The Endangered Bean

Supply shortfalls pitting pressure on prices and supplies of high-quality coffees

Samantha Oller, Senior Editor/Fuels, CSP

CHICAGO -- Forty different countries around the world produce coffee, and until recently, most didn't consume their own product but rather exported most of it to the United States, Europe and other major markets. But that is changing, according to Ric Rhinehart, executive director of the Specialty Coffee Association of America (SCAA), Long Beach, Calif.

Highlighting the example of Brazilboth the largest producer and exporter of coffeeRhinehardt, a presenter during CSP's 2010 Coffee Bar Development Summit, said that within less than five years, that country is on pace to [image-nocss] surpass the United States as the largest consumer, too, thanks to a burgeoning middle class that can now afford to pick up the habit. India and Mexico are also increasingly shifting into consumer roles.

The net effect? Greater pressure on world coffee supply, and in particular, the highest-quality beans. Rhinehart told attendees that while producers will react to any imbalance in supply and demand, the resulting coffee is likely to be more of the lower-quality robusta variety.

Meanwhile, high-quality coffeeespecially washed Arabica varietieswill grow increasingly expensive. Indeed, convenience store retailers with a 100% Colombian or Guatemalan program have already felt the brunt of hefty price increases in the past year.

"The real issue here is how we protect ourselves in the future in coffee," said Rhinehart. "How do you get a price you know you can live with, how you can maintain that price, and if you hedge, mitigate your risk and have a full-scale coffee program going out into the future."

Traditionally, coffee buyers have hedged against the futures market, but as Rhinehart noted, the market has disassociated itself pricewise from the commodity it tracks. The commodity market follows the much more expensive, washed Arabica, which makes up only 20% of exported coffee. Therefore, coffee prices have started following the dollarjust like petroleum.

"It's a terrible place to be because you can't create a futures market that takes into account the premium you pay for better coffee," he said.

What is "specialty coffee"? As the SCAA defines it, it's coffee that's free of defect; has unique flavor characteristics that are reflective of its value and place in its producing country; and it is
prepared properly. It's a definition driven by consumer experience, Rhinehart told the audience of more than 40 retailers, suppliers and industry observers.

Greg Erfani, western regional manager with GSP Marketing Technologies, and an attendee of the summit, understands that. His last truly great cup of Joe was Tanzanian coffee prepared and brewed over a fire on the slope of Mount Kilimanjaro in Africa. Beyond the atmospherics, the quality of the coffee was paramount to that experience for Erfani, a former Starbucks marketing exec.

To better understand what makes "better coffee," SCAA is participating in research to uncover the underlying components of quality coffee. "Eighty-five% of our marketplace is washed Arabica coffee," said Rhinehart, referring to the specialty coffee channel, "but there is a lack of research on why coffee tastes good."

This is largely because most washed-Arabica-producing countries are very poor, and thus cannot pay for research into their most important agricultural product.

Meanwhile, coffee farmingan expensive, long-term commitment that has cyclical highs and lowsis seen as an economic dead end for the younger generation in these countries; the average age of a Colombian coffee farmer, for example, is 53 years old, said Rhinehart.

"That's a plug for Fair Trade coffee," said Erfani with GSP. "If you abandon Fair Trade, you're abandoning coffee." Indeed, 60% of the retailers attending CSP's Coffee Bar Development Summit said they sold certified coffee of one form or another, whether it be Fair Trade, organic, Rainforest Alliance or another certification.

Supply and demand will equalize, Rhinehart noted, so it's not as if the world will run out of coffee. But the highest-quality coffeesthose that deliver an experiencewill become increasingly out of reach to the average consumer.

"We need to change the value equation in most consumers' minds," Rhinehart urged, citing the corrosive effect that price-focused marketing has on the intrinsic value perception of coffee. "The $1 cup of coffee is not sustainable."