How a cup of coffee explains global inflation

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Jordan Heath-Rawlings When you sit down with your favourite coffee this weekend, I’d like to ask you a question. How much did that cup of coffee cost you? How much did it used to cost? I am pretty sure the answer is more because everything costs more than it used to. Right? But coffee is perhaps the best product to use to understand what’s really happening. Think about how many times someone has tried to sell you something or get you to subscribe to something by telling you that it’s less than the price of a cup of coffee. We use that phrase to mean that it is cheap, so cheap that you can add it to your expenses without even noticing it the same way you do for a cup at Tim Hortons, or Starbucks, or the fraction of a bag of coffee beans that you brew for yourself at home. Over the past year though, both Starbucks and Tim Horton’s have raised their prices on everything related to coffee and the bag of unroasted coffee beans has risen almost 25% since 2021. The suddenly noticeable jump in the retail price of coffee isn’t the only reason that it’s so helpful in understanding inflation. It’s because coffee is not only sold absolutely everywhere in the world, it’s also, produced and exported in dozens of different nations on different continents. So it can offer a global picture of how our economy is changing from start to finish. So what can your Morning Cup teach us about the world? I am Jordan Heath-Rawlings. This is The Big Story. Gavin Fridell is a university research professor in global development studies at St. Mary’s University. He is the author of several books, including one called Simply Coffee and also the editor of the Fair Trade Handbook Building a Better World Together.

Jordan Heath-Rawlings Hello

Gavin Fridell Hi there.

Jordan Heath-Rawlings This story began at least a bunch of with reporting from a bunch of places simply about coffee and the products associated with it becoming more expensive, just about everywhere. Um, Is that true?

Gavin Fridell Yeah, I mean it’s definitely true in the last, say, two, three years, coffee’s up pretty high. Uh, and I can give you some examples. If you look at, uh, Stats Canada, they have price index for this kind of stuff. And if you look at coffee from the store, it’s gone up about 14% for over the last year.

Jordan Heath-Rawlings Hmm.

Gavin Fridell Uh, and if you go back about two years, then it’s gone up about 20 per cent. And that’s higher than the increase in food in general, which food is also up. But, uh, coffee’s up particularly high. And then you can also look at that in terms of green bean prices, which is the green bean, is the bean that we import from the country that produces it. And we roast it and process it, turn it into the, the brown coffee we’re used to seeing. Right. And if you look at green bean prices, those are also up. So if you look at Resilient Arabics, which is the most common of the coffee beans in the world, that’s at about a dollar 93 per pound right now. And that’s pretty high. It’s not, it’s not unprecedented, but it’s pretty high. You’d have to go back to, say 2011 prior to that, maybe the late nineties, and then after that, the seventies to get to a price for, uh, coffee beans that is as high as.

Jordan Heath-Rawlings What is it about coffee that can make it, uh, a good barometer for what’s going on in terms of global economics and global crises and everything else? Like how ubiquitous is it?

Gavin Fridell I think you’ve sort of hit the nail on the head. It is super ubiquitous. It’s produced in dozens and dozens of countries. It’s consumed in dozens of countries. It’s, one of the most valuable. Products exported from the global south. It’s, consumed by millions and millions of people every day, uh to give you a sense, in Canada, it’s the most popular beverage in Canada, consumed daily. And that includes tap water, bottled water, tea, coke, you name it. Coffee is the most consumed beverage every day by Canadians.

Jordan Heath-Rawlings Hmm. So in that sense, it is the ultimate barometer of a certain sector of our global economy. So what has been, and I’m assuming we’re gonna get into uh, a handful of factors here, but what has been driving that increase that’s out indexing inflation and other food increases?

Gavin Fridell Right. Well, there’s a bunch of things that’s happening. A bit of a kind of perfect storm, which does happen in the coffee industry historically. And I’d say one of the biggest factors is there’s been a bit of a supply. And this comes down to Brazil. Brazil is the world’s largest, uh, exporter of coffee. It’s about 30% of the world’s coffee beans come from Brazil, which is a very large number for one country. And, uh, basically a couple years ago they had a frost and that was followed by a drought. And, uh, a lot of unpredictable weather patterns, which I think we could generally link to the unpredictable, unpredictable, uh, weather patterns from climate change.

