Inside an industry: spilling the beans

Lucy Mair stews over the coffee industry and finds a sector that tastes bittersweet

Cappuccinos on the morning commute, double espressos at the desk, flat whites with friends and café lattes late at night. The speciality coffee culture is booming in the UK and, whether bought from one of the countless coffee shops lining the high street or brewed at home, a recent study claims we consume as many as 511 million cups of java and joe every week in Britain. But the story of coffee, grown by more than 25 million farmers in Africa, Latin America and south-east Asia, traded on international commodities exchanges, and passed from producer, to exporter, to importer, to roaster, to retailer - all before it reaches the bottom of your cup - is far more complex than deciding whether to go half-caff or double shot, skinny or with whip. By all estimates the coffee market is growing, both in the developed world and in emerging markets, but look beneath the milk foam and you'll find a sector where the bitter bean isn't always smooth and sweet.

Coffee has been grown and consumed for hundreds of years. It was discovered Ethiopia, where the plant originates, by Yemeni traders in the early 16th century who carried the bean back with them and gave birth to an influential new café culture in the Arab world. Coffee houses then spread from the Ottoman Empire to Italy, across western Europe and to the Americas during the colonial period. The practice of cultivating coffee has changed little since then: in most cases the cherries are still harvested by hand and dried in the sun, before being milled to extract the bean. But, the way the beans are bought, brewed and sold has been transformed.

Bean to cup

Today, coffee is a multi-billion dollar a year industry and, traded by private agreements and on the international commodities market, it's a key part of the global economy. However, the commodity is subject to high price volatility, which can cause serious problems for both producers and buyers of coffee.

When the supply of coffee beans falls below demand, typically as a result of extreme weather, the market price will rise; in turn, the higher price encourages coffee producers to expand their yield to capitalise on the price increase. Then, when the supply grows to meet - or sometimes exceed - demand, the price will again fall. In the past ten years, the price of arabica beans has fluctuated from a 30 year low of $0.45 (£0.28) per pound in October 2001, following a global oversupply of the crop, to a 34 year high of $3.09 per pound in May 2011, after adverse weather in Central America hampered production. Large corporates use the futures market to lock in the price they'll pay in advance, thereby protecting themselves from price fluctuations - and meaning the price of your morning coffee stays the same from day to day. But independent farmers in the developing world are far more vulnerable to market volatilities.

In 1989, Fairtrade International, the global organisation that works to prevent the exploitation of producers, established a minimum price to act as a safety net for farmers belonging to a Fairtrade-certified co-operative. This initiative has helped to protect a number of smallholders in addition to putting pressure on supermarkets and coffee shops in the west to supply ethically produced coffee. And, in the decade from 1999 to 2009, annual sales of Fairtrade coffee in the UK increased from £15 million to £157 million. Nevertheless, although the price of coffee has risen recently, the amount producers are paid for their crop in real terms remains around 60 per cent less than they received 30 years ago, according to the International Coffee Organisation; hardly a fair trade. Furthermore, coffee farmers are being forced to confront new challenges. For example, a recent study by the Natural Resources Institute (NRI) of Greenwich noted that the impact of climate change could make some coffee growing regions unsuitable for farming the crop by 2050, meaning some farmers will either have to diversify their produce or seek financing to invest in new technology.

Squeezed middle

The good news for farmers is that the demand for coffee, particularly in North America, Europe and Australia, is only going up. Despite the current economic crisis in the eurozone, the European coffee shop market was resilient in 2011 and the number of chain outlets increased by 6.8 per cent - to 11,766 - according to research by Allegra Strategies, a London-based consultancy. The UK is Europe's largest market for branded coffee shops, such as Costa, Starbucks, Caffè Nero and Coffee Republic, with almost 5000 outlets - in addition to thousands more independent coffee shops and cafés. Allegra Strategies' Project Café11 report argues that the growth of speciality coffee culture continues to be one of the most influential consumer trends in Europe, leading to the widespread emergence of demanding coffee connoisseurs. However, there are a number of issues bubbling below the surface.

The coffee market in the UK is becoming over-saturated and competition between cafés is on the up. Coffee drinkers are increasingly price-conscious, which is perhaps why McDonalds, which charges £1.39 for a small latte in the UK, has, for the first time, overtaken Starbucks, which charges £2.15, to become the second biggest coffee shop chain in Europe behind Costa Coffee with its McCafé outlets. Furthermore, as consumers attempt to save money, the popularity of making coffee at home is also dramatically. In December 2011, department store John Lewis reported that it was selling one coffee machine per minute, with sales of premium bean-to-cup machines up 71 per cent on the previous year. As a result, coffee shops are under pressure to provide an authentic coffee experience that can't be achieved in the home or the office. And, where large chains are a failing to deliver on authenticity, independent artisanal coffee shops, such as Shoreditch Grind in London, are quickly picking up the slack by offering high quality coffee and service, as well as an exclusive atmosphere.

