More Bucks for Your Beans

It might seem ridiculous if you’ve gotten used to paying upward of $10 a pound at Starbucks, but coffee is actually an undervalued product, says Ted Lingle, executive director of the Specialty Coffee Assn. of America.

But it’s getting less undervalued all the time. Late last week, Procter & Gamble (which owns Folgers) and Philip Morris (Maxwell House and Yuban) announced that they are raising the retail prices of all their coffees as much as 12% the first week in March.

“I’m not at all surprised that this is happening,” says Lingle. “Coffee has been undervalued as a commodity for a number of years.”

In inflation-adjusted dollars, a pound of green coffee that cost $2.20 in the 1950s now costs $1.20, he says. That’s the result of what was once a veritable ocean of surplus coffee.

“That surplus was keeping overall cost of product extremely low,” says Lingle. “Essentially, we were selling surplus instead of real product.

“But because prices remained low, producers were not investing in new trees, and they were not increasing production as quickly as they should have. All of that surplus was steadily being drawn down. What’s causing coffee prices to move is that the market is realizing that supplies are getting tight.”

As recently as 1976, world coffee consumption and production were level at roughly 75 million bags a year, Lingle says. But there were also an additional 40 million bags in storage.

Today, although production has increased to 95 million bags a year, consumption has increased even more to 100 million bags. And that surplus, once more than half of annual consumption, has shrunk to about 15 million bags, less than one-sixth of current annual consumption.

The increase in worldwide consumption came despite a drop in American coffee drinking. The rest of the world--particularly the countries of the former Soviet Union and industrialized Asia--has more than made up for it. In fact, while U.S. coffee imports accounted for two-thirds of the global market in the 1940s, today it’s less than one-third.

But, if you’re worried about being priced out of the market for your daily latte, forget it. A pound of coffee will produce about 60 cups, so an increase of even 60 cents a pound would work out to only a penny a cup.