The Coffee Book by Nina Luttinger

Author:Nina Luttinger
Language: eng
Format: epub
Publisher: The New Press
Published: 2011-06-02T16:00:00+00:00

When you buy a pound of coffee at your local supermarket, you are buying more than coffee. You are buying the packaging, the transportation, the roasting, the grading and sorting, the processing, and the picking that had to take place before you and the beans could meet up—a series of economic linkages between the producer and the user known as the value chain. Each link in the chain comprises a different phase of ownership, during which the product (coffee in this case) is transformed in some way.

For coffee, the generalized value chain consists of growing, primary processing, export, shipping, distribution, roasting, packaging, redistribution, brewing, and drinking. There can be more or fewer links in the chain depending on the specific circumstances of a given bean.

Most commodities are traded not only physically but as futures as well, and have specialized markets that coordinate this activity. In the case of coffee, the two most important global exchanges are the Coffee Terminal Market of London (robustas) and the Coffee, Sugar, and Cocoa Exchange of New York (arabicas). On these exchanges, participants can agree to a sale of coffee at a set price at a given time in the future. When the time arrives, that price is locked in, regardless of what is happening in the market.

In this way, large buyers can use the futures market to “hedge” their purchases. Hedging means taking a futures position opposite to their actual purchasing, so, no matter what happens in the market, they will both win and lose, and thereby obtain price stability.

Because the coffee supply can be so drastically altered by weather, the ability to absorb future risk in this way is an important component of a smoothly running market. In July, during the Brazilian winter, coffee traders worldwide monitor the weather there much more closely than the weather in their own backyards. At the slightest hint or even rumor of a frost a frenzy of trading can erupt, sending traders scurrying around amid a frantic din of yelling and screaming.

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