We all love a good cup of coffee, but the industry is not always the fairest of them all. Scott McCulloch considers the implications for family businesses.
It gets us going in the morning and it drives economies. As a commodity, coffee is unlike no other. More than 2.25 billion cups of coffee are consumed in the world every day.
In the US alone, the total economic output of coffee and its peripherals exceeds $225 billion or roughly 1.6% of GDP, according to the country’s National Coffee Association.
There are 25 million small producers who rely on coffee for a living worldwide. Many are family businesses.
The industry, with a commodity chain of producers, agents, exporters, roasters and retailers, is complex, sensitive to price fluctuation, voluntarily subject to fair trade practices, and increasingly at risk to climate change.
There is growing consensus among experts that climate will severely affect coffee crops over the next century.
Wild coffee species are under threat, with 60% of them facing extinction, including Arabica, the world’s most popular form of coffee, researchers say.
Most coffee species are found in the forests of Africa and Madagascar. And they are threatened by climate change, loss of habitat, diseases and pests.
Aaron Davis, head of coffee research at Britain’s Royal Botanic Gardens, says among the coffee species threatened with extinction are those that could be bred as disease- and climate-resistant coffees of the future.
Some 45% of coffee species are not found in living collections and 30% have no protection in the wild, Davis points out.
“Given the importance of wild coffee species for crop development and long-term sustainability, these are worrying figures,” Davis says.
Climate change will affect coffee crops over the next century
The implications of climate change are not lost on the industry’s key players. Andrea Illy, third-generation heir of the Illycaffè dynasty, last year struck a deal with JAB Holdings – an investment company owned by Germany’s Reimann family – to produce and distribute Illy coffee capsules.
The alliance was a strategy to adapt to globalization and competition from giants like Nestlé, as well as the emergence of micro-roasters.
Illy, chairman of the Italian coffee group, sees the tie-up as the best option for his family business to thrive and avoid winding up in the hands of a multinational.
The company is also wary of climate upheaval, which is why the 86-year-old firm intends to sink the carbon emissions of its manufacturing plant in the same soil where it grows its coffee.
“In 50 years’ time some lawyer will come and make you pay for the liabilities you create today, Illy told the Financial Times in July. “This responsibility goes beyond a humanistic one. It is an economic one.”
Illy, who three years ago hired an outside chief executive (Massimiliano Pogliani, a former executive at Nestlé’s Nespresso) for the first time since the company was founded in 1933, describes his actions as stakeholder-driven rather than shareholder-driven.
Sustainability is trending. Yet coffee-producing countries lament that while many large multinationals act on sustainability, their well-meaning activities are offset by unpopular commercial practices.
The 2018 Coffee Barometer Report, produced by a group of sustainability and non-government organizations, reached a similar conclusion.
“Whereas coffee companies are busy conquering markets, cutting costs and driving efficiency, coffee farmers on their end are struggling to get their fair share of the total value added in the coffee industry,” the report stated.
“Economic inequality is rising, as prices paid to farmers have been falling for decades often reaching levels well below the poverty line.”
Illycaffè has paid its growers on average 30% over market value for decades in order to maintain its supply of top Arabica beans. Not all companies are so generous.
The value chain tends to work best from the top down. Much happens after coffee berries are harvested. Processors wash the berries to remove the raw beans from the fruit, dry them and then prepare them for export.
Bagged green beans go through middlemen (importers, traders, and exporters) and on to roasters, who take an estimated 80% of the wholesale coffee price.
Growers take a little more than 10%, according to the International Trade Centre’s Coffee Exporter’s Guide.
The playing field is long overdue for leveling, says the Coffee Barometer.
“While coffee is increasingly lucrative with a retail value of $200 billion in 2015, less than 10% of the aggregate wealth stays in the producing countries.
Perhaps more family businesses can change that for the better.