Jordan Heath-Rawlings Mm-hmm.

Gavin Fridell And, uh, that has basically ruined part of their crop and it’s also ruined a part of their crop that will come in the next year or two to come. And so that, that’s reduced supply. So there’s been a reduction in global supply compared to what the expectations were gonna be. And then of course, that’s combined with other factors. So one of the big factors you’ve already hinted at is global inflation, right? There’s rising prices on everything, and the way that contributes to the rising prices of coffee is also through the rising prices of inputs like fertilizer and fuel and all the things that farmers will have to put into the coffee bean. That also drives up the coffee bean price. And if I was to add probably a third factor, and I think there’s probably many more, but if I was to add a third factor there, it’s shipping. Right, and we still have this, global shipping crisis as a sort of hangover from Covid. It’s pretty hard to find containers. There’s a lot of competition to get containers to ship goods internationally. When you can’t find those containers, you gotta pay your premium price to get them. So by some estimates, shipping costs today to ship things internationally are up from 100 to 500% since Covid.

Jordan Heath-Rawlings So we’ve talked about how ubiquitous coffee is as a drink.

Gavin Fridell Mm-hmm.

Jordan Heath-Rawlings How big a business is it? Do we understand, when we’re, you know, picking up, a Starbucks or a Tim Horton’s or a bag of beans, uh, at the grocery store, do we understand how huge and valuable the industry is?

Gavin Fridell It’s interesting that it’s right under your nose every day. I mean, Tim Horton’s or wherever you go, and you don’t realize just how central that is to global economy. So, I mean, it’s a huge industry. It’s worth hundreds of billions of dollars. It’s dominated by massive corporations. Each one of them controls about 10% of the world’s coffee market. There’s very big and increasingly powerful countries involved. Brazil, I mentioned. And Vietnam. Those two countries together control 50% of the world’s green beans exports. It’s extremely valuable and there’s a lot of sort of, let’s say, industry battles to determine who gets all that value, and a lot of it flows up to the top.

Jordan Heath-Rawlings I’m glad you mentioned that because this was gonna be my next question, which is,

Gavin Fridell Traditionally, when we think of the coffee industry, and here’s where we get into fair trade a little bit, our mind goes to the inequalities. Where have those inequalities traditionally been found, and how much, if any, has that changed over the past decade or so?

Jordan Heath-Rawlings Right.

Gavin Fridell Well, you know, I think those inequalities would probably be what many people would expect if you actually sat down and thought about it a bit. And that’s that. At the bottom of the coffee chain, there are small farmers and workers, and they’re not paid very much. In general. They don’t make a living income. There are larger farmers that do make a good income off coffee. And there are also some specific countries where small farmers can thrive. But as a general pitcher, you know, there’s. consistently the case that there’s inequalities in the global coffee industry. And the example I might just give you is there was a report from the International Labor Organization in 2020 and they looked at five coffee countries and is basically confirming, uh, that a lot of the inequalities in coffee just continue today as they’ve always been in the past. You know, the coffee workers and farmers don’t earn a minimum wage. Very often. In some countries like Indonesia, it’s really low. Like in Indonesia, only 9% of the coffee workers were earning the minimum wage in the country. And wages in coffee in general are lower than national averages, and they’re consistently lower than a living income. And women involved in the coffee industry are also consistently paid less than men. They do more unpaid family work, which is a common picture across the globe in many industries.

Jordan Heath-Rawlings Mm-hmm.

Gavin Fridell In Costa Rica, women earn 39% less than men in the coffee. Many more businesses are advertising that their coffee is fair trade. But what you’re telling me is that it hasn’t shifted the reality much for the farmers on the ground. You know, the more things change, the more they stay the same. Now when it comes to fair trade, Fair trade is different. I can tell you a bit about that. But the real trick is that what a lot of companies have learned from the big to the small is that everybody now knows nowadays to be claiming to do all kinds of ethical things.

