Introduction

Ever wonder how the coffee you enjoy each morning makes its way into your cup? The journey of coffee beans is fascinating, from the farms where they're grown to the global marketplace where buyers and sellers determine the price. 

This blog aims to give you a glimpse into the economics behind one of the world's most traded commodities. 

Coffee is big business—it's one of the most valuable legally traded commodities, second only to oil. Every year, over 2.25 billion kilograms of coffee are produced worldwide by millions of farmers across Latin America, Africa, and Asia. 

Once harvested, the coffee beans enter an intricate global supply chain that connects producers to consumers across the planet. Along the way, market forces like supply and demand, weather conditions, and geopolitics influence coffee prices.

Join us as we explore the many factors that determine the economics of your morning cup of joe! 

A Brief History Of The Coffee Trade

The history of coffee is a fascinating journey that began in Ethiopia between 575 and 850 C.E. People initially consumed coffee beans by mixing them with animal fat, creating an early form of an "energy bar." Eventually, between 1000 and 1300 C.E., coffee transitioned into a hot beverage.

Coffee's popularity spread from Ethiopia to the Arab world by the 16th century and quickly found favour with European travellers. The cultivation of coffee remained a closely guarded secret in the Middle East and Africa until the 17th century when Europeans started smuggling seeds to their tropical colonies, like Java in the Dutch East Indies.

The coffee trade experienced cycles of oversupply and low prices, followed by supply shortages and high prices. For instance, in the late 18th century, Haiti was the leading coffee producer, but a slave revolt in 1793 wiped out its coffee plantations. Brazil then rose to dominance, controlling coffee exports and maintaining high prices.

Colombia entered the scene in the 1930s, attempting to boost prices by joining Brazil's price-control scheme, but it only led to more production worldwide. 

The coffee industry saw extreme price spikes due to various supply shocks, such as frost in Brazil and political upheaval in coffee-producing regions. In the 1970s, small coffeehouses began offering high-quality coffee amid market manipulations.

Starbucks emerged in 1971, transforming from a small whole-bean coffee store in Seattle to a global coffeehouse chain. Speciality coffee establishments gained popularity in the 1990s, with Starbucks leading the way, accounting for a significant share of global coffee output.

By the late 20th century, coffee had become the world's second-largest export commodity, and approximately 2.25 billion cups were consumed daily. 

World Production Of Coffee

If you were to go back in time to the 15th-16th century, you wouldn’t be able to get a cup of coffee as easily as now. You would probably have to go all the way to countries like Ethiopia, Sudan or Turkey. 

But today, coffee is a global phenomenon that is loved by people all over the world. Its production has expanded far beyond its historical origins, and coffee beans are now grown in over 70 countries, spanning several continents.

ARABICA 60% of global production Most popular  Superior-quality beans Complex flavours and aroma

ROBUSTA 40% of global production Second most popular High caffeine content Stronger and bitter taste

The coffee industry has grown into a diverse one, offering plenty of flavours and brewing techniques to suit every taste. From espresso in Italy to pour-over in Japan and cold brew in the United States, coffee has adapted to fit the preferences of different cultures and generations.

Here’s the list of the top ten coffee-producing countries in the world as of 2020:

Rank	Country	Production in 2020 (Million 60-kg Bags)	Total Market Share
1	Brazil	63.4	37.40%
2	Vietnam	29	17.10%
3	Colombia	14.3	8.40%
4	Indonesia	12	7.10%
5	Ethiopia	7.3	4.30%
6	Honduras	6.1	3.60%
7	India	5.7	3.40%
8	Uganda	5.6	3.30%
9	Mexico	4	2.40%
10	Peru	3.8	2.20%

Source: Visual Capitalist

The top 5 coffee-producing countries in the world include Brazil, Vietnam, Colombia, Indonesia, and Ethiopia, amounting to 75% of world coffee production. 

While the average person drinks about 2.2 cups of coffee daily, coffee is the second-most traded commodity in the world, with half a trillion cups consumed per year. 

Coffee Consumption In India: Industry Analysis

India has a long history of having a strong tea culture and is frequently referred to as the land of tea lovers. Coffee has, however, subtly but slowly made its imprint in this tea-centric landscape. While tea continues to be the most popular beverage in India, coffee is overtaking it as a major beverage choice, changing the country's beverage preferences.

Coffee consumption in India has witnessed a significant upswing in recent years, reflecting changing consumer preferences and a growing coffee culture. 

The industry is currently estimated to be worth INR 25,000 crore and is expected to grow rapidly over the next few years.

