Why Does My Coffee Cost So Much?

This is a question you may have asked at some time - especially if your favorite specialty coffee shop just raised its prices again.  I hope by the end of this article you will instead say, "Ah, that is why my coffee is worth so much".  

It is often hard for us as consumers to understand why coffee companies continue to raise prices even though we understand inflation, wage increases, and the volatility of prices of the ingredients.  We have come to expect a relatively cheap cup of coffee - free refills, Venti, and Dunkin' Donuts.  While there may be the expectation of the same with food (fast food) and wine (out of a box), their is a another market for both willing to pay premium prices. 

This is beginning to change in the specialty coffee industry, but it is minority for sure. The truth is most people do not think much about the journey that is involved to get what is often called the seed to the cup.  This is especially true if you are grabbing your coffee as you are scrambling on your way to work or dropping the kids off at school. 

The process it takes from the little coffee cherry and its seeds inside to make it to the roasted form in your cup is a remarkable story reminiscent of a Hollywood movie.

Sit back, pour a cup of your favorite cup and let's just take a couple minutes to talk about this epic journey.  

There are many great books dedicated to the full story of coffee farming, cultivation, processing, roasting, and preparation.  One of them is 'Coffee Obsession' by Anette Moldvaer.  I recommend reviewing several of these for much fuller explanations and beautiful visual depictions. 

Here, I will give a quick financial perspective on this process.  

To start, it takes an average of 3-5 years from planting for a coffee tree before they flower and produce its fruit, the coffee cherry.  This means if a coffee farmer is just getting started, it will take 3-5 years before he can even begin to see any kind of return on their hard work.  That makes the barrier to entry high - especially when you need to feed your family. This does not even cover the cost of land, water, insect control, equipment, and labor.

Once those beautiful little cherries are ripe, they need to be picked.  Since coffee often ripens at different times throughout the year and may be grown on sloped terraces, this most often means hand picking.  if a coffee farmer has several hectares of land, this means hiring help.  Pickers are often paid by the bushel.

Once harvested, the cherry (called the pulp) and the mucilage inside need to be removed in order to access the green beans themselves.  There are a new variety of methods for this, but the most common are wet and natural processing or milling.  Wet processing involves a method of fermentation that removes the pulp from the seeds.  Natural processing lets the sun do this work.  In either method, the seeds are methodically places on drying racks on sun patios for a couple weeks to fully dry.  Again, this is time and labor done manually.

Once the seeds had dried sufficiently (still resting in the protective layer of parchment), they must be dry milled to remove that last layer of "paper" on the beans.  In 2018 this "hulling" is often done manually.  Why?  Because automatic hulling machines can be expensive.  Once the hulls are removed we finally get to see those glorious jade green beans.

Quick pause as I think about how amazing this is as I drink my single origin naturally processed coffee from Ethiopia.  All I had to do was go to my favorite local roaster and buy it.  I did not have to do any of the previously listed difficult farming.  Amazing.

Once in green, the beans need to be bagged and ready for ship.  This is another discussion about cost.  What is the appropriate storage?  Jute? GrainPro?  How long will it be stored?  What conditions?  These are all cost factors to the farmer selling and the roaster buying.

Once a buyer is found, the green beans must be sent to the roaster of destination.  If the roaster is in Portland, OR and the beans are shipped from Rwanda, this may mean a trip to Seattle or Oakland first - which requires further shipping.  These costs are often FOB (free on board) - meaning the buyer assumes responsibility for the costs once the beans on loaded on a boat or plane.  Imagine the risk this would mean on a 1750 ship crossing the Atlantic - pirates, storms, etc.

Phew - that precious coffee made that precarious journey from farm to our local coffee roaster.  Nothing left but to roast it, right?  As with every step along the journey, the quality of the cup is dependent on the hands that touch it and how that process is treated.  The coffee roasting process, however,  is most often highlighted because of the dramatic flavor transformations that occur in the roasting process.  People can easily point these out - Over roasted!  Bitter!  Burnt!  Grassy!

Once again, this takes the skill of well trained hands to make sure this long journey of the bean was not wasted.  Not taking into account the cost of the roasting machine itself (which is not a small one), there is the storage of the roasted coffee before bagging.  Finally, those beans are bagged with that beautifully crafted label and vacuum sealed bag and placed on the shelves waiting for you and me to purchase.

Okay, it is now time to talk numbers.  There are many costs assigned to the pound of coffee you and I purchase from our local roaster.  These include the price of green, roaster and production labor,  employee benefits, rent and facility overhead, bag price, and any profit sharing a roaster may do with the coffee farmer.  These calculations vary widely based upon a myriad of factors.  

To make it simple, we will assume all of these costs equal $11 per pound.  If the roaster sells this same coffee for $17 per pound, it looks like $6 of profit per pound.  That looks like a healthy return.  But, as stated earlier there are many intangibles we cannot see.  It is not all bagged for retail sales.  A lot of that coffee is brewed in large batches and dumped on the half hour to retain freshness.  Maybe the roaster has a loan for its $75,000 roaster it is trying to pay down.  Maybe part of this $6 profit is given to an employee profit sharing plan or a fund for building water wells in Rwanda,  

And, here is the point:  the journey from little developing cherry to our roasted cup is long, arduous, and full of so many factors beyond the control of everyone involved.  This includes disease and environmental disasters that force coffee prices up.  It is easy to think coffee companies, cafes, and roasters are making obscene profits when we see the quarterly earnings of some of the coffee behemoths.  The truth is the margins are much thinner than we think. 

I try to remember all the loving hands involved with my little cup of coffee every time I place an order or do a do a pour over in my house.  The laughter and singing of the farmers as they gently pick the ripe cherries.  The methodical raking of the beans so they dry evenly.  The labor that lifts the coffee sacks to and from port.  The coffee roaster owners who anxiously awaited for this lot they sampled so long ago to arrive safely.  The roaster who carefully tracks the roast profile to ensure the best quality.  And, the barista who prepares that cup for you in the most loving fashion.

Next time, I hope you do too.  Cheers.

 

This article is republished with the consent of The Coffee Accountant! All images unless otherwise noted belong to them.

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