Significant Factors That Contribute The Decline In Coffee Prices

This decline in coffee prices has been caused by two significant factors. First, the coffee roasting and retail industries have made profits by developing new products and by taking advantage of various value adding activities, such as marketing, branding, differentiation, and flavoring. The recent expansion of demand for soluble coffee, which is among the most profitable parts of the business, has enabled the industry to capture increased value from less expensive raw materials, such as Robusta coffees.

Second, the non-coffee components included in the retail price of coffee, such as wages, packaging, and marketing, have grown and now represent a much more significant share of the total retail price than the actual coffee itself. Interestingly, a number of countries that import coffee earn billions of dollars annually in taxes from it. In some of these countries, these taxes alone are approximately equivalent to the coffee revenue earned by the producing countries.

Volatility in the producers’ share of the retail value will still be more influenced by changes in the price level of green coffee than by changes in any other cost component because the value-adding costs are independent of the price of green coffee. Green coffee prices are the single most volatile expense incurred in putting roasted coffee on the market shelf and, consequently one of the major determinants of changes in the producing countries’ share of the retail value. Producers’ ability to capture fair value requires that their organizations and their bargaining position are clear.