'It's just not worth a bean. No pun intended,' sighed Ciaran Brady, a New York coffee trader reflecting on the worst week in his professional career. 'Coffee is worthless. We can't get a margin. Man, it's demotivating.'
Brady is miserable because he bought options on Brazilian coffee late last year worth hundreds of thousands of dollars. He thought frosts in central America would destroy crops and drive up prices. Brady got it badly wrong. The frost came, but not until after the coffee was harvested. The crop survived and Brady's coffee is worth a fraction of what he paid for it.
Maybe it's only the reality of losing money that links a New York commodity trader to a Third World farmer. But as the price of coffee on the New York and London futures markets fell to its lowest level in almost 36 years last week, 10 million growers in Uganda, Tanzania, central America and South East Asia have been left destitute. Yet hardly anyone noticed.
No tabloid campaign was launched into why the likes of Starbucks get away with asking £3.35 for a raspberry mocha chip cream frappuccino when the price of coffee beans has never been cheaper.
'The price of coffee beans is just one of many factors that determine the price of a cappuccino, latte or espresso,'said a Starbucks spokeswoman. What is happening on the world commodity markets has 'no effect' on pricing policy.
Starbucks may have a point: although it declined to say how much coffee beans accounted for in total costs, industry insiders reckon soaring rents for prime inner-city sites, plus staff costs, mean coffee chains typically make 25p for every £1.50 cup of coffee. But the profits of multinationals such as Nestlé's remain unaffected. 'They've got to take action to protect the supply chain,' said one industry expert.
Last May, the bodies of two Mexican coffee growers were found in the Arizona desert. They had left their farms and paid a people-smuggler to get them to America in the hope of finding work. They'd died of thirst.
'The effect on producers has been very serious,' says Pablo Dubois of the International Coffee Organisation, which represents coffee producers and their governments.
Coffee prices have been in free fall since they peaked in 1995 at over $4,000 a tonne. And yet the retail price in rich countries is still rising. In real terms, world coffee prices are now less than a quarter of 1970 levels and, with the possible exception of growers of the highest-quality beans, almost all coffee producers are selling their crops at below cost.
This may seem surprising given that coffee-drinking is in vogue in the West as never before. In Britain alone, the UK coffee shop market grew by 55 per cent between 1997 and 2000 and is not expected to reach saturation until 2003.
The main reason for the downward lurch in coffee prices is oversupply. In recent years the market has been flooded with beans produced at prices well below the production costs of high-quality 'estate' producers.
New strains of coffee plus intensive farming methods create bigger yields. And even as prices plummet, retailers play producers and countries off against each other to beat down prices further.
Prices have been volatile since an agreement guaranteeing a minimum price for coffee producers was scrapped in 1989. Spurred on by the International Monetary Fund and the World Bank, Vietnam has in the past five years doubled its production of generally low-quality robusta beans. It is now the world's second-largest producer after Brazil, accounting for a tenth of total global coffee output.
Traders blame the latest plunge - to as low as $464 a tonne for robusta - on speculators selling coffee futures contracts in the expectation that damaging frosts will not arrive before the end of the harvest. Coffee buyers such as Nestlé and Jacob Suchard, which dominate the market, are also said to have ample stocks.
All of which means more misery and hardship for those who make a living from growing coffee around the world. They ought to earn a decent income, because coffee is still the world's second most valuable commodity after oil. But the reality is rather different.
According to ICO figures, 10 years ago the world coffee economy was worth $30 billion, of which producers received $12bn. Today it is worth $50bn, with producers receiving just $8bn. Which means that although the value of the coffee trade has increased by two-thirds, the share going to producers has fallen from 40 per cent to 16 per cent. But this is hardly surprising given the way the coffee trade is structured. From tree to supermarket shelf or café bar it is estimated that coffee beans can change hands as many as 150 times. Producers sell to local traders, who sell on to international traders, who sell on to commodity traders.
Then the roasters sell to the likes of Nestlé, Sara Lee (which owns Douwe Egberts) and Lavazza. Many major retailers also deal directly with growers. Growers keep only a tiny share of the price consumers pay for the crop.
A recent report by the Fairtrade Foundation, 'Spilling The Beans', summed up the consequences. 'Small, independent farmers find themselves in a weak negotiating position. They are prey to local dealers, who buy the coffee and sell it on to international markets. With only one major harvest a year, farmers are desperate for cash by the time their crop is ripe and are keen to sell at whatever price they can get.' Many farmers have got together to set up co-operative marketing ventures that enable them to bypass the middlemen. But as the report notes: 'All too often even they cannot get finance from local banks to buy the crop, and members still sell to local traders for cash, rather than wait for a better price.'
Fairtrade schemes, which guarantee a price to the farmer at a premium to world commodity prices, may genuinely help some growers but they account for only 1 percent of the entire market.
Until international governments, traders, roasters and growers agree a plan to manage the supply of coffee, prices will remain in the doldrums unless some natural disaster wipes out a country's entire crop.
And that is by no means an ideal coffee break.
A load of froth
Price of regular cappuccino
Pret a Manger £1.15
Costa Coffee £1.30
Caffe Nero £1.60
Coffee Republic £1.70
Starbucks £1.75
