Food Franchise Trends
Coffee is the second largest trade commodity in world, second only to the oil trade. Millions of people, located in every country in the world, consume coffee. Unlike oil, coffee is produced, primarily, by some of the poorest people in underdeveloped nations. The U.S. Department of Agriculture's preliminary list of the top five coffee producing nations, during the 2003 through 2004 crop year, lists Brazil, Columbia, Vietnam, Indonesia and Mexico. These five nations produced more than 60% of the 106.86 million, industry standard, 60 kg bags of coffee.
In contrast, the Department of Agriculture lists the top five coffee consuming nations as the United States, Germany, Japan, France and Italy. These five nations consumed 55% of the world's supply of coffee in 2002. The U.S. has, historically, been the biggest coffee consumer and continues to lead all other nations, consuming 23% of the world supply of coffee in 2002.
If you are considering a coffee franchise opportunity, understand that methods to produce different varieties of coffee are well established. The bigger considerations for the coffee trade include the impact that environmentalist, social organizations and international groups will have on your business venture and the stability of coffee production.
Environmental Effects: The traditional business model for coffee growth, production and distribution is buy-low and sell-high. Much of the profit secured in the coffee trade is awarded those who market and package the product. Meanwhile, the top coffee producing nations, particularly Latin American nations, which are reliant upon coffee production to sustain its economy, realize small profits. Coffee production requires labor intense farming to grow and cultivate the crop. In an effort to meet the demands for coffee over past 30 years, some coffee growers have shifted to high yielding crops, grown outside of the natural and traditional habitat, cultivated with chemical fertilizers and pesticides. This transition has had negative effects on the environment, including soil erosion and pollution as well as negative impacts on the natural ecology for wildlife and bird migrations.
The tradition of coffee growing provided that the crop be mixed among trees to create a natural forest-like environment to shade the crop. This is what is termed, shade coffee. Shade coffee farms provide the benefit of two income sources. The first source is from the sale of the coffee crop, the second source of income is provided by the shading trees. Dependant upon the particular type of trees used, the trees may offer a source of fruit, lumber and other wood products that can sell for profit. In an effort to maximize profits from the sale of coffee, some growers have transitioned to high yielding crops, which provide for coffee to be grown without the ecological benefit of shading trees. Coffee produced in this environment is known as sun coffee.
The transition to sun coffee production has produced profits for those growers that were capable to implement the system. In contrast, this type of crop production has proven to have harmful effects on the environment as well as those growers that are consistently introduced to the environment. Like with most modernization efforts, the cost of the transition has been unattainable for some small farmers, even when subsidized with aid and assistance. In addition, growers forfeit the additional income associated with the tree and hardwood harvest by transitioning to sun coffee production.
Consumer Awareness: Consumers, aware of the environmental effects of the transition to sun coffee as well as its effect on wildlife and small coffee growers, have begun to reverse the damage by shifting demand to that of organically grown varieties. (World Resources Institute, EarthTrends portal, May 2001) In particular, the consumer demand for certified organic and shade coffees have escalated in recent years. The certified, organic coffee varieties sell for substantially more than gourmet and other coffee varieties, producing higher returns for growers. The time frame to re-transition from sun coffee to organic coffee crops is very labor intensive requiring an investment in new methods to fertilize and cultivate the crop, shading tress and other hardwood.
Like the transition to high yielding crops, the re-transition to shade and organic crops, often times, is attainable for small growers only with the aid of government and/or international aid. Consumer demand substantiates the actual need for such re-transitioning assistance. Continual consumer demands will necessitate the need for shade grown crops to protect the environment. The additional cost for the certification of crops, however, may not be attainable by some small farmers. Without consumer demand, growers may be forced to transition into the certified crop variety, primarily, at their own expense.
Growers producing the high yielding, sun coffee, at the expense of the environment, will continue to be looked at negatively as more consumers become aware of the damage being introduced. Likewise, as more consumers become aware of the unfair advantage that small growers experience, more consumers will become engaged in movements to bring fair compensation to small, disadvantaged growers. A "fair trade movement" has been undertaken by national and international organizations around the globe. The movement seeks to establish a fair price for small growers, distributed through cooperatives, which eliminate the middleman in bringing the crop to market. National and international groups are actively working with the major coffee companies to make them responsible to establish business practices that would increase the market for fair trade coffee.
Production Stability: As a final consideration to franchising with coffee production companies, the consumption of coffee in the US and other nations is on the decrease. Interesting, the coffee trade still continues to grow and expand. While the numbers for per-person consumption continue to decrease, the overall world population continues to grow and introduce more and more people into the tradition of coffee drinking. (The Economics of Coffee, FirstScience.com, 2003)
Between the years, 1998 and 2001, coffee prices saw a decline. Since 2001, coffee prices have steadily increased, reaching and exceeding year 2000 levels in 2004. The World Bank attributes the four year decline in coffee prices with an over abundance of coffee in the market. The decline has had devastating effects on small growers across the globe. In 2005, coffee prices soared with decreased coffee production being one of several reasons for the fluctuation. In addition to the loss of coffee production from small growers, ousted by the previous years' low prices, one of the top-five, coffee producing nations, Vietnam, has suffered adverse weather conditions that have reduced coffee production.
