The April 2007 issue of Coffee Talk primarily focused on the annual SCAA conference next month. The most interesting article comes from George Howell, president of Terroir Coffee Company, who wrote about the state of the world’s quality coffee supplies: Towards a segmented quality coffee market [PDF file, page 8].

With the growing public awareness of Fair Trade certification and how little coffee growers receive on the price of coffee in Western markets, Mr. Howell underscores the lack of consumer education for how world economies work. For example, he feels the industry does a terrible job of explaining the basic economics of under-developed countries, which is the main reason why coffee growers receive so little on the dollar: the costs (real estate, labor) and livable-wage margins for middlemen are far, far greater in an industrialized nation (e.g., the U.S.) than in a typical coffee growing nation (e.g., Ethiopia).

Mr. Howell also likens the market for quality coffee as sort of a “squat trapezoid”, whereas markets for tea or wine are more “pyramidal”. While tea and wine quality can reach elite levels that command a significant market price, coffee prices generally plateau once the quality reaches a certain point. The only exceptions to this are “insular market” coffees: bean stocks with such limited supplies (e.g., St. Helena, Jamaica, and Hawaii coffees) that they command high prices regardless of the overall market for quality.

The most embarrassing example of this is the ridiculous Kopi Luwak coffee, a favorite subject for producers of local TV news fluff pieces over the past few years. Roasted Kopi Luwak can fetch $100/lb not because of its quality, but rather because there aren’t a lot of Indonesian civets crapping out these novelties. As with many things in life, “expensive” does not always mean “better”.

Today the typical home-brewed cup of $10/lb coffee is cheaper per unit of volume than a can of Coca-Cola: consumers really pay next to nothing for their coffee. An inexpensive ($10) bottle wine costs ten times that per unit volume. So the question is how to create the top of a pyramid market for quality coffee — just as we have for tea and wine. Because it’s also true that the more you spend at the high quality end, the greater the share of the price that winds up in the grower’s pocket.