Coffee snobs unite! How Americans' bad taste in coffee is putting Juan Valdez out of business

Washington Monthly, July-August, 2003 by Joshua Kurlantzick

Bean Counters

Twenty years ago, even if Vietnam, Brazil, and Indonesia had drastically upped their robusta production, many farmers in other countries would not have been that affected. Nestle, Kraft, Procter & Gamble, and Sara Lee--the Big Four mainstream companies (corporations like Starbucks that manage cafes, higher-end coffee retailers like Green Mountain Coffee, and smaller organic-oriented firms are known as "specialty companies")--could only use a small portion of robusta in their blends, since it had such a lousy taste. Too much robusta would turn a can of Sanka or Taster's Choice so sour that even the most desperate caffeine junkie could not stomach it.

As recently as 1997, prices remained as high as $3 per pound for arabica beans (they're now hovering around 60 cents), according to Mark Prince, a columnist for coffeegeek.com, a leading Web Site devoted to java. The high cost was due in part to the fact that the new robusta coming on the market in the early 1990S could not be effectively utilized by mainstream companies, which thus had to fill some of their cans with high-value arabica. But in the past five years, new roasting technologies--notably a steaming process that removes many of the unpleasant, acrid tastes from robusta beans--have allowed companies to use a higher percentage of robusta in their blends. Companies like Nestle have also come up with new ways of flavoring those robusta-intense blends to mask their taste. Since the late 1990s, dozens of new varieties of French Vanilla, Cappuccino, and other flavored versions of mainstream brands like Millstone and Taster's Choice have appeared on supermarket shelves.

While the Big Four companies use more robusta than they used to, that increase is far outweighed by the vast expansion of worldwide robusta cultivation, which has flooded the market, driving prices to record lows. Other significant changes in the industry have also worked to the advantage of the Big Four and against robusta growers. New kinds of commodity-hedging contracts have allowed the companies to keep smaller stocks of beans at any one time, allowing them to do most of their buying only when the price is lowest.

Though robusta production has grown dramatically over the last 10 years, 75 percent of all beans grown are still arabica. But, alas, things have been difficult for arabica growers, too. In the best of times, raising arabica is a more difficult proposition than robusta--it can be grown in a much smaller range of altitudes and climates, and it needs much more attention, which means a significantly narrower profit margin. But the Big Four's shift toward robusta-heavy blends has put thousands of arabica farmers out of business--the existing supply of beans was too large for the changed market. This conflict has brought prices back up again, and so Starbucks' blends (derived entirely from arabica) have gotten more expensive. But the farmers who were forced out of business have stayed out, because the supply of coffee is inelastic (growing trees and cultivating a plot takes too long for farmers to easily slide back into production when the price improves) and the market has proved too volatile to be attractive, particularly with arabica margins so low.