Global Coffee Industry: Production, Trade, and Developing Nations

Origins and Early History of Coffee

According to legend, the origins of the coffee industry began when an Arabian goatherd named Kaldi found that his goats reacted strangely around a certain green-leafed bush with red cherries. He determined that the excitement exhibited by the goats was due to the effects of eating these cherries. He also consumed some of the fruit and felt "invigorated"; later, monks were said to have benefited from the plant's qualities, which helped them stay awake during long hours of prayer. Whether this story has any basis in fact is unknown, but what has been determined is that Coffea arabica originates from Ethiopia. The plant was cultivated by the Oromo people in the Kafa Province of the country. Arab traders are said to have transported seeds and established plantations around 1000 A.D. (Coffee, FAO).

The first known coffeehouse was reportedly opened in Constantinople in 1475; the concept later spread to other parts of Europe. Interestingly, Lloyd's Insurance Company was reputedly founded in the back of a coffeehouse in 1689.

The route by which coffee entered Europe is not clearly known, although it has been suggested that it traveled via Turkey. "It is possible that coffee was brought in along the same trade routes that were used to transport gold, valuable gums, and ivory from Africa, and silk and spices from Asia." (Coffee, FAO) Coffee was firmly established in Europe by the 16th century.

Despite the popularity of the beverage today, the story of coffee production is one of debatable success, particularly for developing countries and for the growers and producers of the plant. Today, coffee is grown in more than 50 countries around the world and supplies a livelihood to more than 20 million farmers (Spilling the Beans). However, the recent history of coffee production and international trade has been problematized by declining prices for the raw material running parallel to global demand. Another important factor affecting yields and market value is the intervention of large corporations in the marketing, processing, and distribution of coffee, which has resulted in significant problems for farmers in developing countries.

Globally, coffee consumption is increasing, but not nearly as rapidly as production, so prices are decreasing. In 2002, real coffee prices reached historic lows. Many producers are abandoning coffee plantations; others are destroying them. All of this is happening while markets in developed countries are more focused than ever on high-quality coffee. While many consumers are willing to pay more for their coffee, they are actually drinking less of it. Furthermore, increased supply has not been followed by a commensurate decrease in price in most developed countries. (Coffee, FAO)

The coffee bean is harvested from a small tree or shrub that predominantly grows in tropical climates and requires sunshine and moderate rainfall. The coffee plant begins to mature and flower within three years of planting. The two most important factors affecting coffee production are land and labor. Coffee grown in full sun has a productive life of six to eight years, while shade-grown coffee lasts eighteen to twenty-four years — even longer if plants are cut back and harvested from new shoots. The relative value of land and labor can shift over time. (Coffee, FAO)

Economic Importance of Coffee for Developing Nations

Importantly, for any consideration of coffee production in developing countries, it is estimated that the average size of holdings on which coffee is produced has been reduced from the previous commercial size of 500 hectares to holdings of less than 5 hectares — a figure that now represents the average for more than half the global production base.

There are two main species of coffee that make up the bulk of world output: Arabica (Coffea arabica) and Robusta (C. canephora). Arabica was the first coffee to be cultivated for sale and originated in the Ethiopian highlands. The commercial production of Robusta coffee began only after World War II. Generally, Arabica is produced in Latin America and Robusta in West Africa and Southeast Asia.

It is difficult to overstate the importance of coffee to the world economy, particularly for the economic growth of many developing countries that are heavily dependent on the product. "Coffee is the most valuable commodity after crude oil. It is the most valuable agricultural commodity in world trade." (Spilling the Beans) An indication of this importance is that in 2000 coffee exports throughout the world totaled $8.7 billion.

The main countries in which coffee is grown are Brazil, Mexico, Angola, Ethiopia, India, and Vietnam, as well as the Pacific Islands. The annual crop is estimated at 7 million tonnes.

