Magazine article Newsweek

The Coffee Quandary: Why Does a Vente Latte Still Cost $4 When Bean Prices Are Plunging?

Magazine article Newsweek

The Coffee Quandary: Why Does a Vente Latte Still Cost $4 When Bean Prices Are Plunging?

Article excerpt

Drinking exotic coffee may be the new national pastime, but producers are fighting off one serious caffeine headache. In the past year, overproduction has caused the price of unroasted coffee to plunge more than 40 percent, devastating the small farmers who produce most of the world's crop. In Colombia, some predict destitute farmers will turn to growing coca or poppies, and the plight has even created coffee refugees. The 14 Mexican migrants who died crossing the Arizona border a few weeks ago were mostly failed coffee pickers. "This thing is a disaster for these countries," says Starbucks president and CEO Orin Smith.

But as suppliers suffer, Starbucks is having a blockbuster year, recording $629 million in sales in the second quarter. In fact, while the price of unroasted coffee beans fell, Starbucks raised its rates. "Why in the hell aren't farmers getting more if we're paying four bucks for a cup of coffee?" asks Robert H. Bates, a coffee expert at Harvard. According to Starbucks, the answer is simple: coffee beans account for only a minuscule fraction of the price. The biggest expenses are paying salesclerks and rent bills. Still, some say big coffee companies like Starbucks, which has aggressively sought to position itself as a socially conscious firm, should do more to make sure small producers share its good buzz.

Blame the weather for the crash in prices. In Brazil, a major frost in the mid-1990s cut supply and encouraged runaway planting. …

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