Understanding the Coffee Market

Global coffee consumption is growing at 2.2% annually, with demand projected to reach 300 million bags by 2050. However, the industry faces systemic and environmental challenges that threaten production. Coffee is a significant player in agricultural trade, with global exports valued at $38 billion. While coffee production has surged by 50% over the past 20 years, disparities persist across the value chain, particularly in income and vulnerability to climate change. 

Coffee Production and Export 

Around 70 countries produce coffee, with Brazil, Viet Nam, Colombia, Indonesia, and Honduras accounting for 75% of global output. Arabica makes up 60% of the world’s coffee production, with Brazil leading Arabica producers, followed by Colombia and Ethiopia. Major Robusta producers include Viet Nam, Brazil, and Indonesia, with some Arabica-producing nations starting to grow Robusta to increase competition. 

Robusta has higher yields and greater resilience, making it an attractive crop despite Arabica's traditionally higher prices. Countries like Panama, Costa Rica, and Kenya achieve premium prices for Arabica exports, especially in the specialty coffee market. Coffee exports significantly contribute to many countries' GDP through foreign exchange and tax revenue. 

Coffee Consumption 

Coffee consumption is largely concentrated in developed economies, with the European Union, the U.S., and Japan being the top importers of green coffee beans. However, consumption patterns are shifting as countries like China, Colombia, Indonesia, and Mexico increase their imports, particularly of Robusta coffee. Although these emerging markets account for less than 10% of global coffee imports, they signal strong future growth as incomes rise and coffee becomes more popular. China stands out, with companies like Starbucks planning significant expansion to meet the increasing demand. 

Linking Coffee Production and Consumption

Photo by ITC

Over the past decade, the trading and marketing of green coffee beans have evolved significantly. New market players and innovative trading methods, such as direct trade and transparent pricing, are helping create a more sustainable and equitable value chain. Exporters from producing countries are also establishing import hubs in consumer regions. 

Multinational companies are following a "make or buy" strategy, acquiring specialty-focused coffee companies or creating their own specialty divisions. Meanwhile, independent traders and companies are increasingly focusing on premium coffee quality, adding value to the coffee market. 

Coffee prices fluctuate based on supply and demand, but the market is complex, with no single standard price. Prices for green coffee vary according to factors like quality, availability, and market conditions, with futures prices and differentials playing a key role in final pricing agreements. 

Emerging Trends and Shifting Dynamics in Coffee 

Over the past few decades, coffee has transitioned from a simple commodity to a premium product, with increased consumer awareness of its quality, origin, and sustainability. This shift is largely driven by the third-wave coffee movement, which emphasizes quality differentiation and showcases coffee origins. This trend is particularly strong in premium and specialty coffee markets, where coffee is marketed as a high-value product, rather than a low-value commodity.  

Today's coffee consumers wield significant influence, driven by access to information and social media. They demand greater transparency and accountability from the coffee industry, pushing for higher standards in quality, ethics, and sustainability. 

In response to climate change and growing global demand, new coffee-producing regions are gaining attention. Emerging markets in Asia, the Pacific, and Latin America are becoming important players in the specialty coffee industry. These regions offer potential for expansion, though they face challenges like inadequate infrastructure, lack of training, and inefficient supply chains. Collaborations between producers, traders, and buyers can create opportunities for sustainable growth and development in these areas. 

Adding Value at Origin  

Roasteries and local coffee-shop chains are increasingly opening in producing countries, allowing value to be added at the source. Government policies supporting roasted coffee production in these countries could capture more of the value within the coffee supply chain. Countries like Brazil, Colombia, Ethiopia, and Rwanda are experiencing this trend, with coffee farms and cooperatives engaging in direct roasting and selling both locally and internationally. This approach helps create a more equitable distribution of profits and can elevate the status of producers in the global market. 

Useful tools and resources  

Here, you'll find a curated collection of tools, data, and insights designed to help you grasp the intricacies of the global coffee market. 

Viet Nam: Reaping the profits and paying the price for rapid development

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French missionaries introduced coffee to Viet Nam in 1857. Although coffee rapidly became a major economic sector, the Viet Nam War disrupted production.   

After the conflict ended, policies that aimed to collectivize agriculture and restrain privately owned enterprises resulted in limited coffee production.  

Following the ‘Doi Moi’ (‘Open Door’) economic reforms of 1986, which shifted the centrally planned economy towards a more market-oriented one, the coffee sector experienced tremendous growth during the 1990s. Coffee production grew by 20%–30% a year, from 79,000 tons (in green bean equivalent) in 1990 to 900,000 tons in 2000 and 1,870,000 tons in 2019.  

Viet Nam is the second-largest producer in the world following Brazil and the top grower of Robusta beans. In terms of export value, coffee is Viet Nam’s second leading agricultural product after rice. The coffee sector employs about 2.6 million people. 

One of the factors that fuelled this massive growth in output was a demographic revolution, which was achieved through a combination of resettlement policies in the 1980s and the spontaneous migration of people to the underdeveloped rich agricultural land of the Central Highlands in the 1990s.  

The population of the main coffee-producing province Dak Lak increased from 80,000 inhabitants in 1943 to some 1.9 million in 2019. While 95% of the population in 1943 were local hill tribes, only 65% of these ethnic groups are now found in the Central Highlands (ADB, 2018). 

The growth in coffee production also involved environmental downsides. Although land allocation laws existed in the 1990s, there was little organization and control. This led to the uncontrolled conversion of forests into Robusta plantations by farmers keen to cash in on the then high profits and land tax exemptions during the first four growing years.  

The uncontrolled settlement of newcomers in the region and the rapid expansion has led to a mismatch between the present land use pattern and the natural resource base. Environmental implications include large-scale deforestation, soil erosion, water scarcity and increased incidence of pest and disease outbreaks.  

