Cost of coffee.indd - RISC

wet method
D requires the use of relatively expensive equipment and lots of water, but when done properly
the intrinsic qualities of the coffee beans are better preserved, producing a better quality
green coffee which fetches higher prices
D cherries are sorted and washed in tanks filled with flowing water which carries them into
depulping machines which squeeze the cherries between abrasive discs or cylinders,
removing most of the flesh; the beans are cleaned on vibrating screens and water-washing
channels
D beans tipped into large fermentation tanks where remaining sticky flesh is broken down
by natural enzymes and can be washed away after 24-36 hours; fermentation must be
carefully monitored to prevent the coffee absorbing undesirable, sour flavours
D often the pulp pollutes local rivers but on organic farms it is used to mulch around plants
D the wet parchment coffee contains about 60% moisture and is dried either in the sun (8-10
days), in a mechanical dryer, or a combination of the two
D after drying the coffee is hulled, to remove the parchment, then sorted, graded and bagged
D the wet method is generally used for all the arabica coffees, with the exception of those
produced in Brazil and the arabica-producing countries mentioned above
D it takes about 2000 arabica beans to make one pound of roasted coffee
the coffee market
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D Coffee passes through many hands on its way from the tree to the cup. This chain varies
depending on whether dry or wet processing is used, how far ‘middlemen’ are involved in
processing, tranporting and dealing.
D Until the 1989 the world coffee market was highly regulated. The International Coffee
Agreement, agreed by producing and consuming countries, set quotas for producer countries
which helped to balance supply and demand, and maintain prices within a band of $1.20-
1.40/lb.
D Coffee prices have always been volatile because world production can be affected by
weather, eg frosts in Brazil, or disease. When prices are high, growers plant more bushes or
increase their use of fertiliser, which can lead to overproduction and falling prices.
D Coffee was bought, sold and exported through government marketing boards which set
prices throughout the season. In some countries the boards protected farmers from low
international prices by fixing a much higher internal price, and provided technical advice and
credit. However, producers had to pay high export taxes to provide government revenue and
cover the costs of the boards which were often corrupt and inefficient.
D The quota system collapsed in 1989 and prices are now set on the two big futures markets
– the London International Financial Futures and Options Exchange (LIFFE) which provides
the benchmark for robusta, and the New York Board of Trade for arabica.
D The development of commodity exchange markets has increased speculation by financial
institutions, such as banks and pension funds, which are only interested in making profits
from buying and selling their ‘option’ to buy coffee in the future – they do not intend to
purchase real coffee! These ‘paper’ deals make up about 80% of the coffee trade. The
‘futures’ system protects traders and roasters from price fluctuations but can also contribute
to volatility.
D Under pressure from the World Bank and International Monetary Fund (IMF) most producing
countries have deregulated their marketing system, replacing government boards with
private traders and exporters. However, Ethiopia, Kenya and Tanzania, continue with a
public auction system and Colombia has not de-regulated at all.