The real price of African coffee

At H.R. Higgins’ aroma-filled store in London’s Mayfair, discerning connoisseurs readily pay a premium for exquisite, high-grade African Arabica coffees. Roasted Malawian Mzuzu coffee beans retail at an eye-watering £47.50 ($70); Tanzanian Kibo Chagga at £47.20; Ethiopian Guji at £46.50 and Kenyan Teaberry at £46.50 per kilogramme at the Duke Street shop.

These and other single-origin, “grand cru” African Arabica coffees, which also include Ethiopian Yirgacheffe and Harar Teaberry, are highly prized in the rapidly growing speciality sector in Western Europe and the US.

These world-class, African Arabica coffees are helping to raise quality standards among consumers in the booming UK coffee industry, which has enjoyed considerable growth over the past 17 years.

And it is not only coffee aficionados who are looking to Africa for their caffeine hit. Mass consumers are also enjoying a wide variety of African coffees among the 2.2 billion cups of the beverage they drink annually in the thriving shop market sector.

According to the latest report from Allegra World Coffee Portal: Project Café 2016 UK, the UK coffee shop sector – currently estimated at 20,728 outlets –showed a significant sales growth of 10% on last year with a market value of £7.9bn ($11.57bn).

It suggests that the branded coffee chain sector recorded a turnover of $4.83bn across 6,495 outlets, following an impressive growth.

Costa Coffee, which has 1,992 outlets, the Starbucks Coffee Company with 849 outlets and Caffè Nero, which has 620, remain the UK’s leading brands with a 53% share of the branded chain market.  Supermarkets also fuelled growth, adding a further 322 outlets to the market.

“One of the most significant developments is the growth of high quality coffee and capsules. High-grade African coffees have played a significant role in this. This provides an opportunity for their expansion into the UK coffee market,” said Jeffrey Young, the Allegra Group’s Managing Director.

He added: “The strong market growth of the past 12 months has exceeded our own estimates. This provides further evidence of the growing importance of coffee shops to the British economy and more importantly, their impact on the daily lives of everyday consumers. With a market now valued at $4.83bn, no one can ignore the fact that coffee is big business.”

Allegra predicted the total UK coffee market to comfortably exceed 30,000 outlets and $22bn turnover by 2025.

As competition for brand loyalty heats up, the industry’s big players are spending millions of pounds annually on slick advertising campaigns to influence consumers’ purchasing behaviour.

Their glossy adverts; Corporate Social Responsibility (CSR) claims featuring ‘gratified’ coffee farmers (not always independently verified); and the growing visibility of Fairtrade-certified coffee, help to promote a sense among consumers that the vast wealth created in the industry is being shared around.

But the hidden reality behind the thriving, trendy orders of espressos, white Americanos, skinny lattes and caramel frappuccinos is very different.

UK consumers are intrinsically linked to an unjust global coffee trade, which is rife with exploitation associated with its often dark history, linked to slavery and colonialism. Although Ethiopia is the geographic home of Arabica coffee, it’s now also grown in a number of other largely poor, developing countries in sub-Saharan Africa, South America and Asia.

However, the international coffee trade continues to be controlled from the wealthy, coffee-drinking industrialised North – in Western Europe and the US.

Four powerful European and US transnational commodity-trading merchants – ECOM (Swiss) ,Louis Dreyfus (French), Neumann (German) and Volcafe (American) – currently control 40% of the supply side.

Green coffee beans – the second most important globally traded commodity after petroleum – are bought and sold through complex and opaque supply chains with beans sometimes changing hands dozens of times on their journey from farmers to consumers.

The roasting and retail side of the trade is dominated by four European and US transnational food giants – Nestlé (Swiss), Kraft (US), Proctor & Gamble (US) and Sara Lee (US).

With basic global coffee prices currently at 111.75 US cents per pound – down from 141.10 US cents a year ago, the big industry players, who source a considerable amount of the coffee they sell globally from Africa, have enjoyed windfall profits from the boom.

Nestlé, which is behind household brands like Nescafé, reported a better than expected sales growth of 3.9% of its Nescafé Dolce Gusto and Nespresso for the first three months of 2016.

According to its website, Nespresso delivered solid growth in all regions in 2015, affirming its strong position in European markets, and continued to build momentum in Asia and the Americas.

In the UK supermarket Tesco, a 100g pack of Nescafé Dolce Gusto coffee costs $5.85.

When ordered from online retailer, Amazon, Nestlé’s Ristretto, Cosi and Vilvalto Lungo coffee capsules, which contain a blend of East African and South American Arabica coffees, retail for $30.75, $22.99 and $32.21 respectively. The Nespresso brand’s advertising campaign stars Hollywood actor and activist, George Clooney.

The US coffee company Starbucks, which opened its first franchise in Johannesburg in April 2016, its first in sub-Saharan Africa, also made significant gains.

It posted fiscal first-quarter earnings of $5.37bn in sales. Its comparable global sales increased 8% in the first quarter of 2016, beating estimates of 6.9%.

But while the big industry players have profited handsomely from unsustainably low coffee prices and a global boom, they have devastated the livelihoods of millions of smallholder farmers in Africa.

They have also proved calamitous for coffee- exporting African countries, which rely on the crop for foreign exchange earnings. These include Ethiopia, Kenya, Tanzania, Côte d’Ivoire, Uganda, Malawi, Rwanda and Burundi.

The UK charity, Oxfam, which helped establish Fair Trade, said power inequalities in the supply chain mean the big roasters currently capture 40% from the value chain from each cup of coffee consumed. 

In unfair contrast, the share for farmers and labourers, including those who produce superior African Arabica coffees, which are selling for fabulous prices in London, Paris and New York, is a paltry 12%.