It is estimated that 100 million people, mainly in developing countries, are dependent on the growing, processing, trading, marketing, and retailing of coffee (ICO Annual Review 1999/2000). Approximately 10 million hectares are currently under coffee production. Average annual production amounts to about 8 million tonnes of unroasted coffee, and the "value-added" industry is worth approximately $60 billion worldwide. (McEwan, R.B. and B. Allgood)

The relationship between coffee and developing countries — South American countries in particular — is a central concern of this study. The importance of this crop and its associated processing and trade is illustrated by the following:

"For many developing countries, coffee forms a crucial part of their economies. Despite low prices, it remains one of the most valuable primary products in world trade and a valuable source of foreign exchange. Around 114 million bags of green (raw) coffee are produced annually — the bulk being exported to consumer nations at a cost of $8.7 billion." (Spilling the Beans)

The main coffee-producing countries, ranked by area under cultivation, are as follows: Brazil (2.27 million ha), Colombia (850,000 ha), Côte d'Ivoire (829,000 ha), Mexico (701,326 ha), and Vietnam (477,000 ha). Each of the following countries has between 200,000 and 350,000 hectares planted to coffee: Cameroon, Ecuador, Ethiopia, Guatemala, Honduras, India, Peru, Uganda, and Venezuela. Combined, the top eleven countries account for nearly 74% of all land devoted to coffee and 74% of global production (FAO 2002). This amounts to about 10 million hectares currently under coffee production. (McEwan, R.B. and B. Allgood)

The following list gives an indication — in millions of bags — of the top producers and exporters of coffee as of 2002:

Major Coffee-Producing Countries

Brazil: 26.5 | Colombia: 12.0 | Vietnam: 7.5 | Indonesia: 7.2 | Mexico: 5.0 (Coffee Information)

Latin America and the Caribbean currently represent the largest coffee-producing region in the world, and this situation is likely to continue for the foreseeable future. However, the projected growth rate for the region is expected to decrease from 1.7% during the previous decade to 0.4% annually (FAO Corporate Document Repository). Overall output from this region is expected to reach 4.0 million tonnes (67 million bags) by 2010, compared to 4.2 million tonnes (70 million bags) in 1998–2000. A decrease in Brazilian coffee production is also expected — from 2.1 million tonnes (35 million bags) during 1998–2000 to 1.3 million tonnes (22 million bags) by 2010.

Brazil is unquestionably the world's largest coffee producer, having yielded an estimated 1.8 million tonnes in 2001 (Spilling the Beans). After Brazil, the most prolific producers in order are Vietnam, Colombia, Indonesia, Côte d'Ivoire, and Mexico, followed by India, Guatemala, Ethiopia, Costa Rica, and Uganda. Brazil is both the world's largest Arabica producer and the second-largest Robusta producer after Vietnam.

The Brazilian economy is heavily dependent on coffee production. Coffee has been strongly tied to the vicissitudes of the Brazilian economy and served as a driving force in the earlier acceleration of Latin American economic development. Coffee provided a foundation from which to launch nascent Latin American economies toward development. The Liberal Project that gained political footing throughout the region saw coffee as the vehicle to national wealth. Coffee plantings began to spread across the countryside, displacing cattle, sugarcane, and subsistence crops, and extended into lands never before used in agriculture.

The coffee business in Brazil has undergone some precarious changes in recent decades. In previous years, "coffee lured inhabitants toward the interior of the country and transformed a mostly agrarian society into a modern nation. From the beginning of the century until the 1960s, this commodity was essential to the survival of the country." (ROSANNA M.)

The coffee market was so significant to the country's economy that the Instituto Brasileiro do Café (IBC) was established to administer it. However, some fundamental mistakes were made regarding the way in which production and quality were determined. "Under IBC policy, the price differential between a high-quality coffee and a low-grade bean was minimal. While the plan was initiated in the best interest of the economy, the bottom line was that, without incentive to produce quality, most of Brazil's farmers focused their energies on producing volume instead of taste." (ibid.) The IBC was dissolved in 1991, and the industry was essentially left without clear direction. This uncertainty was compounded by the frost of 1994, which created havoc for the industry. However, in recent years efforts have been made to reconstruct the industry and establish a more stable and organized framework for production.

In this regard, the Brazilian Specialty Coffee Association (BSCA) has been instrumental in improving the quality and international prestige of Brazilian coffee. "BSCA meetings are held to discuss ways to improve harvest, coffee processing, and the overall product. There is a quality control structure in place that evaluates practices and monitors quality. The organization also promotes the exchange of experiences, information, and technology among its member companies." (ibid.)

