The End of Cheap Coffee: Why the Diner Staple Is About to Become a Luxury The End of Cheap Coffee: Why the Diner Staple Is About to Become a Luxury
The GOOD Life

The End of Cheap Coffee: Why the Diner Staple Is About to Become a Luxury

by Zak Stone, Dan Matutina

November 20, 2011

On a rainy Wednesday afternoon in Venice, California, Dan Kougan spreads out three shot glasses in front of a curious audience. The champagne-colored liquid bubbling on the left is a homemade hops soda. The creamy, tan shot in the middle is a barley-chocolate malt topped with a tuft of steamed milk. And the chestnut-hued beverage on the right, the raison d’être of this whole ordeal, gives off the unmistakable scent of fresh espresso, extracted from the highest-quality coffee beans the developing world has to offer.


“We think our coffee is ridiculously cheap,” says Ben Kaminsky, director of quality control at Ritual Roasters in San Francisco, where a pound of beans starts at $19.95. His sentiment is echoed by many working in high-end coffee. “It’s interesting to me that the same consumer that will go to 7-11 and buy a bottle of Fiji Water for five dollars will go crazy and complain about a cup of coffee,” says Geoff Watts, Intelligentsia’s vice president and green (unroasted, that is) coffee buyer. “This is a meticulously grown agricultural product from halfway around the world that was hand-harvested, hand-picked, and roasted and brewed. It’s got all these different flavor characteristics. It’s got antioxidants. It’s got all the things you could want in a drink.”

A luxury drink, that is. “Coffee as cheap fuel for the masses is a historical anomaly,” says Peter Giuliano, director of coffee at the North Carolina-based roaster Counter Culture. “There’s no nutritive value. It’s drunk just for the pleasure of it. It’s a total miracle of global agriculture, a feat that spans cultures and countries.”

Mother Nature might be on the side of Giuliano and his cohorts. At the exact moment that rare beans are becoming all the rage, all beans are becoming rarer. The price of a cup of coffee—whether it be a $6 pour-over, a $2.50 dark roast at Starbucks, or a $1.50 mug of diner swill—is being driven up by a complex combination of weather events, pest and fungus outbreaks, speculation on commodities exchanges, an unstable labor market in the developing world, and an unprecedented thirst for good coffee among a growing global middle class. The problem, in simple economic terms, is that supply has gone down and demand has gone up.

“We’re going back to where coffee began,” Giuliano says, “as an exotic, beloved culinary experience.”

* * *

Arabica, the strain of coffee that makes up most of the world’s supply, is a notoriously fickle organism, “the Barbra Streisand of plants: a diva,” as coffee writer Taylor Clark told The New York Times. To develop the complex flavors that drive coffee nerds wild, the best beans demand a lot from their surroundings: tropical climates with warm, sunny days that fade into chilly evenings; altitudes between 1,800 and 2,400 meters; copious rains at certain times of the year; dry spells at others. Low-quality Arabica is abundant throughout low-lying regions of Brazil, where one-third of all coffee comes from. But just a few regions on Earth are hospitable to such a needy guest as the world’s best beans, which grow only in the high peaks of the tropics in East Africa, Central and South America, and Southeast Asia.

The delicate balance in those ecosystems is being thrown off kilter. In Colombia, the world’s third-biggest coffee producer, agricultural scientist Peter Baker has watched while record rainfall, increased heat, and frequent plagues have devastated farms across the country’s Andean coffee- growing region. It was 2005 when Baker “started to think seriously that climate change was not just about the future but was already happening.” Today, the signs are plentiful. Average temperatures have risen nearly 2 degrees in some areas over the past 30 years, “especially nighttime minimum temperatures,” says Baker, “a tell-tale signature of [man-made] climate change.” Hotter, rainier weather nourishes pests and disease, particularly coffee rust, a fungal plague that’s ascended Colombia’s mountain peaks, which were formerly too chilly for the organism. Heavy rains damage Arabica’s delicate blossoms—the same blossoms that eventually turn into coffee cherries, whose seeds are coffee beans. As heat and pests climb Colombia’s mountains, “the lower limit at which coffee is grown is starting to go up,” says Baker. As growers move higher into the mountains, they run into another problem: mountains have tops.

