How much is a cup of coffee really worth? From seed to cup, what costs are actually incurred along the way? Maria Hill, a writer commissioned by the Specialty Coffee Association of America (SCAA), once wrote a detailed analysis of the cost structure of American coffee, from the cultivation, processing, and transportation of green coffee beans to roasting and retail, with every link taking a share of the profit. This article will break down the composition of coffee prices layer by layer, using U.S. market data as a reference, to help domestic coffee professionals and enthusiasts understand the economic chain behind this beverage. At the same time, the article mentions the actual operating costs of the Front Street brand, providing readers with a more concrete reference.
"Berry Foreword"
People often complain that domestic cafés are absurdly overpriced and feel that coffee simply isn't worth that much. After reading the analysis below, you may see things differently. Huaxia insists on not adding illustrations to this article, because the content itself is already substantial enough, and images would only seem superfluous.
In the Western world, coffee is a daily fast-moving consumer good, much like the place tea holds in the hearts of Chinese people—an almost indispensable element of life. Take the United States in 2014 as an example: total coffee imports reached 5.5 billion USD, the total market size was 19 billion USD, the coffee-consuming population was 161 million, and the industry employed about 1.5 million people. Maria Hill, a writer commissioned by the SCAA, specifically analyzed the cost composition of American coffee, and domestic readers may find it useful as a reference.
Berry's impression after reading is this: coffee culture, like other culinary cultures, knows no borders and deserves respect. If coffee culture is to take root and grow in China, the coffee-consuming population must continue to expand. The key to that growth lies in integrating coffee culture into Chinese culinary traditions over the long term. How can this be done? It requires domestic coffee professionals and enthusiasts to have a clear sense of mission and to unite in spreading genuine coffee culture. Only in this way can the cultivation cycle for coffee drinkers be shortened and China's coffee industry achieve substantial development.
Once again, the green coffee bean and post-roast costs and prices cited below are all U.S. market data, with the aim of helping readers understand what costs are actually incurred from seed to a cup of coffee.
The unit price of coffee varies depending on the variety, producing region, auction score, and the purchasing power of the consuming country. For example, all Berry stores sell single-origin and espresso beans from the Intelligentsia brand, and each bag (345 grams) costs about 410 RMB including tax and shipping, but this does not yet include the annual rent of 200,000 RMB, the monthly utility bills of 2,000 RMB, the annual property management fee of 20,000 RMB, the annual public losses of 10,000 RMB, let alone the labor costs of Lingling and Huaxia. In addition, customs will puncture at least two bags out of every ten bags of beans (those two bags come back smelling rancid and oily and are completely unusable), and if the beans remain unsold for a month after roasting, Berry has no choice but to discard them.
"Translation Main Text"
"The Cost of a Cup of Coffee: Where Does the Money Go?"
Author: Maria Hill - SCAA Chief Strategist, commissioned writer
Original URL: http://www.scaa.org/chronicle/2014/09/15/the-cost-of-a-cup-of-coffee-where-does-the-money-go-2/
Over the past few years, the specialty coffee market has experienced ups and downs, and coffee market prices overall are slightly higher than before. Rising production costs have directly driven up the prices of finished coffee.
The price boards of major global coffee chains have also adjusted accordingly. For consumers, rising coffee prices are puzzling. In the coffee futures market, green bean prices are about 1.75 USD per pound (345 grams). But when consumers buy roasted beans from their favorite roaster, they pay 9 to 12 USD per pound, not including tax. How exactly does this math work out?
SCAA Executive Director Ric Rhinehart explained that the price difference of a cup of coffee cannot be judged solely by the apparent gap between green beans and roasted beans; there are many other factors at play behind the scenes.
The cost accounting of a cup of coffee should begin on the day the coffee beans leave the estate. Typical costs include labor, fertilizer, quality inspection, certification (organic certification, Rainforest Alliance certification, Fair Trade certification), transportation, and some membership fees (if the producer cooperates with the SCAA). Although some production costs are easy to identify and record, actual costs vary greatly due to differences in farm size, geographic location, and farm owner. Therefore, calculating the cost of a pound of green beans is quite challenging. Especially for specialty coffee, differences in origin, labor quality, and climate conditions all drive up costs.
