Coffee

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Author: Steven Topik
Editor: John J. McCusker
Date: 2006
History of World Trade Since 1450
Publisher: Gale
Document Type: Topic overview
Pages: 4
Content Level: (Level 4)
Lexile Measure: 1260L

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Page 138

COFFEE

Coffee has been one of the world's most valuable internationally traded commodities for several centuries. One of the few commodities that was already important under early modern luxury long-distance trade, it continues today as a key trade good, with more than 10 billion pounds exported annually in the late 1990s. Coffee continues to enjoy great international importance because the nature of its appeal to consumers has shifted to conform to remarkable changes in the societies of the dominant buyers over the last four centuries. Production has also markedly shifted geographically from the Middle East to Asia, to Latin America, and now increasingly to Africa and Asia again. Control of the market moved in the sixteenth century from the producer to the exporter, in the nineteenth century to the importer, and in the twentieth century to the roaster and national and international government institutions, and finally to a few vertically integrated multinational firms.

THE BEGINNING

Although native to what is today Ethiopia and Central Africa, coffee only entered into human history once Yemenis of a Sufi Muslim order made a drink from its beans. From then on coffee was an especially export-market-oriented commodity. Initially it was almost all commercially grown from Yemen and Ethiopia. The value was important, but the amounts were tiny: only 24,000 to 30,000 pounds a year were produced in Yemen in the eighteenth century.

Prices in consuming countries varied greatly. Merchant capital was subject to the whims of peasants who brought to market small amounts they produced in their garden plots as the price or their need for money demanded. Transaction costs were very high because transportation within Yemen was rudimentary. Nonetheless, it reached a wide market: Morocco to Turkey in the Levant, west along northern Africa and the Balkans, east to India, and, beginning in the middle of the seventeenth century, north to Eastern and Western Europe. But it was a shallow market because consumption was concentrated in urban coffeehouses where it served as both a secular drug and a religious drink closely tied to Islam.

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FIRST WAVE OF MASS CONSUMERISM

The global impact of commodities such as coffee, tea, sugar, cocoa, and tobacco that produce a "high" through ingredients such as caffeine, glucose, and nicotine has been enormous. In the eighteenth century these products became widely available and affordable, contributing to the consumer revolution. Coffee emerged as an important commodity throughout northwestern Europe, and tea became the drink of choice in England. Both were often flavored with sugar, Britain's largest single import from about 1750 to 1820. Empires such as Britain's were partly founded on a growing demand for such products. In addition, trade in coffee, sugar, and the like went hand in hand with trade in products such as Indian fabrics, transforming the way people dressed, and creating the first wave of mass consumerism, as well as major upheaval in England (from unemployment), where production costs were higher than in the colonies. Production of most of these commodities, from coffee to tobacco, was labor intensive. Europeans "solved" this problem with the massive importation into their colonies of African slaves.

David J. Clarke

The Dutch were the first European colonial power to enjoy much success in planting coffee in their colonies when they brought it to Java in the 1690s. The Dutch indirectly controlled production but they did not change the essentially peasant nature of production: peasants were forced to grow coffee and sell the exotic crop at a set price to Dutch East Indian stores. Whereas 90 percent of Amsterdam's coffee imports in 1721 were from Mocha in Yemen, by 1726, 90 percent were from Java. A quarter century later, Amsterdam's imports of Javanese coffee were nearly matched by imports of coffee from the American colony Dutch Guyana and then the French colonyPage 139  |  Top of Article of Saint-Domingue (today Haiti). By the 1780s, over 80 percent of the world's production originated in the Americas. Javanese coffee fell to only 6 percent of Europe's consumption by 1820, although later in the century Java and Ceylon would enjoy a three-decades-long renaissance. Yemen's production almost disappeared from the world market.

Coffee was different from sugar and rubber during the nineteenth century in that most of it was produced in independent countries, not in European colonies. Cheap fertile land, slave labor, and maritime transport led coffee prices to plummet after 1820 and remain low until the last quarter of the century, stimulating demand. Brazil's exports jumped seventy-five-fold between the country's independence in 1822 and 1899. World consumption grew more than fifteenfold in the nineteenth century. No colonies could either compete with Brazil in price or meet the large new demand in the colonial powers and in the United States. By 1850 Brazil was producing over half the world's coffee; in 1906 it produced almost five times as much as the rest of the world combined. Indeed, about 80 percent of the expansion of world coffee production in the nineteenth century occurred in Brazil alone. Most of the rest of the growth was in Spanish America, as African and Asian production fell from one-third of world total in the middle decades of the nineteenth century to only 5 percent on the eve of World War I. And this was no marginal market. At the dawn of the twentieth century the value of internationally traded coffee trailed only grains and sugar. Latin American production had helped to redefine the nature of consumption by dropping prices and boosting volume sufficiently to reach a mass market.

