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Last Updated: Thursday, 10 May 2007, 00:31 GMT 01:31 UK
Tracking the true cost of coffee
Coffee beans
Ethiopia is very proud of its image as the 'birthplace' of coffee

Coffee is produced by a number of different global industries in almost every country in the world, making it one of the best products for tracking globalisation.

BBC World Service's The Cost Of... programme tracked a kilo of coffee from its origins in Ethiopia to the fashionable coffee shops of Europe and the US.

In the Ethiopian village of Yirgacheffe, farmers take sacks of raw coffee cherries to a market set up by a local farming co-operative.

Scales weigh the coffee and money is paid to each farmer. At this primary stage, a kilo of coffee cherries costs $2.25 (1.12).

For some, however, the price they receive is far less, because where co-operatives are not an available option, farmers are offered below market rate by middlemen with the promise of ready cash.

Robbie Shalo, one of the coffee harvesters who works during harvesting, sells at three birr per kilo - or 33 cents.

"This is not enough to live by, even though I work here," he explains.

"When this job is finished, I will work on my own farm to make a little money to support my family.

"But it means I have nothing to eat, nothing to live for. That means death."

Market rates

The market for take-away coffee has trebled from $30bn to $90bn over the past decade, and shows no sign of slowing down. In the US alone, it increased 10% last year, when compared with 2005.

Coffee shop in central London
Coffee chains point out the very high rents they pay for shops

"Meanwhile you've got coffee farmers in Ethiopia who are earning only a dollar a day," says Seth Petchers, from Oxfam's Make Trade Fair campaign.

"There's a gross imbalance in the distribution of profits - and frankly, if this inequality continues, coffee production won't be sustainable for coffee farmers or the coffee industry."

There are as many as 25 million small-scale coffee farmers producing coffee around the world. In recent years, the price hit a 30-year low.

"You talk with coffee farmers and you realise they're still facing dire straits," Mr Petchers adds.

"The prospects for coffee farmers are still grave, and that's why we're still involved."

Farmers sell the coffee to local traders, who bulk it and transport it to central locations, where it is stored and cleaned.

The washed coffee is then prepared for export to the foreign market, adding a few extra cents to the price per kilo; co-operatives distribute the profit to their members as a dividend.

Not selling quality

The Yirgacheffe coffee is now driven north to the capital Addis Ababa, where coffee inspection centres grade and standardise it, before it is moved to auction houses.

But Yirgacheffe coffee struggles to make money. Lassane Ori, manager of Addis Ababa's Coffee Inspection Centre, says that its floral, spicy aroma is not fully appreciated by Western tastebuds, and so it does not fetch the price he feels it should command.

"Today, in the world coffee market, people are not selling quality," he says.

"They are selling the propaganda and promotions. We lack this promotion. This should be taken into consideration."

Starbucks employee operates milk frother machine
Roasters are definitely the most powerful actor in the coffee chain
Stefano Ponte
Author of The Coffee Paradox
The price that speciality exporters now pay is $3.85 a kilo.

"I'm not satisfied, because the price we pay today is in fact more than the price we are getting from abroad, from our buyers," says Getachew Haile Michael, manager of exporters Haicof.

"What we are trying to do is to buy coffee at a lower price in some other areas so we can average our costs out.

"The roasters are getting a very high premium. We exporters are not getting exactly what we should get."

Once bought, the coffee is moved on to the ports on the coast of neighbouring Djibouti, from where it travels more than 5,000 miles to a roasting factory in Amsterdam.

Bags of around 70 kilos of "green" coffee arrive there to be cleaned and roasted. Much of the value added to coffee comes at this stage, says Stefano Ponte, food trade expert and co-author of The Coffee Paradox.

"Roasters are definitely the most powerful actors in the coffee chain," he adds.

"Many large roasters don't release net value for coffee.

"But one can safely assume that the margins are fairly healthy."

Costs of coffee

Around 24-28 countries are used as sources for beans, says, Alan Ponsulet, global buyer of coffee for Starbucks, one of the world's biggest coffee outlets.

"An exporter who is between a roaster and farmer has to bring something that will make a farmer need him to be part of the business - otherwise the farmer can send the coffee directly to the roaster," he adds.

"We have a responsibility as roasters to work with those farmers, and make sure they don't have to worry about the coffee market in New York. They can just focus on producing the great quality that roasters like Starbucks can buy by paying premium prices."

Starbucks in Beijing
Starbucks is opening new shops at a rate of one every four hours
Usually, around 80 cups can be made out of each kilo. And in the major cities of Europe and the US, where coffee shops cram the high streets, each cup can sell for over $3.00 - and in the UK, over 3.00 ($6.00). In total, the coffee has increased 16 times in price.

Starbucks alone serves 44 million customers a week - about 2.2bn a year.

"It becomes a tremendously profitable business," says Mr Petchers.

"Meanwhile, the coffee farmer is earning less than a dollar a half kilo for that coffee which is fetching significantly more."

But Roel Vaesson, secretary general of the European Coffee Federation, says that the picture is not as simplistic as this.

Extra costs include the roasting itself, which reduces the volume of the coffee by 20%. Then there is the shipping, the packaging and the marketing, as well as the salaries of the baristas who serve it and the rents on the buildings.

"I sometimes perceive that producers and growers see the prices they are getting, look at the three dollars or three pounds that the consumer pays for his latte, and see that as profit for the roaster or cafe operator," he says, insisting that "that is simply untrue".

"The costs between buying the coffee and serving that latte are huge," he says.

"It is perceived to be 100% profit, and it's not. Quite a few of the cafes are struggling to make ends meet."

The Cost Of... is broadcast on BBC World Service at 1905 GMT on 9 May 2007.

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