Jordan Heath-Rawlings Hmm.

Gavin Fridell So every company, every corporation, everybody’s ethical. But on the ground, there’s very little results.

Jordan Heath-Rawlings Can you give me an example of that? How would a, how would a company then claim to be fair trade while not changing anything on the ground?

Gavin Fridell All right, well, I mean, yeah, maybe I exaggerated bit with anything, but I’ll give you one example that jumps to my head when you say that is Starbucks. You know, Starbucks has a decent, a decent program of their own, which they call the CAFE program, and it has some decent standards, but it doesn’t have rigorous fair trade standards. Now, Starbucks isn’t very open about how much of their coffee is actually fair Trade certified. The last statistic I saw is from many years ago, and it’s about 8%.

Jordan Heath-Rawlings Hmm.

Gavin Fridell So about 8% of Starbucks coffee beans are fair trade certified. Right. But if you go into a Starbucks, they’ll tell you, well, all their coffee is ethically certified or ethically sourced. And a lot of that is companies coming up with their own standard. They don’t have things like minimum guaranteed prices. They don’t have things like additional premiums that are paid to communities to build infrastructure in schools and things. They basically have their own set of standards, their own set of scorecards, train their own auditors, and, then check their own boxes.

Jordan Heath-Rawlings Hmm.

Gavin Fridell A lot of Starbucks is that, and then of course, 8%, well, Starbucks is a big company, 8% is a, is a lot of coffee. But, uh, I think that the average person could be forgiven for not knowing that only 8% of Starbucks’s coffee is fair trade certified.

Jordan Heath-Rawlings You’ve kind of outlined, uh, a market that spreads across dozens of countries, hundreds, if not thousands, of producers. Um, when we say prices have doubled, who is making that call? It’s pretty complicated. No one actually of course sets the price, right?

Gavin Fridell And there are different types of prices for different types of beans and there’s different quality of beans and different origins and there’s a lot of speculation on exchanges in New York and London. People will actually speculate on the price of coffee and uh, so there’s powerful speculators involved. But I’d say the most important players is the way to look at it. And the most important players are these major coffee. That have huge shares of the global market, and what they do is they dominate the global market. They use their size, they use their market power, their advertising budgets, their logistical networks. You know, they basically dominate the global markets.

Jordan Heath-Rawlings And in that sense, when prices are high or low green bean prices, they’re still usually making money and doing pretty well, right? The other big players would be some of the major coffee exporting countries.

Gavin Fridell So as I mentioned, Brazil, I mean it accounts for 30% of the world’s coffee. So what happens in Brazil matters for, uh, the global economy of coffee, but that’s not always the case with a lot of other coffee countries. So, I mean, if you look at, say, Uganda, uh, Uganda is the world’s seventh largest, largest coffee exporting country, and they account for about 3% of the world’s coffee beans. Well, you know, Nestle, one of the world’s largest coffee companies. Nestle’s annual revenue is 95 billion. That’s more than the economic value of the Ugandan economy. Wow. So when you have a market set up that way, uh, there’s just no way that Uganda has as much influence on the price as Nestle.

Jordan Heath-Rawlings When we are talking about the situation on the ground, and, and to go back to the beginning when you were discussing what kind of factors, um, influence the price of coffee, one of the things you mentioned is, you know, climate factors and the fact that more fertilizer is needed. Who’s bearing the brunt of that? Is that the farmers and is it getting more difficult for them to finance their own crop?

Gavin Fridell Uh, and sell it on the. Right. Well, I think that is true and what’s happening is a very interesting situation here where, you know, I can tell you that from my studying of coffee over the years, I believe that coffee prices should be higher, but only in a sense that more of that value should go to farmers and workers. What’s happening now is the global market conditions are creating higher prices for coffee. But it’s not a bonanza for small coffee farmers and workers. And it’s particularly because they’re paying more for fertilizer. They’re paying more for shipping costs, they’re paying more for fuel. Um, they’re actually feeling the squeeze like everybody else’s from this global recession. So in that sense, the higher prices are not, are not really improving. The lot of, the majority of the world’s coffee farmers right now, they’re in a kind of squeeze between the cost of the inputs they have to. And what they’re gonna get for the coffee mean. It seems kind of dumb to ask this after we’ve just been through, uh, how cynical the Fair Trade Movement can be.

