To go Further: Coffee Economy

Discovered in the 12th century in Ethiopia, coffee is today a universal drink, grown throughout the tropical belt, between the Tropic of Cancer and Capricorn. Agricultural commodity traded in the world, and second raw material in value after oil, coffee is now very significant economic stake. Indeed, production sustains some 18 million people, while the import, processing and distribution are living about 100 to 110 million people. Global trade in coffee between producing and importing countries are, depending on the year, between 10 and 15 billion dollars.

The main producers are:

• Brazil with an annual production of around 45 million bags

• Vietnam with annual output of around 15 million bags

• Colombia with an annual production of around 11 million bags

The production is very peasant as family farms (less than 10 hectares) account, by country, from 80 to 100% of production in Africa and Asia and 60 to 80% in Latin America. Consumer side, it is eaten about 1.5 billion cups of coffee every day in the world. In France, the annual per capita consumption is estimated at 5 kg or 2 cups a day.

Coffee and stock exchange

Coffee is traded on the futures markets: London for Robusta and that of New York for Arabica.

The futures markets are speculative instruments attached to an underlying (in this case Arabica coffee in New York and London Robusta coffee). The course of these markets changes according to movements related to speculation. It may at any time buy coffee for an upcoming delivery period. A contract is then established between the parties, who agree to honour their commitments. The seller has an obligation to deliver and the buyer a payment obligation at the current fixed.

The "coffee" trading of the futures market in New York for Arabica and in London for Robusta corresponds to a number of underlying based criteria. The "Arabica" rating in New York is expressed in cents per pound weight Dollar (0,453gr) Departure country (without charges for insurance and transport) for a quality called "ordinary" of various crops and origins.

The quotation "Robusta" London is expressed in dollars per ton from the country of origin (without the cost of insurance and transport) for quality "grade 2" screen 14-16, without specifying the origin. Depending on the origin and the quality of coffee (soil, crop type, number of defects, grain size, crop year ...), a premium or "differential" is applied at the market. According to supply and demand, this premium is negotiated each purchase with the producer or exporter.

International Coffee Agreement

Between 1963 and 1989, an international agreement signed between many producers and consumers has set both a floor and a ceiling price and export quotas. The objective of this agreement was to regulate the futures market to ensure remunerative returns to producer’s countries while ensuring the level of exports to consumer countries. In addition, this agreement allowed the European economy to preserve their former colonies. After numerous disputes between signatory countries, the agreement ended in 1989 giving way to free trade.