The country is the world's seventh-largest coffee producer, but only the 14th largest consumer. 

In 2022, India's coffee consumption totalled 1.21 million bags of 60 kilograms each. This is only expected to grow to 1.46 million bags by 2025.

Coffee consumption across India from 2016/2017 to 2022/2023

(in 1,000 60 kilogram bags)

Source: Statista

The rise in disposable income, increasing awareness about speciality coffee, and the proliferation of coffee chains and cafes across the country have contributed to the growing popularity of coffee among Indian consumers.

In the Indian coffee market, key players include Tata Coffee, Nestle India, Hindustan Unilever Limited, and Starbucks. These companies have been actively introducing new flavours, blends, and innovative coffee products to cater to the evolving tastes and preferences of Indian consumers. 

The demand for premium and speciality coffee, such as single-origin and organic coffee, has been rising, reflecting a shift towards quality and experiential consumption. Furthermore, the younger generation's preference for coffee over traditional beverages like tea has fueled the growth of the coffee consumption industry in India.

The Impact Of Covid-19 On The Coffee Market

The coffee market, like many other industries, experienced significant disruptions due to the COVID-19 pandemic. The global lockdowns, travel restrictions, and social distancing measures imposed to limit the spread of the virus led to a decline in coffee consumption.

According to the International Coffee Organization (ICO), global coffee consumption decreased by approximately 1.5% in 2020 compared to the previous year.

The demand for coffee was particularly affected in major coffee-consuming countries such as the United States, Brazil, and Europe. In the United States, for instance, the National Coffee Association reported a 13% decline in coffee consumption during the first half of 2020. 

The coffee industry also witnessed disruptions in its supply chain. The closure of borders and limited transportation options impacted the import and export of coffee beans, leading to delays and shortages. Additionally, coffee farmers faced labour shortages and logistical difficulties in harvesting and processing their crops, further affecting the supply.

Furthermore, consumer behaviour and preferences shifted during the pandemic. With more people working from home, the demand for ready-to-drink coffee and coffee capsules increased. According to Statista, coffee pods and capsules sales grew by 10.1% in 2020. 

The online india coffee market also experienced a surge as consumers turned to e-commerce platforms to purchase their favourite brews. It led to a surge in home brewing, with more households investing in coffee makers and quality beans.

Amidst these challenges, sustainability has emerged as a key concern for the coffee industry. The pandemic highlighted vulnerabilities in the supply chain and the need for greater resilience. 

As a result, there has been a growing emphasis on sustainable practices, including fair trade, organic production, and support for small-scale farmers. Consumers are also increasingly seeking ethically sourced and environmentally friendly coffee products.

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Conclusion

Through this blog, we've discussed the many intricate elements of the global coffee trade. From farmers in remote mountain villages to roasters and baristas in cities worldwide, coffee unites communities across vast distances. 

While market forces and geopolitics introduce volatility, the universal appeal of coffee helps sustain an industry that employs millions. Looking ahead, challenges like climate change threaten production, but innovation and adaptation could help secure coffee's role in cultures and economies globally.

Whether you're a casual coffee drinker or a fan, understanding the complex journey of beans to brew allows us to appreciate this beverage that brings people together. 

We hope you found this blog informative! Let us know what you think in the comments below.

FAQs

 

What is the global economic importance of coffee?

Coffee is one of the most popularly traded tropical products in the world. Production is concentrated in developing countries, where exports of coffee make up a significant portion of the country's income and are a major source of livelihood for families.

What is the economic impact of coffee?

Coffee is one of the most significant agricultural commodities in the world, with a market value of over $200 billion and a workforce of over 100 million people. In several countries, the coffee business is a significant source of tax revenue.

What is the value of the global coffee trade?

In 2022, the market for coffee was estimated to be worth USD 126.38 billion. The market expanded historically between 2018 and 2022 at a CAGR of 4.82%, and it is projected to expand between 2023 and 2028 at a CAGR of 6.7%.

Who benefits from the coffee trade?

From farmers and roasters to exporters and retailers, coffee benefits every single person involved in the process of making coffee. The coffee trade also benefits a variety of other industries, including shipping, packaging, and marketing. In many countries, it also generates tax revenue and job opportunities for the government.

What is the origin of the coffee trade?

Coffee is believed to have originated in Ethiopia and may have also travelled north over the Red Sea into Yemen in the 15th century. By the 16th century, it was well-known in Persia, Egypt, Syria, and Turkey.