Why is the price of coffee so low?

● Until1989,coffee trading was regulated by the International Coffee Agreement (ICA), which set export quotas and kept the price of coffee relatively high. This agreement broke down, because of disagreement between members and the withdrawal of the USA, and since then the coffee market has become progressively deregulated. Prices are now set by two big futures markets in London and New York.
● The amount of coffee being produced has increased, while the demand has dropped slightly. Supply now exceeds demand, which pushes the price down, while the absence of a regulatory body means that supply is not checked.

Imbalances in the supply chain

The bargaining power of small-scale farmers is low or non-existent, compared with that of transnational corporations (TNCs). While the TNCs can source their coffee from a variety of countries, and use their buying power to reduce the price, farmers operate in isolated rural areas, with little access to credit, transport or information about prices. They have to accept the price they are offered by the trader who comes to buy their coffee, or by the processor. In effect, some of the poorest and most powerless people are negotiating in an open market with some of the richest and most powerful. The result is that the rich get richer and the poor get poorer.

Commercial heaven for coffee companies

Coffee roasters – the large companies which process and market the coffee – have seen their profits rise to record levels. The big four coffee roasters, Kraft, Nestlé, Procter & Gamble and Sara Lee, make very high profits compared with other food and drink brands – between 17 and 26 per cent
of the retail price. As one business analyst reported, ‘Nothing else in food 1
and beverages is remotely as good.’ Most food and drink manufacturers make profits of between five and 12 per cent of the retail price.
source: Oxfam International 2002