The coffee conundrum

Coffee imports to Europe were 30 per cent cheaper last year than in 1998, according to recently published figures from the International Coffee Organisation​ (ICO). But as any coffee lover can verify, this has not translated into cheaper cappuccinos. In fact, coffee prices have continued to rise on the continent. So who is exactly is taking all the cream?

Fashionable coffee chains that now form a ubiquitous part of any European city centre have taken much of the blame. Critics say that these firms are raking in large profits by charging hugely inflated prices for a relatively cheaply processed commodity. At the same time, third world farmers are battling with the lowest prices for raw coffee in decades.

However, industry bodies such as the European Coffee Federation argue that the coffee component of, say, a Starbucks outlet is just one outlay. Reuters reports a federation spokesperson as saying that the real cost to the company is in paying staff wages and installing state of the art equipment. And of course, those city centre locations do not come cheap. Any drop in the global price of coffee is unlikely therefore to make much impact on the cost of a Tall Latte.

It is interesting to note that in contrast to coffee bar prices, European supermarket prices have been affected. According to the ICO, statistics, Scandinavian countries have enjoyed the most impressive drop in the cost of coffee. Consumers in Finland for example paid 46 per cent less last year for the coffee they got off the shelf than they did in 1998.

The Swedes paid 42 percent less in 2002 than four years before, while coffee was 35 percent cheaper in Denmark. In contrast, Italian coffee prices declined by 17 per cent.

However, the ICO contends that European retail prices for coffee have still not dropped in relation to the drop in raw material price. The coffee industry is indeed going through something of a crisis, at the moment. Commodity prices fell dramatically by almost 70 per cent in 2000 and 2001 to an all-time low, and things are only now beginning to pick up.

Indeed, it could be argued that price reductions in certain countries are as much to do with generating demand as passing reduced commodity prices onto consumers.

It would seem therefore that a number of forces are at work over the price of coffee in Europe. Each country - for the time being at least - has its own tax structure, and domestic competition still varies enormously between borders. One thing is clear though - with commodity prices scraping the bottom, it is third world producers that are suffering the most.