“Over the last four or five years nearly every farmer in every country I work with has experienced climate events that they’ve described as completely out of whack,” says Watts, who helped found Intelligentsia in Chicago 16 years ago. “And these are people that have been growing coffee on those farms for 20, 30, 40 years. ... They’re seeing rain when they had droughts before; they’re seeing droughts when they usually have a lot of rain. They’re seeing hail and frost in places where it didn’t exist before.” Extreme weather events “are happening simultaneously in every part of the coffee-growing world,” he adds.

The result? Between 2006 and 2009, the Colombian yield shrank by a quarter—from 12 million bags to 7.8 million, the lowest yield in 33 years. The forecast doesn’t look good for the rest of the coffee-growing world, either: more pests in East Africa, more hurricanes in Central America, more droughts in Indonesia. Global coffee stockpiles are close to record lows. “There is simply not enough coffee in the world,” Jose Sette, now the former executive director of the International Coffee Organization, told Bloomberg in February. Combine this with other economic realities—the rising cost of fertilizer and the fact that young people, bound for the cities, aren’t following in their parents’ coffee-growing footsteps—and you can understand the term that Peter Baker has coined as a warning: “peak coffee.” Just like with oil, the world is maxing out the volume of coffee it can sustain.

Now Baker is trying to come up with “a toolbox of different methods” to help farmers cope with the rising temperature. But he says that researchers are only in the “early stages of thinking about what we can do for farmers that’s practical. At the moment a lot of people are taking measurements and looking at models and mapping out likely changes.” A game-changing solution, like developing heat-tolerant hybrids, for example, will take at least 10 to 15 years, says Tim Schilling, executive director of the Global Coffee Quality Research Initiative.

While climate change’s harshest effects won’t be felt for two or three more decades, “it would not surprise me if one of these years we get a fairly serious drought” in a major coffee-producing country like Brazil, Baker says. “That could cause coffee scarcity for quite a prolonged period.” Coffee production will continue to experience booms and busts, but Baker asserts that “in the long run, people will have to get used to drinking a bit less coffee.”

Or paying a lot more for it.

* * *

Not long ago, coffee growers had the opposite problem. Coffee was dirt cheap and about as plentiful. In the late 1980s, the Reagan administration was beating the free-trade drum, and the global financial community turned against the protectionist policies of export-dependent economies. The coffee industry’s quota system met its demise in 1989, and overproduction became an issue in the 1990s, particularly in Brazil and newcomer Vietnam, where the industry grew at a breakneck, unregulated pace. At the turn of the millennium, supply often exceeded consumption by 13 percent. From the 1980s to 2002, the global price of coffee declined from a high of $2 a pound to less than 50 cents a pound—when adjusted for inflation, the lowest price paid for coffee in a century. While the value of coffee’s retail sales grew from $30 billion to $70 billion between the early 1990s and 2005, the amount that trickled down to farmers declined precipitously, from $11 billion to $5.5 billion, pushing many small growers deeper into poverty.

Watts calls the prices during that period “unsustainably low.” Farmers barely made enough money to survive, let alone invest in the long-term viability of their farms. Some growers even shifted focus: to pineapples in Costa Rica, soy in Brazil, and livestock in Colombia (as well as drug crops like coca and poppy).

With coffee supplies running short, prices escalated at a rapid clip, outpacing even gasoline’s monumental ascent. Between spring 2010 and spring 2011, coffee roughly doubled in price. On the futures exchange in New York City, the price per pound crossed a frightening milestone—the $3 mark—hitting a three-decade high on May 3, 2011. Peet’s Coffee, Green Mountain Coffee Roasters, and Starbucks announced price hikes. Low-end grocery store staples followed suit. Smuckers, the parent company of Folgers and Dunkin Donuts’ supermarket line, announced an 11 percent price increase on all coffee products. Kraft raised prices by 22 percent on brands like Maxwell House. Since spring, the commodities market has calmed, and major brands have lowered prices slightly.