The four- to six-year gestation period necessary for coffee seedlings to become commercially viable meant that production could not be modified quickly to respond to price differences, but great price rises led to rapid expansion and geographic diversification. The Haitian Revolution in the 1790s, for example, encouraged planting in other parts of the Caribbean and Brazil's Rio state. The next rapid jump in prices, which occurred in the late 1880s and early 1890s and was caused in good part by the leaf rust in Asia, produced a fourfold jump in São Paulo's trees in fourteen years, giving it alone over half the world's production; Colombia, Mexico, and Central America also stepped up production. The protective blanket provided by the creation of the International Coffee Organization (ICO) and its quota system in the 1960s encouraged new producers, particularly in African countries such as the Ivory Coast and Ethiopia. The collapse of the ICO in 1989 and a precipitous fall in prices stimulated a stunning expansion of production in Vietnam in the 1990s and, to a lesser extent, in Indonesia (more Sumatra than Java).

MASS CONSUMPTION

During its first centuries as a Muslim drink, coffee created a narrow luxury market. It was often traded by pilgrimage caravans and went through many intermediaries. When Europeans spread production to their colonies costs fell somewhat. But mercantilist-minded colonial governments insisted on high taxes. Peasants and proletarians, if they drank a hot beverage at all, tended to drink chicory and other substitutes.

Then after the Napoleonic Wars, African slaves, semi-coerced indigenous workers and European immigrants in the Americas, and coerced migrants in the Indian Ocean made the beverage available to urban workers and even occasionally to rural residents. Coffee's heroic nineteenth century occurred not only because of Brazilian production, but also because of skyrocketing consumption in the United States and Northern Europe. Coffee became truly a mass product for the first time in the United States.

U.S. government policy also helped. The United States was the only major market to import coffee tax-free after 1832. Consequently, per capita consumption grew from one-eighteenth of a pound in 1783 to nine pounds a hundred years later. The fifteenfold explosion in the U.S. population during that century meant that total coffee imports grew 2,400 times. By the end of the nineteenth century the United States was consuming thirteen pounds per capita and importing over 40 percent of the world's coffee. (It would grow to over 60 percent after World War II.) Half of the growth in world consumption in the nineteenth century was due to increased United States purchases. The other large market was in Western Europe. It was not coincidence that the fastest-growing economies were also the biggest coffee markets. Caffeine became instrumental to the regimented time of the urban industrialized societies. U.S. and Northern European consumption continued to grow, with some fits and starts, until the 1960s.

The growing appetite for coffee fed a transformation of the global coffee market. After 1870, telegraphs carried information about prices and demand and supply between South America, New York, and London. Exporters ceased being consignment agents, becoming instead agents of importers who controlled the trade and set the prices. The creation of the New York Coffee Exchange in 1882 institutionalized access to information. (Hamburg, Le Havre, and London followed with major coffee exchanges.) After the establishment of exchanges in New York and Europe there remained difficulties in determining the quality and origins of shipments and in obtaining information about the size of annual crops. The quality problem was rectified not by planters and traders, but by a government. In 1907 the United States Pure Food andPage 140  |  Top of Article
A worker hauls a basket full of organic coffee beans harvested from the fields of a coffee plantation in Guatemala. Since the early 2000s, certain smaller coffee producers have shifted to growing high-quality beans without using pesticides in o A worker hauls a basket full of organic coffee beans harvested from the fields of a coffee plantation in Guatemala. Since the early 2000s, certain smaller coffee producers have shifted to growing high-quality beans without using pesticides in order to compete in the international market. This type of specialty cultivation allows producers to set higher prices and sell their coffee to more affluent countries. PHOTOGRAPH BY MOISES CASTILLO. AP/WIDE WORLD PHOTOS. REPRODUCED BY PERMISSION Drug Act decreed that imported coffee be marked according to its port of exit. Thus "Santos" became a specific type of coffee, as did "Java" and "Mocha." Other governments soon followed with similar acts.

