The coffee bean is one of the most traded agricultural commodities throughout the world, and has a very volatile price due to both supply and demand factors. Coffee beans are produced in warm climate countries including Columbia, Brazil, Vietnam and parts of Africa. The beans are consumed domestically, but the majority is exported to coffee drinking countries. There are two major types of coffee beans produced: Robusta, a lower quality bean which is sold on the commodity market, and Arabica, a higher quality bean that is mostly sold at a premium on the commodity market or on a negotiated contractual basis. Once the bean is imported, it is either processed by a third party roaster and then sold to retailers or wholesalers for grocery store shelves or roasted by a company with an integrated supply chain like coffee houses or convenience stores. With the current decrease in supply, coffee bean prices are expected to continue to increase.
Supply for the 2009/2010 growing season is expected to be below demand by 6-8 million 60-kg bags, according to the International Coffee Organization (ICO). Supply changes are due to weather and growing cycles. Brazil has a cycle of large crop and small crop due to weather patterns and they are currently starting a low cycle during the 2009/2010 growing season. Columbia is going through a replanting and decreased use of fertilizer which is also decreasing the output of the beans. With the dip in supply, prices are expected to hold steady and then continue to increase.
Producers have been switching to lower quality beans, mostly Robusta, to decrease production costs by reducing raw material and labor costs. This change has further impacted the coffee prices by turning more of the beans into a commodity linked to world markets. The increase in Robusta beans has supplied emerging markets in countries that have historically consumed tea. The Robusta beans are used for lower-cost soluble coffee blends that can compete with tea on price.
Countries like Russia, China and Eastern Europe are increasing their coffee consumption. Per capita consumption in the Russian Federation increased from 1.28 cups in 2004 to 1.71 cups in 2007, and the Ukraine increased from 0.94 cups in 2004 to 1.37 cups in 2007. Even this small per capita shift can have major effects due to the population size of China and Russia.
Specialty coffees consist of high quality beans that have no defects and are roasted and processed to produce a distinctive flavor when brewed. Examples of these include espressos, cappuccinos, lattes and iced or flavored espresso drinks. The percentage of adults in the U.S. who consume a specialty coffee drink daily has increased every year since 1995 and is currently at 17% of adults. Sales of specialty coffee have matched consumption and now represent a $13 billion market in the U.S.
Coffee producers have changed their production practices in response to consumer demand for beans that are harvested by responsible growers. Consumers are more aware of environmental and ethical sustainability elements and demand products that have utilized resources and raw materials carefully. For example, McDonalds has now shifted its coffee supply to Rainforest Alliance certified sources. This shift started in 2007 and should have been completed by May 2009 for all McDonalds in Europe, Asia Pacific, Middle East and Africa. Organic Trade Association data shows that organic coffee sales in the U.S. amounted to approximately $110 million in 2006, up 24% from the previous year. The organic coffee sector is estimated to be nearly 3% of the total U.S. green coffee imports in 2007. This annual average growth rate for the organic category far exceeds the estimated 1.5% to 2.0% annual growth rate of the conventional coffee industry. Global sales of organic coffee are showing even more growth with increases of over 50% from 2003 to 2006.