Understanding Coffee’s Impact on the Economy

This is an overview of coffee’s impact on the global economy. Keep reading to learn more.

I often find myself curious about the logistics and finances surrounding my favorite beverages. That inspired me to spend hours of research developing this guide.

Here’s what I’ll talk about:

Keep reading to learn more.

Key Takeaways

• The coffee industry is projected to grow by 4.72%.
• Coffee production makes up to 10% of Brazil’s GDP.
• Pests, disease, & fungi cost farmers up to %500 million in damage annually.
• Coffee generates the US economy $28 billion in taxes.
• Coffee shops who roast their own beans make 8.79% profit margin.
• Coffee shops that don’t roast their beans make 2.5–6.8% profit margin.
• Starbucks makes $32.25 billion a year from sales.
• At-home coffee consumption increased by 81% during the pandemic.

Coffee Economics in a Nutshell: Coffee Industry Analysis

Sources:

• Market share, CAGR, coffee market value [1]

Let’s dive into some of what I covered above.

The compound annual growth (CAGR) from 2023 to 2030 is 4.72%. Meaning, the coffee market may grow due to more demand for sustainable cultivated and organic coffee. This growth also comes from an increasing average net worth of individuals and increased disposable income.

For starters, the average net worth of Americans increased by 2% between 2016 and 2019 [2]. Allowing more people to afford coffee. Often more pricier drinks from establishments like Starbucks.

Statistics suggest this is true because Starbucks had a 10.98% revenue increase from 2021 to 2022 [3]. However, these statistics don’t only account for drink sales. As this revenue could have come from other avenues, such as merchandise sales.

Speaking of coffee sales.

Europe leads the world in coffee share by having the highest number of coffee drinkers. There’s a catch, though. These statistics don’t account for folks who make drinks at home.

A survey by the National Coffee Association suggests that over 70% of folks in the United States prefer making drinks at home. If those were coffee shop customers, the percentages above may drastically change.

What challenges does the coffee industry face despite its success, though?

Coffee Restraints & Challenges

Pests, diseases, and fungi constantly threaten the coffee industry. For starters, coffee berry borer beetles cause up to $500 million in damage annually. And if they’re not controlled, they could destroy up to 80% of coffee production [4].

Then there’s the climate itself. Some researchers suggest that rising global temperatures could reduce suitable growing zones for coffee by up to 50%. This negatively impacts the economies of countries such as El Salvador and could crush small-scale operations and ruin folks’ livelihoods.

That has led researchers to adopting indoor farming techniques of farming coffee. But growing indoor coffee beans could cost at least twice as much as growing outside. And it could consolidate coffee growing to producers with endless amounts of money.

Then, there’s the risk of more coffee drinkers converting to tea. Many may consider tea as a healthier alternative since coffee contains acids such as chlorogenic acid, which could increase stomach acid production. Possibly aggravating Gastroesophageal reflux disease (GERD) [5].

Enough of the downsides. Let’s move on to trends.

Coffee Market Trends

Throughout the previous several years, coffee certifications have gained popularity due to social awareness and companies allegedly wanting to improve their appearance. Or provide a means to make themselves stand out among the competition.

Examples of noteworthy organizations that provide certification include:

• Fair Trade Certification
• Rainforest Alliance Certification
• USDA Organic Certification
• UTZ Certification

And due to the increase of convenient bean-to-cup solutions (e.g., Nespresso machines), more people have opted to buy at-home coffee makers instead of drinking out. Whether to save money or experiment with different recipes.

For instance, during the COVID-19 pandemic, at-home coffee consumption increased by 81% [6]. That number may fall over the years since people have returned to work. Or many may continue brewing coffee at home.

See many of the factors that play a role in the coffee economy.

What the Coffee Economy Includes

Factors that play into the coffee industry includes:

I’m not done talking about numbers. See how coffee impacts the U.S. economy.