By gaining the confidence of consumers and providing mass-produced roasted coffee by using advances in roasting technology, transport, and marketing, large industrial roasting firms began to control the market by integrating vertically, sometimes even buying plantations in producing countries, and certainly sending their agents into the regions' interiors to purchase directly from producers. This initially led to segmentation of the market, and specific producing countries became linked to particular markets. Government intervention worked to dampen the market's price mechanisms and brought some control back to the producing countries. Beginning in 1906 some of Brazil's states held stocks off the world market to "valorize" them. This led to a federal price-support program, the Inter-American Coffee Agreement, and finally, in 1962, the International Coffee Agreement. Since the main objective of these cartels was to stabilize prices rather than corner the market, roasters in the consuming countries gladly joined. Importing countries joined less for economic reasons than for political ones. Coffee became a pawn in the Cold War. It was no coincidence that the United States came on board two years after the Cuban Revolution, or that the United States abandoned the agreement in 1989, the year the Berlin Wall came down. This form of state capitalism provided conditions for rapid consolidation and vertical integration in the consuming countries. As coffee processing became increasingly industrialized, economies to scale grew and an ever-larger share of the value was added in consuming countries. The sophistication of roasting, grinding, and packaging technology grew in the twentieth century's first decades. Meanwhile, new products were created: decaffeinated coffee and, after World War II, instant coffee in which processing added increased value. Instant coffee consumption grew to the point that it provided a third of all coffee drunk in the United States in its peak year of 1978. Drinkers of instant coffee were concerned with speed and convenience, not the quality of the brew. Consequently, the small number of roasters who captured this capital-intensive market used low-pricedPage 141  |  Top of Article beans, especially the robusta beans that Africa and Asia began growing. Marketing was as important as automation. The rise of chain stores in the early twentieth century such as the A & P chain, which made coffee their most profitable good, allowed wholesaling concentration. This changed in the 1950s when the supermarket was created. Selling a vastly larger number of goods, the supermarket depended upon small margins but large volume. For the first time, coffee companies competed on price rather than the quality of their blend. Giant food conglomerates such as Kraft Foods, Nestlé, Proctor and Gamble, and Sara Lee bought up smaller, successful coffee companies and had less interest in coffee as a family artisanal tradition than had earlier coffee roasters such as Chase and Sanborn, or Maxwell House. Consolidation proceeded to the extent that today, a handful of companies control 80 percent of the U.S. coffee market. Worldwide, four or five companies buy half the world's coffee beans.

CURRENT TRENDS

Despite the demise of the ICO and rise of enormous conglomerates and cheap coffee, there are countertrends. Specialty coffee such as that sold by Starbucks has grown enormously not only in the United States, but also in Western Europe and Japan. Nongovernmental organizations such as Fair Trade and Oxfam organize cooperatives to produce organic, bird-friendly coffee and capture a large share of the final price. They appeal to consumers' sense of fairness for growers and environmental concern. Although they still control only a small share of the world price-driven market, they have grown impressively since the 1980s.

The world coffee market continues to undergo great changes. U.S. per capita consumption has steadily fallen since the 1960s and accounts for less than 20 percent of world purchases, whereas European and Asian consumption imitates the United States's nineteenth-century experience, and coffee-growing countries such as Brazil dramatically escalate consumption of their own crops. For over four centuries the coffee market has ushered in the modern world and has been shaped by those transformations.

BIBLIOGRAPHY

Bates, Robert H. Open-Economy Politics: The Political Economy of the World Coffee Trade. Princeton, NJ: Princeton University Press, 1997.

Clarence-Smith, William, and Topik, Steven, eds. The Global Coffee Economy in Africa, Asia, and Latin America. New York: Cambridge University Press, 2003.

Digum, Gregordy, and Luttinger, Nina. The Coffee Book: Anatomy of an Industry from Crop to the Last Drop. New York: New Press, 1999.

Jacob, Heinrich. Coffee: The Epic of a Commodity. Short Hills, NJ: Burford Books, 1998.

Pendergrasta, Mark. Uncommon Grounds: The History of Coffee and How It Transformed Our World. New York: Basic Books, 1999.

Roseberry, William; Gudmundson, Lowell; and Samper Kutschbach, Mario; eds. Coffee, Society, and Power in Latin America. Baltimore, MD: Johns Hopkins University Press, 1995.

Topik, Steven, and Wells, Allen. The Second Conquest of Latin America: Coffee, Henequen, and Oil during the Export Boom, 1850–1930. Austin: University of Texas Press, 1998.

Ukers, William. All About Coffee. New York: Tea and Coffee Trade Journal, 1935.

Steven Topik

Source Citation

Source Citation   

Gale Document Number: GALE|CX3447600086