After coffee cherries are picked and processed, exporters take delivery according to contract and ship them to importers in consuming countries, who then send them to the roasters of third-wave specialty cafés. The roaster (here referring to third-wave specialty cafés in the U.S. equipped with roasting equipment) is fully responsible for calculating the actual cost of the beans, including negotiating the purchase price per pound with the contract holder and additional costs such as import/export shipping. During actual roasting, the moisture in green beans evaporates at high temperatures, and the weight after roasting decreases by about 18%, meaning that 1 pound of green beans yields only 0.82 pounds of roasted beans after roasting.
Now let's do the math: suppose a roaster buys a pound of green beans worth 2.25 USD, and after roasting the weight decreases by 18%, so the adjusted price for that same pound of coffee becomes 2.75 USD.
Anyone who has studied ACCA knows the concept of General Operating Expense, which here refers to labor costs, overhead, and packaging costs. Combined, the cost per pound of roasted beans is about 6.5 USD. The roaster needs to profit when selling coffee to other cafés, so the final price sold to cafés is about 7.50 USD per pound.
The beans roasted by the barista eventually reach the café, and the café is the final link in the cost analysis chain.
Director Rhinehart once pointed out: "Even coffee farmers know that a cup of coffee sells for 3.5 USD in an American café, and a pound of coffee beans (345 grams) can make 50 cups of coffee, so a bag of beans can theoretically generate 175 USD in revenue. But coffee farmers also know that they only get 2.25 USD per pound of green beans."
On closer examination, you'll find that some things haven't been factored in. A pound of coffee beans actually cannot make 50 cups at all! According to SCAA Golden Cup standards, 3.75 to 4 ounces (106 to 113 grams) of coffee beans can only brew 64 ounces (1814 grams) of coffee liquid, meaning the SCAA Golden Cup standard water-to-coffee ratio is 1:16 or 1:17. However, the coffee liquid that consumers order in coffee shops is usually 16 ounces (454 grams). This means that a pound of coffee beans can only produce 15 to 17 cups of coffee. Assuming a café sells a 16-ounce cup of coffee for 1.95 USD, then the total sales from a pound of coffee beans would be about 30 USD. Even if the café can still make 20 USD in profit on that pound of beans, fixed costs such as rent, labor, utilities, and other daily expenses cannot be ignored.
By this point, everyone should have a vivid picture of coffee costs—that is, the sum of all expenses incurred in the entire process from a seed to a cup of coffee. Next, we also need to identify the problems that exist in this system.
In the current coffee pricing system, coffee farmers have no right to set prices for the specialty coffee they have carefully cultivated, which is completely unreasonable! Coffee farmers long ago stopped believing in the saying "you reap what you sow," because they know that only the London futures market and the New York futures market can determine the price of their coffee. Director Rhinehart once said: "The coffee futures trading market abbreviates coffee as a lowercase 'c'." In other words, those financiers always subjectively define everything as "all crows are black," and coffee is just coffee, and the direct victims of this theory are precisely the farmers who grow specialty coffee. If roasters suddenly raise wholesale prices, cafés can choose whether to adjust their menu retail prices. If roasters are told by importers that green bean prices have risen, roasters can also selectively adjust wholesale prices. But! If the cost of coffee cultivation increases, coffee farmers have no choice, because the price of green beans is determined by the Average Market Price set by the futures market. This is far too unfair.
Looking at it from another angle, fortunately roasters do not treat all Coffee as a lowercase "c" like financiers do, and consumers who love specialty coffee also do not believe that "all crows are black" like financiers do. Specialty coffee accounts for less than 30% of total global coffee, and most specialty coffee prices remain within an acceptable range, while the best of the best is becoming increasingly scarce and expensive. What is reassuring is that there is a consensus among roasters, cafés, and specialty coffee consumers: coffee also comes in different grades!
In summary, calculating the true cost of a cup of coffee requires clarifying a complex coffee system: keeping in mind that from a seed to a cup of coffee, profit is taken at every transaction node along the way. Unfortunately, ordinary consumers do not understand the complete coffee value chain. Roasters and cafés are working hard to raise consumer awareness and spread the culture behind coffee, and many have joined Fair Trade and Direct Trade public welfare projects. Specialty coffee enthusiasts and consumers are advised to choose products bearing the Fair Trade or Direct Trade label when buying coffee, to contribute to the interests of coffee farmers.
The above content is compiled by CoffeeHunters, a coffee news website.