Brazil has a large domestic market for its coffee, with a population of 160 million people. The domestic market accounts for 40% of unroasted beans — broken down into 8 to 9 million sacks used by the roasting and grinding industry and 0.8 million sacks for the manufacture of instant coffee. Of the 60% that is exported, about 2.4 million sacks are used to make instant coffee while about 15 million sacks are exported as green beans. (Coffee, FAO)

During March–October 1999, Brazil harvested 27,170,000 bags (60 kg) and exported 23,135,000 bags during the same period — an indication of the ratio of export to internal consumption. Significantly, coffee consumption within Brazil grew from 8.2 million to 12.7 million bags over the previous ten years. (Exportation Statistics)

Plans for the future of Brazil's coffee industry include further expansion of consumption, market segmentation, and an increase in exports of roast and ground coffee. "The goal is to reach 15 million bags of internal consumption and 1 million bags of roast and ground exports in a few years." (ROSANNA M.) Brazil exports to almost every coffee-consuming country in the world, with the main importers being the United States, Germany, Japan, France, and Italy.

Colombia is also an important coffee-producing country, with an estimated 10.5 million bags produced annually. It is the only South American country with access to both Atlantic and Pacific ports, which is a distinct advantage for shipping and export. The importance of coffee to the national economy is such that all vehicles entering the country are disinfected in case they might carry bacteria harmful to coffee crops.

The coffee industry in Colombia is specifically oriented toward export, and Colombia is second only to Brazil in world trade. Columbia is renowned for the quality of its coffee, although one disadvantage is the rugged terrain, which impedes transport and therefore processing and export. Among its distinctions, Colombia is the largest producer of washed coffee as well as the largest exporter of Arabica. During the periods October–February and April–June 1999, Colombia harvested 9,300,000 bags (60 kg) of coffee and exported 9,995,000 bags. (Rice, 554)

In the Amazon region there are approximately 130,000 hectares of coffee divided into 25,000 coffee farms — an average of 5 hectares per farm (Product Profile: Coffee Extracts). The average yield for this region is 500 to 700 lb. per hectare per year of pilled coffee (2,500–3,500 lb. of cherry coffee). All the coffee grown is of the Robusta variety, and the production yield of these Amazon provinces represents 60% of the country's total Robusta production, amounting to around 600,000 bags per year. Notably, Ecuador is one of the few countries in the world where both Arabica and Robusta are produced, and production in this region is entirely for local consumption.

Indonesia is one of the largest coffee-producing countries in the world, with an estimated 6.7 million bags produced annually. Both Java and Sumatra produce high-quality Arabica, and the Indonesian archipelago is the world's largest producer of Robusta. Most growing takes place on small farms, and coffee is mostly dry processed.

Indonesia is also known for its fine aged coffees. Traditionally, these were coffees held over a period of time by farmers who wanted to sell them at higher prices. Warehousing, it was found, gently aged the coffee in Indonesia's warm, damp climate, resulting in a product prized for deeper body and lower acidity — a process that cannot be replicated by technology (National Coffee Association of America Inc.). Indonesia contributes approximately seven percent of total world supply and is the third-largest coffee producer worldwide.

Vietnam — with approximately 5.8 million bags produced annually — has become one of the major players in the world market. French missionaries introduced coffee to the region in the 1860s, but there was only minimal production until 1980. The industry has expanded significantly since then, and there are even concerns that it is growing too rapidly. Vietnam is known for its production of Robusta beans and is the fourth-largest Asian coffee producer overall.

Mexico is another important coffee-producing and -exporting country. There are over 100,000 small farms in the country generating an annual crop of over five million bags. Mexico is also the largest exporter of coffee products to the United States.

Ethiopia, as noted, is the original home of the Arabica coffee plant and is Africa's top Arabica exporter. Over 12 million Ethiopians make their living from coffee growing, processing, and export.

Coffee production in India operates under the control of the Indian Coffee Board. India produces about 3.9 million bags a year and cannot be excluded from any overview of major coffee-producing countries.

Côte d'Ivoire was the second-largest producer of Robusta during the 1990s. However, quality declined in the bid for increased production. Some commentators attribute the drop in quality to a lack of investment in the industry. (Top Ten Coffee Producing Nations)

Uganda produces more than three million bags of Robusta per year but very little Arabica.