Pricing a Cup of Joe

by

By Dan Bolton

Coffee prices are a financial barometer easily accessed by every armchair economist.

Coverage of spiking coffee prices attracts the attention of big media, financial analysts, and homemakers alike. When coffee futures hit a recent high The Guardian in London labeled the increases a “rude awakening.” Eater advised readers to “Brace for more doomsday food news: coffee is getting more expensive as supply fails to keep up with demand.” Shortly afterward prices plunged.

In November Service Partner ONE, a Germany coffee supplier, compared coffee value in 75 cities in 36 countries.

“The research looks into the cost of coffee from various sources, not just high street outlets, in order to get a clearer picture of the overall value of coffee in each city,” according to researchers. These costs included: the median cost of coffee at home, the cost of coffee in Starbucks, the average cost of a coffee in an independent coffee shop, and the average cost to a company per cup of coffee in an office environment.

The resulting 2016 coffee price index revealed residents of Rio de Janeiro, Brazil, pay the lowest average coffee price ($1.02) while coffee drinkers in Zurich, Switzerland pay the highest price per cup ($3.52) of cities researched.

Seven American cities are listed: Seattle ranked 50th from least to most averaging $2.26 per cup, followed by Chicago ($2.29) which ranked 51st. Houston ranked 54th ($2.32). New York City averaged a surprisingly reasonable $2.34 per cup, ranking 57th. Prices were closely aligned in most major American cities including Miami, ranked 58th at $2.36 per cup, Los Angeles ranked 59th at $2.37, and San Francisco 61st at $2.39.

It is helpful to remember green coffee prices spiked in November at $1.79 per pound.

Consumers purchase coffee for between $9 and $15 per pound (more typically in 12oz packages). In 2014 the Specialty Coffee Association (SCA) calculated the economics of the coffee supply chain. Beginning with the roasting process,  where coffee loses about 18% of its weight, after adjusting for shrinkage a roaster who paid $2.25 would have spent $2.75 per pound. General operating expenses, packaging, and labor bring the final cost of a pound of coffee to around $6.50 which is marked up $1 on its way to a café.

“One thing that every farmer everywhere knows is a café typically sells coffee for $3.50 a cup, and you get about 50 cups to a pound of coffee,” writes SCA executive director Ric Rhinehart. “So theoretically, there should be $175 in a pound of coffee. They know they are only getting $2.25 per pound.”

“If we take a closer look, however, the actual yield on the pound of roasted coffee is not 50 cups. Cafés that follow the SCA golden cup brewing standards use 3.75-4oz of coffee to brew a 64oz pot of coffee.

Consumers purchasing brewed coffee in a café setting are typically ordering 16oz drinks. This means there are about 15-17 cups of coffee per pound once it has been brewed.

If the retailer sells the 16oz brewed coffee for $1.95, the gross sales generated on a pound of coffee is around $30 dollars. While it would still appear that the café is making well over $20 dollars in profit, there are fixed costs. Rent, labor, utilities and other general overhead must be covered before an actual profit is realized.

During the past 40 years, coffee has traded in a range from 50-cents to $3.50 per pound, periods at either extreme are rare and short-lived. In 1977, coffee prices reached an all-time high, soaring to an inflation-adjusted price of $6.28 after frost destroyed Brazil’s coffee bean crops, writes Taylor Johnson for Mooseroots. Overproduction in 2004 exceeded demand, causing a steep fall in prices to $1.95– $2.51 when adjusted for inflation. The median price from 1973 to 2000 was $2.93 per pound which was sufficient to sustain producers.

Click to enlarge the graphic below for easier reading.

See the entire list:  www.servicepartner.one/en/services/coffee-price-index-usd