The coffee industry has downplayed concerns that climate change is causing price fluctuations. “I think at the end of the day, [climate change] could be a canceling effect,” says Judy Ganes-Chase, a consultant to the coffee industry. “It’s not like the world is going to freeze and suddenly can’t grow coffee anymore.” In March of this year, Starbucks CEO Howard Schultz told Reuters that speculators were to blame. There’s still plenty of chatter about climate in the industry, though. “It’s one of the topics at almost any conference, because the conference organizer puts it in there,” Ganes-Chase adds. “Is it having a pronounced impact on the markets today? No. That’s a long-term factor.”

Starbucks was sold. “We think that’s the finest brewed cup of coffee you can make,” Hay says. By 2007 the company was experimenting with a few Clovers in Seattle and Boston. In 2008, it bought the startup that invented the technology, the Coffee Equipment Company, and began testing the machine in more shops. While the Clover had been a hit when it was used with lightly roasted beans, early reviews of Starbucks’ Clover-brewed darker roasts were dismissive. One taste-tester from The New York Times declared, “‘I hate it. That’s really spoiled fruit, like really bad wine.’”

Since then Starbucks has scoured the Earth for better beans and come up with bags of stuff like Guatemala de Flor and Honduras Premier. The coffees, like their crosstown counterparts at Intelligentsia, have terroir and flavor notes. “When sampling these beans in our Seattle tasting room,” reads one bag, “a heady lavender scent filled the air, transporting our buyer back to a coffee estate in Guatemala’s Antigua valley.” The cashier in Marina del Rey describes the brew as “bold.” A half-pound sack retails for $15, about twice as much as Starbucks’ standard fare.

The reaction of the high-end marketplace is mixed. Intelligentsia—which consulted on the Clover’s design, according to Babinski— ditched the gadget after Starbucks’ acquisition. Babinski says that while it made great coffee, Intelligentsia is more interested in manual techniques and educating the consumer about replicating them at home. “There’s nothing a brewer can do to add quality. That quality is in the bean itself,” says Babinksi, who also criticizes the Clover’s rushed brew time and inefficient use of coffee grounds.

“I think it would be awesome if Starbucks started doing more and more specialty coffee things,” Babinski says. “But I dunno ... .” He is not one to talk down about coffee, but when he hears that the Reserve line includes Jamaica Blue Mountain coffee, he cringes. “It’s a brand,” he says. “That’s not something I necessarily associate with quality.”

The real issue, it would seem, is scale. Starbucks is so large that it’s not possible for every employee to be passionate about coffee. “This isn’t something that you can just do,” Babinski says of Intelligentsia’s dedication to quality. “I never worked in a coffee shop in my life where there’s this much of a collection of totally dedicated coffee professionals who are absolutely psyched to come to work every day,” he says. Indeed, this is how high-end companies will always be able to differentiate themselves, even as big coffee tries to catch up in the quality game. Coffee technologies and exotic beans can be commoditized, but true coffee geeks are a rare breed.

In Marina del Rey, the menu of Starbucks Reserve coffees hangs to the left of a sign announcing the return of fall drinks including the Salted-Caramel Mocha and the Pumpkin-Spice Latte. The Clover, a big black box with a faucet sticking out of it, sits behind a piece of glass to shield it from sneezing customers. A barista begins to brew a grande cup of the Guatemala for $4.45, a couple dollars more than the regular brew. The barista grinds the coffee, weighs it on a balance, dumps it into the shoot, and irrigates it with a hot water drip. The coffee disappears inside the machine, and shortly after, you can hear the sound of brewed coffee squirting into a paper cup.

The Guatemala is piping hot and a rich black. The notes of lavender are there. But the barista who made it says it’s not her favorite of the Reserve coffees. In fact, she doesn’t have one. “I don’t really drink brewed coffee,” she says. “I’m more of a tea person.”

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The End of Cheap Coffee: Why the Diner Staple Is About to Become a Luxury