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  • QA 188
    Question:
    Who along the coffee value chain gets what portion of the retail price?
    Background:
    In terms of the global coffee value chain I wonder "Who gets what portion of the overall pie?" I.e., if coffee sells at US$10/kg retail, what portion of this goes to the grower, processor, exporter, shipper, importer, roaster & retailer? I know there are considerable variations in these data. Nevertheless, perhaps some rough guidelines exist?
    Asked by:
    Exporter/trader - Nepal
    Answer:

    Q&A 142 in our Q&A Archive suggests that, in general, the grower's share of the retail price of coffee ranges from around 7 to 10%. It is difficult to be more precise, also because data on grower or farm gate prices for specialty coffee are hard to come by.

    However, Q&A 142 contains a good example of the different parts and costs in the value chain. The calculation in question suggests around one third of the retail price represents retail costs and margins. The cost of roasting, packaging, distribution and margins takes up about 54% with green coffee processing and export costs another 5% or so, leaving the remainder for the grower. Of course there are many variables to consider, not least also whether coffee is dry or wet processed, whether it is of high quality or mainstream (see topic 03.01.10 of the Guide), and whether the origin can be identified at the retail end. And roasters do not usually disclose details of their green coffee purchases…

    But, one interesting exception is found with Peace Coffee athttp://www.peacecoffee.com/home.htm where a click on 'farmer profiles' brings up contract details and FOB prices. We cannot determine whether the prices in these contracts are still directly related to the retail prices offered and so the following is an assumption only.

    Harar coffee from Ethiopia was contracted at US $ 1.59 per lb FOB which equals 16% of the presently quoted retail price of US$ 9.95/lb. Using the same calculation from FOB back to the farm gate as used in Q&A 142, this leaves US$ 1.17/lb or about 12% at the farm gate level. Note this is inclusive of the Fairtrade premium - see section 03.06 of the Guide for more on Fairtrade.

    In another example on this interesting website Peruvian coffee is contracted at US$ 1.56/lb FOB and Sumatra coffee at US$ 2.00/lb. A blend of these coffees is quoted at US$ 11.95/lb at retail. Assuming the blend is a 50/50 split this gives an FOB price of US$ 1.78/lb. Using the same calculation again leaves US$ 1.37 or about 11% at the farm gate level, again including the Fairtrade premium.

    We cannot state these figures are accurate but they suggest that around 10% might be a reasonable ballpark figure for average quality specialty coffee, probably a little more when the coffee is marketed under the Fairtrade label. However, this is not to say that producers of exemplary or top quality coffees do not receive more. Some realise considerably more, depending on their status and marketing arrangements. However, it is not within the scope of this website to collect such information.

    One should also bear in mind that Value Added Taxes on coffee at the retail end vary enormously from importing country to importing country, making it even more difficult to be exact. For example, VAT of 25% in Denmark means that the grower's percentage share of the final Danish retail price will work out lower than for the same coffee sold in France, where VAT is 5.5% only…

    Much more information is readily available on the share of growers in the FOB value of coffee. Q&A 112 in the Archive explains the data available at the International Coffee Organization - ICO: go to www.ico.org. There are huge differences between countries: for example from as low as 40% against Brazil currently well over 90%! And, as pointed out in Q&A 112, the efficiency (or lack thereof) of a producing country's coffee marketing chain also has enormous influence on the final price growers receive!

    Posted 07 April 2008

    Related chapter(s):
    Related Q & A:
    Q&A 079, 112, 142