“There are two major challenges facing the industry. Disruptive climate change and a growing concentration of power in the value chain. Climate change is driving down yields and increasing risk and vulnerability for smallholder producers across the Global South. This is particularly the case for Arabica, which traditionally grows in cooler climates,” said Robin Willoughby, a policy adviser with Oxfam.

He adds: “The industry is at a crossroads. Without addressing the severe inequality in the coffee supply chain, coffee farming will no longer be viewed as a viable livelihood. Lack of economic incentives is causing many farmers to leave the industry and young people to move away from rural areas in search of better livelihoods.”

Nestlé, which has been buying coffee from Africa for over 30 years, says that it is committed to promoting and supporting responsible farming, production, supply and consumption of the beverage.

It maintains that 85% of its coffee originating from Central and West Africa is responsibly sourced – including that used in its Nescafé factory in Côte d’Ivoire.

It does this, it claims, through its global initiatives, Nescafé Plan and Nespresso AAA Sustainable Quality Program, to which it has allocated Swiss CHF350 million (around $536m) until 2020.

This includes in Kenya where the plan was launched in 2011, and which has been rocked by a recent price manipulation scandal at the Nairobi Coffee Exchange.

“Following the success of the first phase in Kenya, the company now works with 42,000 farmers and 14 cooperatives to enhance their lives and livelihoods. This includes providing them with relevant agricultural training and high yield seedling varieties to improve productivity and quality. And also to increase production efficiencies,” said Alexander Antonoff, Nestlé’s senior corporate spokesperson.

He added:  “To date, we are happy to report that the average yield per tree for cooperatives under the Nescafé Plan has more than doubled and that there has been a noticeable increase in the quality of the green beans. Moreover, we pay our farmers a premium for their 4C-verified [a baseline standard] coffee. This is part of our activities to assist farmers in the sustainable production, processing and trading of coffee. Our results so far have been very satisfactory, for both the farmers and for Nestlé.”

Nestlé, which has been buying coffee from Kenya for over three decades, denied involvement in a recent price- fixing scandal at the Nairobi Stock Exchange, which has rocked the East African country.

“In Kenya, as we do in every country, we respect and follow the laws of the land in which we operate. Through our preferred suppliers, we buy coffee at the auction floor according to existing regulatory procedures. Our suppliers however, do not procure all coffees through the auction. They also buy directly, ensuring farmers are paid the best possible value for their coffee,” he stressed.

He further added that Nestlé’s Corporate Social Responsibility  initiatives, which include scholarship for secondary school students, are independently verified through its partners including the Rainforest Alliance for good agricultural practices.

The weak global prices, which have left African coffee farmers particularly vulnerable, are due to global demand increasing at a far slower pace than supply, with production increasing at twice the rate of consumption.

The latest estimates for global production and consumption from the International Coffee Organisation (ICO) suggest that 2015/16 will be another deficit year in the coffee market, with demand exceeding supply – with gaps filled by build-ups in stocks. The London-based, 77 member, intergovernmental organisation brings producing and consuming countries together to address challenges and policies impacting the industry.

Its figures suggest that global coffee production in crop year 2015/16 will be 143.4m 60kg bags – 1.4% higher than last year.

In Africa, production is rising by 6.1% and will likely reach 17.1 million bags, representing nearly 12% of the world total. But in Ethiopia, output is currently estimated at 6.4m bags, 3.4% less than last year due to the negative impact of inconsistent rains.

On the other hand, global coffee consumption in the calendar year 2015 is estimated at 152.1m bags, up from 150.3m in 2014.

Total consumption in importing countries including the UK is estimated at 104.9m bags, while exporting countries have increased at an average rate of 2.1% over the last four years to reach 47.3m bags.

The ICO said prices have struggled to rise because roasters have a considerable buffer against short-term supply concerns due to export levels remaining high.

Underlying reasons for the glut have partly been blamed on Vietnam’s over-zealous expansion in the 1980s and 1990s, when it rose from being an insignificant producer to the world’s second-largest exporter of Robusta coffee beans after Brazil.

The expansion was supported by bilateral loans and aid from Western European countries and Japan and the promotion of World Bank neo-liberal economic policies. Its low quality coffee is mainly used in cheap instant coffee products for Western markets.

Significantly, Vietnam never became a member of the International Coffee Agreement (ICA), established in 1962 to regulate world coffee prices the way OPEC does for oil. Since the ICA’s collapse in 1989, Western coffee drinking nations and the World Bank have resisted efforts by producer countries to put commodity price management on the international agenda.

It is against this reality that the International Coffee Organisation held its 4th World Coffee Conference, which was hosted by Ethiopia and held in Addis Ababa, in March 2016.

Titled “Nurturing coffee culture and diversity”, it focused on the challenges facing Africa’s coffee- producing countries. As highlighted at the conference and in ICO consumption figures, one of the biggest problems is that coffee drinking largely remains a Western pursuit. With the exception of Ethiopia – which has a long history of coffee drinking (half of its production is consumed at home) – domestic consumption remains relatively low in Sub-Saharan Africa. As does value addition to the bean.

Consequently, Africa’s coffee farmers and exporting countries are overwhelmingly dependent on sales from the West where prices for Arabica coffees are set on the New York Intercontinental Exchange (ICE) futures market and London International Financial Futures and Options Exchange (Liffe).

“As long as prices are determined by powerful economic interests in Europe and North America the big industry players will continue to profit from the coffee crisis. Coffee-producing countries are heading for a collective disaster if they fail to implement a drastic change in their policies,” said Robin Willoughby.

It seems the big industry players also need to wake up and smell the coffee. After all, if unsustainably low prices continue to bankrupt already poor African farmers and drive them out of the sector, there will be no premium quality African Arabica coffees for them to generate huge profits from. 

Santorri Chamley