coffee farmers: buy a civet.
© 2001 Newsweek, Inc.
|