Jordan Heath-Rawlings But you know, what do you see in the future that could perhaps, uh, slow down the increase?

Gavin Fridell Well, maybe I should also mention a bit about Fair Trade. So I think that the authentic Fair Trade Movement is doing a lot for small farmers across the world. You know, there’s 700 and something thousand coffee farmers involved in fair trade certification in the world. And that’s a lot. Yeah. But that’s about 3% of the world’s coffee farmer families. Wow. Those Fair Trade certified farmers often can’t find a market, a fair trade market for all of their coffee. So maybe 35% of their coffee they can sell on a fair trade market. The rest they have to sell in conventional markets. So I think, uh, you know, I’m a fan of Fair Trade and I think the real authentic certified fair. Points to a kind of vision for how we could pass more value to those farmers that need it. The trick becomes whether or not companies are willing to engage in real fair trade.

Jordan Heath-Rawlings Mm-hmm. Now, in terms of what can be done to keep prices down without exploiting farmers?

Gavin Fridell Well, you know, if you pay. Low prices for coffee that is gonna translate into low wages per working conditions, per environmental conditions. I mean, I think in a way the average coffee consumer in the north is, is addicted to paying too little. Hmm. Uh, we, we live in an incredibly unequal world and that that is in the coffee industry as anything else. I mean, uh, Howard Schultz the founder of Starbucks. He’s worth 3.9 billion. It’s not just about price anyways. If we actually want to think about farmers, I mean, a lot of it is about where that value in coffee, is so, you know, really interestingly, Oxfam did this research maybe a couple years ago, and they looked at many types of farmers, but one of them was a Kenyan coffee farmer, and they determined that a Kenyan coffee farmer earns 53% of a living income.

Jordan Heath-Rawlings Hmm.

Gavin Fridell So that sounds kind of depressing. But then they said, you know what? To get them up to a living income, we only need to pay 2% more on the final price of coffee. So a $2 cup of coffee only needs to cost $2 and four. As long as that 4 cents makes it to the farmer. So a living income is only 4 cents away. And so to me, that’s not that big a gap to jump. The challenge is the way the global coffee system is set up. It’s not so much about the prices we do or don’t pay, it’s about how much of that price makes it to farmers and, and the workers that need it. And in the meantime, uh, in this country at least, we’re so used to paying so little for our coffee.

Jordan Heath-Rawlings When it starts costing more, we do podcasts about it?

Gavin Fridell Yeah. And that’s something I’ve always, experienced studying commodities like coffee, is that people really like to talk about the price. And I, and I actually respect that because that price hits their wallet, and it also gets them worried about the prices of all their products, of all their food and what that means for their budget for the year. And I think things like coffee, as you mentioned at the beginning, are a kind of barometer for people’s purchasing power in general. So we should be concerned when the prices go up. It’s just that I think we need to always understand that the way the global economy is set up, there’s a lot of money. And there needs to be a way to both please the needs of that consumer and the needs of that producer.

Jordan Heath-Rawlings Gavin, thank you so much for this. I really insightful stuff.

Gavin Fridell Thanks so much for having me.

Jordan Heath-Rawlings I appreciate it. Gavin Friel, Canada Research Chair, international Development Studies at St. Mary’s University. That was The Big Story, always less than the price of a cup of coffee because it’s free. You can find us at the big story podcast.ca. And on Twitter at the big story, fp n. If you wanna chat, email us. Hello at the Big story podcast.ca or call us and leave a voicemail, 4 1 6 9 3 5 5 9 3 5. You can find this podcast absolutely anywhere you get podcasts. And of course your smart speaker will play it if you ask it to play the Big Story podcast unless you happen to be on the Indian subcontinent, because then it will play the Indian version of the big story. Which absolutely exists, but in Canada, we’re the only show in town. Thanks for listening. I’m Jordan Heath-Rawlings. Have a great weekend and we’ll talk Monday.