Impacts of Coffee on the U.S. Economy

Highlights of ways coffee production and consumption impact the U.S. economy include [7 PDF link]:

• It generates $28 billion in taxes
• $225 billion of Gross Domestic Product (GPD)
  • That’s 1.6% of the total U.S. GDP
• Responsible for over 1.7 million American jobs
• Consumers spent over $74.2 billion on coffee (2015 report)

Most of the information I found regarding coffee’s impact on the U.S. economy was outdated. However, the COVID-19 pandemic (2019 and 2020) caused a 25% decrease of sales volume in the U.S. [8].

I’ll talk more about post-COVID production and consumption recovery in the next section.

Coffee Economic Impact on the Rest of the World

90% of coffee production takes place in developing countries, such as those in South America. And here’s how many pounds of coffee the top 10 countries product annually:

* Estimated numbers

Coffee production makes up around 10% of Brazil’s GDP. More than triple the 3% GDP coffee production makes up for Vietnam.

Let’s get back to post-pandemic coffee economic growth.

In 2021 and 2022, coffee consumption growth rose by 6%. Higher than the 4.8% growth found in North America. Production increased by 1.7% in 2022/2023. Better from the 1.4% production decrease in 2021/2022.

Margins of Coffee Products

Coffee shops who roast their own beans make, on average, 8.79% gross profit margin per drink sold. Shops that don’t roast their beans profit 2.5–6.8%. As per suggestions from Chron and a Specialty Coffee Association (SCA) study.

These margins account for the following:

• Operating costs: Rent, wages, etc
• Cost of goods sold (COGS)

These numbers don’t account for factors like business tax.

Moving on…

Stages of the Economics of Coffee

The following sections will break down all the different stages—and what’s within each stage—regarding what happens before coffee reaches you. Many of what I’ll cover is what’s considered for the cost of each cup of coffee.

1. Growing

The first stage of coffee economics involves the costs related to coffee growers. These provide a benchmark for the price of your green coffee.

2. Exporting

Unless you’re in the country of origin, you must deal with the following costs to export and import your beans:

• Exporter markup
• Storage
• Logistics
• Shipping & customs
• Importer margin

3. Roasting

Before consuming coffee, you must roast the beans. Some companies opt to do this themselves, which can save money.

Anyway, here are costs associated with roasting:

• Shrink loss
• Labor costs
• Packaging
• Shipping
• Certification
• Sales, administrative, & general staff
• Facility costs
• Depreciation

4. Distribution

Distribution refers to selling coffee directly to businesses like coffee shops or retail stores.

5. Retail

Finally, we have retail. Costs that contribute to your cup of coffee—at least in a coffee shop—include the following:

• Marketing
• Labor
• Retail markup (margin)
• Building cost
• Administrative & general staff
• Cups
• Disposables (e.g., lids)
• Condiments
• Appliance repairs & maintenance
• Utilities

Top Coffee Market Leaders

Coffee market leaders refers to coffee production companies, not coffee shops. These companies also don’t include anyone who sells coffee making equipment, like Ninja or Breville.

Coffee market leaders include:

• The Kraft Heinz Company
  • Brands they own include Maxwell House & Gevalia
• The Coca-Cola Company
  • Owns Costa Coffee
• Nestle SA
  • Coffee brands include Starbucks, Nespresso, & Nescafé
• JM Smucker Company
  • Brands include Dunkin’, Folgers, & Café Bustelo
• JAB Holding Company
  • Subsidiaries include Keurig Dr Pepper, Panera Bread, & Peet’s Coffee

After the crippling revelation that 5 companies own most coffee brands you’re familiar with, you may want to see how popular coffee shops perform.

Let’s see.

Coffee Shop Industry

Here are the top 10 largest coffee shop companies in the world:

Starbucks has a higher annual revenue than the top 8 other companies on the table combined. Giving it the title of the highest-earning coffee shop in the world.

Annual revenue doesn’t account for only coffee sales. Many of these places, like Starbucks, also sell kitchenware, appliances, snacks (e.g., sandwiches), and other drinks like tea. For instance, in quarter 1 of 2022, food accounted for 17.8% of their total revenue.

Conclusion

A few brands own most coffee brands you’re familiar with. Meanwhile, the coffee industry itself creates millions of jobs worldwide and is responsible for sizable chunks of some countries’ GDPs.

Want to learn about coffee’s origin? Explore a guide I wrote explaining everything about it.