The coffee sector in the UK is far from troubled. However, as producers confront challenges and customers' demands change, it seems large coffee chains, the harbingers of the modern coffee movement in the UK, could begin to fall from favour.

David Abrahamovitch and Kaz James

Founders of Shoreditch Grind, an independent espresso bar on London's Old Street roundabout, which opened last June

Why did you decide to set up Shoreditch Grind?

D: We each come from different backgrounds, but we've been friends for about ten years. I'm a UCL economics graduate and have set up a number of small businesses in finance, Kaz is a singer-songwriter, producer and DJ from Melbourne - the home of coffee. It was really a love of coffee and a desire to do something a little bit different that inspired us to give it a go. London's the capital of the world as far as I'm concerned, and yet it's so difficult to find a good cup of coffee. We wanted to change that.

Who is your main competition, and what differentiates Shoreditch Grind from them?

D: We're located next door to a Starbucks, but I don't consider big coffee chains our competition - people will always go to them, and that's fine, but we think there's a much better way to enjoy coffee. We provide a very high quality product that our baristas spend time on, not something that's slapped out on a conveyor belt. If anything, our competition is other independent cafés, but really they're more like friends to us - we're a community.

K: What also differentiates us is the experience and the vibe of the café. We wanted to create somewhere where we could bring music and coffee together, so we've got a recording studio upstairs, where we've had Ronnie Wood from the Rolling Stones and Coldplay.

Have you faced any challenges in setting up the business?

K: It took about 18 months to open, because we did it week by week on a small budget. The biggest drama was finding reliable builders and electricians - they didn't know what they were doing.

D: Getting open was a challenge, but that was just the first ten per cent. The thing that has struck me is that the business needs love every day and it takes a huge amount of dedication because a small business is a hands-on business. It's also challenging to achieve consistency - it's easy to make one coffee, but it's very difficult to make 500 great coffees day-in day-out and keep everything exceptional.

How do you run the business on a daily basis, and balance it with your other careers?

K: Dave looks after the financial side of the business and I take care of the creative aspects. It's also important to have people working for us who we've known for a long time and who we trust to manage the café.

D: We owe a lot of the success of Shoreditch Grind to our amazing team. We pay them well and treat them well because if the staff are happy, they're nice to the customers, and the customers come back.

Do you have any plans to expand?

D: We're actively looking at other sites, but I'm keen that we do things properly. I don't want to suddenly have five stores and see the quality go downhill - we're not trying to build the next Starbucks.

Kate Lewis

Business Development Manager at the Fairtrade Foundation, the non-profit organisation that licenses use of the Fairtrade Mark on coffee in the UK

Why is Fairtrade important in the coffee industry, and what does the Foundation do to support coffee farmers?

Before the Fairtrade Mark was introduced, there was no robust system [to regulate prices] within the commodity trading world for coffee, which meant that producers were receiving payments that were far below their production costs, driving them further into poverty. In response, the Foundation established the Fairtrade minimum price, which is set at a level that provides a sustainable livelihood for coffee farmers and acts as a safety net when the price of coffee fluctuates on the commodities markets.

How do you calculate the Fairtrade minimum price?

We do a full consultation, which includes input from coffee farmers, exporters, commodity traders, importers and commercial businesses in the UK to establish a fair price - currently $1.40 per pound. We also give farmers an additional $0.20 per pound premium, which is paid into a separate account set up by the Fairtrade co-operative. The premium can then be used by the co-operative for whatever they consider to be the most important needs in their community. The fund is often used to build roads, hospitals and education centres, or to improve the quality and increase the productivity of their coffee plants.

How can being part of a Fairtrade co-operative change the lives of coffee farmers?

Last year I visited three Fairtrade certified co-operatives in Peru, and you can see the difference between them and non-Fairtrade farmers because they're able to invest the extra revenue they receive from higher pricing in better processes and improved machinery to develop a business that's sustainable for the future. The formation of co-operatives also gives farmers access to markets worldwide and enables them to provide training in coffee production, resulting in improved productivity levels.

Are you concerned that, due to the current state of the economy in the UK, consumers will look for the cheapest coffee rather than the most ethical products?

It's no longer the case that Fairtrade coffee is always the most expensive option - there's a variety of Fairtrade certified products available that can meet different consumer needs. Despite the economy, we're still seeing year on year double figure increases in Fairtrade sales. It shows that, even though consumers may have less money to spend, they're choosing to buy things that give them a good feeling and meet their values.

What issues will the Fairtrade Foundation seek to address in the future?

Productivity is a key thing that we want to start helping producers with. Many farmers have very old coffee trees that are 50 to 60 years old, but the trees aren't as productive after about 20 years. We want to provide farmers with the ability to start investing in trees for the future so they don't experience a loss of income.

Fairtrade Fortnight 2012 begins on Monday 27 February. To find out about events in your area visit,