Economics of Coffee - Commodity Chain For The Coffee Industry

Commodity Chain For The Coffee Industry

The coffee industry currently has a commodity chain that involves producers, middlemen exporters, importers, roasters, and retailers before reaching the consumer. Middlemen exporters, often referred to as coffee "coyotes," purchase coffee directly from small farmers. Large coffee estates and plantations often export their own harvests or have direct arrangements with a transnational coffee processing or distributing company. Under either arrangement, large producers can sell at prices set by the New York Coffee Exchange.

Green coffee is then purchased by importers from exporters or large plantation owners. Importers hold inventory of large container loads, which they sell gradually through numerous small orders. They have capital resources to obtain quality coffee from around the world, capital normal roasters do not have. Roasters' heavy reliance on importers gives the importers great influence over the types of coffee that are sold to consumers.

In the United States, there are around 1,200 roasters. Roasters have the highest profit margin in the commodity chain. Large roasters normally sell pre-packaged coffee to large retailers, such as Maxwell House, Folgers and Millstone.

Coffee reaches the consumers through cafes and specialty stores selling coffee, of which, approximately, 30% are chains, and through supermarkets and traditional retail chains. Supermarkets and traditional retail chains hold about 60% of market share and are the primary channel for both specialty coffee and non-specialty coffee. Twelve billion pounds of coffee is consumed around the globe annually, and the United States alone has over 130 million coffee drinkers.

Coffee is also bought and sold by investors and price speculators as a tradable commodity. Coffee futures contracts are traded on the New York Mercantile Exchange (NYMEX) under ticker symbol KC with contract deliveries occurring every year in March, May, July, September, and December.