Viet Nam’s experience of rapid expansion in coffee production reveals that some level of market regulation and public intervention is needed to tackle the environmental and socioeconomic implications resulting from trade liberalization.  

Source:  Dave A. D’haeze, Country Representative Sustainable Coffee Vietnam, Tchibo GmbH

Pachamama: Bridging the gap between coffee farmers and café society 

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Coffee growers are the lynchpin of the entire coffee value chain. Without them, there would be no coffee sector. Yet farmers are generally the most undervalued component of the value chain, leading many to live in poverty. 

Numerous initiatives have sought to narrow this inequality. Pachamama is one such effort. Named for the Earth goddess of Andean folklore, Pachamama is made up of and governed by smallholder farmers in Peru, Nicaragua, Guatemala and Ethiopia. It is the first such cooperative to own a specialty roaster and cafés in North America. 

The initiative began in Peru at the turn of the millennium at a time when commodity prices had reached such historic lows that even third-generation coffee farms were going bankrupt. This prompted local farmers to wonder why they should not roast their own coffee.  

‘It was a crazy idea that we had for many years. The idea was to put the cooperatives together to be the owners of the whole chain,’ Merling Preza, one of the co-founders and the current president of Pachamama, said in an interview. ‘We didn’t have capital and financing, but we had a dream. We didn’t have a lot of resources, and that’s how we began.’   

The cooperative was formed in 2003. Three years later, Pachamama started selling roasted coffee to Davis Food Co-op, from which point it started growing rapidly. To give farmers greater visibility in the supply chain, Pachamama introduced Traceable Coffee, a programme that allowed consumers to learn about the farmer who had planted their coffee and to tip him/her. 

The following year, Pachamama began offering direct subscriptions to consumers. This proved popular with coffee drinkers in the United States. The cooperative raised its ambition even further in 2013, establishing a chain of retail cafés and, shortly thereafter, its own roastery in California.  

By cutting out most intermediaries and tapping directly the lucrative retail end of the value chain, Pachamama helps improve the incomes and livelihoods of smallholders, many of whom are subsistence farmers. This includes sustainability programmes and educational initiatives. 

In fact, farmers own all profits and vote on the cooperative’s board of directors. ‘To take decisions on our co-op, it is like other cooperatives. We, the owners of the cooperatives, take the decisions,’ Preza explains. ‘It has been a learning process. We work as a team, we know we don’t know everything, we need to keep learning.’ 

Though these farmers successfully navigated the challenges, it was a steep learning curve for all involved. One of the central lessons Pachamama learned was the importance of developing a proper business plan from the outset and estimating investment needs accurately. 

The challenges the cooperative has met have not blunted its ambition. ‘We want to keep succeeding and grow our membership,’ Preza says. ‘In 10 years, we want to sell coffee in [greater] volumes and [own] more cafés, with a focus on high quality, values and principles.’ 

Source: ITC Alliances for Action (2021)

Ethiopian coffee farmers reinvent themselves through entrepreneurship

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Coffee originated in Ethiopia and the country remains the largest coffee producer and exporter in Africa. 

However, smallholder farmers, who produce the most coffee in Ethiopia, face many challenges. These include a lack of technical knowledge, agricultural skills, business expertise and access to finance. 

A partnership led by ITC’s Alliances for Action and green coffee merchant List + Beisler seeks to resolve this issue. The initiative seeks to boost the capacity of coffee farmers, pool their expertise, enhance the quantity and quality of their crops, increase their resilience to climate change, make their products more sustainable and improve commercialization.  

These goals are ambitious, but strategic partnerships help pave the way. Vital players such as Enveritas and local non-governmental organization Coqua have been leveraged, especially for the farmers’ training activities. Roasters are also being engaged, specifically those eager to access a practical, state-of-the-art project that takes sustainability beyond the limitations of mere certification.  

Leveraging peer learning as a business accelerator 

The project, designed under the Alliances for Action umbrella, aims to accelerate the productivity of farmers in a sustainable way.  

The first step is to understand the context and challenges that underpin smallholder Ethiopian coffee farmers’ businesses. Enveritas provided an unbiased and science-based diagnosis of the problems encountered in strategically identified regions in Sidama and Yirgacheffe. These insights allowed List + Beisler to design a set of farmer trainings tailored to the requirements of farmers.  

Coqua then selected regional agronomical extension workers for capacity building. The next step was to choose the farmer groups.   

The initiative provides training to smallholders to help them understand the entrepreneurial and business side of farming, including controlling costs, ensuring consistent product quality and promoting basic financial literacy.  

The training programme follows a trickle-down approach, or system of peer learning. Alliances for Action trained six trainers, each of whom then trained some 300 farmers in groups of up to 30 participants. This enabled the pilot project to achieve its goal of training up to 1,800 farmers.  

Business with a positive social impact 

Another defining feature of the Alliances for Action set-up is to connect actors across the value chain – from seed to cup – through inclusive public–private production and commercial alliances.  

By 2020, more than 11,000 farmers had conducted business through such alliances. This has had a tangible business impact, generating more than $2 million in green coffee sales. 

Alliances for Action aims to initiate a transformative process by upgrading the competitive capacities of farmers and micro, small and medium-sized enterprises. This includes supporting responsible and sustainable production and trade by promoting the concept of ‘business with positive social impact’ among farmer associations and other partners in the value chain.  

Alliances for Action also seeks to enhance farmers’ access to markets by helping them commercialize their sustainably designed products by deepening links with coffee traders such as List + Beisler and roasters. This will not only improve conditions for farmers, but will result in higher-quality coffee for consumers. 

Source: List + Beisler and ITC-Alliances for Action (2021) 

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