The current price for a pound of Arabica coffee beans on international commodity markets is $3.84. That’s an all-time high and a boon for coffee producers. But those commodity prices could soon filter down (no pun intended) to coffee drinkers around the world.
How do major coffee purchasers such as Starbucks negotiate with producers? How is the history of colonialism still legible in the coffee trade? And what’s the link between coffee and the start of democracy?
Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: What qualifies coffee as a global commodity to begin with?
Adam Tooze: A commodity, generally speaking, in regular parlance is any good that’s bought and sold that is used to manufacture other goods. So they’re inputs in the production of other goods and services rather than finished goods sold to consumers, notably those under a brand name. So commodity also implies interchangeability. You don’t care about the specific delivery you’re getting. You’re just buying so-and-so many tons of X product. When we talk about the oil market as the most gigantic commodity, all the oil specialists will tell you that actually Venezuelan oil is completely different from Texas, which is completely different from Brent. But each one of those then is a commodity that’s traded, and you don’t need to inquire into the specific drilling platform it comes from. So oil’s a commodity, coal, iron ore, coffee, cocoa, wheat, but also certain generic memory chips as opposed to Nvidia high-end chips, where the particular chip and the particular manufacturer matter.
Historically speaking, for coffee, we think it was first used—this is, according to legend—by a goat herder in Ethiopia who discovered coffee’s energizing effect. Sufi monks in Yemen used it. It’s coming out of the Horn of Africa, basically. It became a staple in Yemen and other parts of the Middle East and then spread to the Ottoman Empire and from there to early modern Europe. It was controversial, initially. The Catholic Church had to have a big debate about it in the late 1500s. And Pope Clement VII, in fact, ruled on the permissibility of coffee, which is why certain Christian sects like the Church of Jesus Christ of Latter-Day Saints, the Mormons, abstain from drinking coffee because they think it’s an impermissible stimulant. By the 17th century, it’s reached Italy, North Africa, the Middle East, India, the East Indies, Western Europe. Coffeehouses began to open in London in the 1650s. The first one is Pasqua Rosée’s Head, which opened in 1652. This was a Greek servant of a Turkish coffee importer who set up the first coffeehouse. It reaches the Americas in the 1800s. And this is the consumption side.
And the other side of a commodity is also bulk production, and part of that is driven by the story of the outward spread of coffee production from the Horn of Africa, East Africa, to Java in the 1690s by the Dutch colonists to Martinique, Saint-Domingue [now Haiti], by the French and then crucially Brazil, which by the 1840s or 1850s is the largest coffee producer in the world, accounting for about 40 percent of production. And that’s possible because of the coffee industry’s reliance on chattel slavery. So, by the first half of the 19th century, about 1.5 million slaves are involved in Brazilian coffee production. When the foreign slave trade is outlawed, the Brazilian plantations go on using slave labor from domestic populations until slavery is finally abolished in Brazil, which is really late, in 1888.
Today, Brazil remains the dominant producer, 37 percent. And then next, it’s kind of fascinating—you might think Colombia, maybe Indonesia or Ethiopia, if you’re thinking history. But no, Vietnam is the second-largest global producer, accounting for 17 percent. Colombia and Indonesia 7 or 8 percent each. And Ethiopia, the original home of coffee, is only 4 percent. And that’s actually a big issue right now with the European Union because coffee is a small-scale peasant production in Ethiopia and the EU is imposing land-use rules that are a burden on them.
CA: How do major coffee purchasers such as Starbucks interact with this commodity market? Does Starbucks gain leverage over its suppliers in some way?
AT: Starbucks buys coffee from 400,000 farmers in more than 30 countries. So there is a huge inequality in size, corporate power, and so on between Starbucks and the people who supply it. And so fair trade coffee, if you’re concerned about global equity, they are definitely worth it. This is something where, you know, consumer choices in the rich markets can make a difference on a small scale, of course, to individual farmers and individual buyers.
But the thing about the coffee market, unlike the cocoa market, is that buying is relatively dispersed. So Starbucks, which is the biggest buyer of coffee worldwide, buys only 3 percent of the global turnover of coffee. And so if you read about the Starbucks operations, it sounds like a company that is basically more like a big financial market. So Starbucks has to hedge itself against the risk of large fluctuations in the global coffee price. So that price you started by quoting is a huge challenge for Starbucks.
And it’s very interesting to see how they do this. For a long time, they were relying on fixed-price contracts, which is a way of securing yourself against the future. Of course, the risk is the price falls and then you’re paying over the odds. But if you go for long-term fixed-price contracts and the price moves, you basically have to post collateral because you are exposed to a risk. And the banks that allow you to engage in the forward transaction want to know that you can cover the risk. And that then becomes expensive in its own right.
And Starbucks right now is reducing its hedging program and being willing, therefore, to take more risk on this market. This is not the talk of a massive monopolist. This is a very large, very sophisticated company. But in relation to the market for coffee, it’s not the single dominant player. It’s having to hedge itself against risk. And so what Starbucks does increasingly on a large scale is actually hold stores of physical coffee. So rather than doing it by way of contracts, they hold about $920 million worth of green and roasted coffee ready to go as a buffer against spot market volatility.
The news that you are quoting about high prices is good for coffee farmers all over the world. The problem is in the small traders in between. So you’ve got a coffee farm, you’ve got an exporter, you’ve got a big buyer, and the exporter is caught in between, with Starbucks trying to demand a fixed price and the farmers driving prices up. And the coffee exporters in between have been under huge pressure because they have to raise debt to pay the farmers and they’re not always able to get that back when they sell into the market. So it’s a market undergoing major pressure, and the biggest player in it accounts for 3 percent of it.
CA: Is the history of colonialism still legible in today’s coffee trade?
AT: So the entire world economy is still, to a very considerable extent, a mirror of the colonial era, right? The richest countries in the world are themselves imperial players, and the poorest countries are the victims of colonial politics. And that’s a given. But it’s very striking. For some commodities, those effects have leveled out. So cellphones, for instance. You know, sub-Saharan Africa has very, very complete cellphone coverage now. Even though it’s home to, by far and away, the poorest people in the world and has not found the place in the global division of labor it needs. And in certain areas, in limited areas of technology, they are at the races. But in other respects, in terms of basic capital equipment, they are not. And also with regard to different types of consumption—like coffee consumption—not. And so this is where you really see the legacies of colonialism still inscribed.
I think you’d have to say with coffee, it’s mainly cultural patterns. So there’s incredibly high coffee consumption especially in Northern Europe. I mean, it’s really bonkers numbers. Like, Finland has the world record of 26 pounds of coffee per head per year. That’s half a pound of coffee per person per week. I mean, it’s really insane. They must just drink it continuously. Brazil is in 14th place with 13 pounds per head. The United States, actually, is relatively modest, 25th with 9 pounds. But the frontier of coffee expansion is China, where coffee has become a status symbol for young Chinese. Bubble tea, as well, but coffee is the cutting edge of Western-style consumption. And that’s a giant market because currently Chinese consume about half a pound of coffee per capita. In the big cities, it’s way more than that, but that’s across the whole country. And so, if you’re in the coffee business, seeing whether you can break into that market is a gigantic possibility. And so there has been really large-scale mobilizations of capital in the hope of building a Starbucks for China, a coffee chain with that kind of penetration.
CA: The German philosopher Jürgen Habermas wrote about how coffee is deeply linked to the rise of political liberalism in the West via coffeehouses as places where people began meeting and talking about politics. What specific role does coffee play in that story?
AT: This is Habermas’s classic second dissertation, The Structural Transformation of the Public Sphere. For Habermas, it was actually rather an important kind of expansion of the Marxist argument because he wanted to show that modern development and capitalist development made promises to democratic open discourse that it fails to deliver on. His argument was that early modern capitalism, through this trade in coffee, opened up spaces of discourse—the coffeehouses that were spreading in London from the middle of the 17th century. So these were places that you could go and drink a cup of something stimulating but not get drunk. These were new innovations, new places of meeting, where there was this aristocratic mingling with the new commercial bourgeoisie. And this, for Habermas, is what makes them so central.
And, you know, it was recognized at the time. I mean, by the first decade of the 18th century, there were 3,000 coffeehouses opened across Britain. And the British government was very concerned about this. And in 1675, King Charles II, the restored dynast after the English revolution had beheaded his father, when he comes back to London, one of the things he does is to issue an edict against dissenting talk in coffeehouses. And not without reason. In the clash between Britain and its colonies in North America 100 years later, the coffeehouse again plays an absolutely crucial role. I mean, folks will know, of course, that tea and the taxation on tea became one of the key issues driving the rage of the colonists in New England against London. And as a result, the Continental Congress declared coffee America’s national drink to protest the British taxation. And in Philadelphia, in Boston, in Williamsburg, coffeehouses were centers of political ferment in the United States, as well, in the 18th century. That’s a role they also played in the French Revolution a couple of decades later. And the colonial history of the United States and its revolutionary history is also directly tied up with coffee. So, in that history of the liberal revolution, so called, of the early modern and 18th century, coffee plays a very important role.
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