Custom Brewed Lifestyle-The Booming Coffee Industry and Those It’s Left Behind

For decades, coffee was about as exciting as washing powder and detergent. But today it has become a lifestyle statement. The bean boom, though, hides the brutal economic realities behind coffee production. By DER SPIEGEL staff

When exactly did coffee become so important? It has long been Germany’s favorite drink, but for decades it was hardly anything to get excited about. Ads touted its “rich aroma” in an attempt to turn it into a lifestyle commodity, but it was long merely a symbol of housewife heedfulness – in the same league as washing powder, detergent or low-fat margarine.

Times have changed. These days, coffee is a luxury product, almost a fashion accessory. Or at least that’s the way it’s presented. Coffee pods, as advertised by George Clooney, are presented in Nespresso shops as if they were pieces of jewelry.

Starbucks, too, is increasingly seeking to present its paper-cup lattes as luxury products. In Seattle, the company is testing a new café concept, with coffee beans not just ground but also roasted on site – in stout black machines made from cast iron, reminiscent of steam engines and designed to convey tradition. Cafés in Shanghai, Tokyo and New York are to follow.

The German company Probat, the world’s leading manufacturer of roasting machines, built the model specifically for Starbucks. “A coffee brand’s success,” says Wim Abbing, the company’s managing director, “is 90 percent about the story it tells.”

And the stories that people want to hear are changing. Two decades ago coffee ads featured cozy family celebrations. Then Starbucks’ paper cups began to represent a new laptop elite, always on the go, where home was nowhere and everywhere. Then along came George Clooney and his Nespresso pods, representing coffee individuality produced by a machine. Top-class espressos at home, as easy as frozen pizza.

“Quickly pop in another pod of this drug before your energy begins to wane and you will always be awake. It suits the new pace of our accelerated, individualized, thoroughly economized era,” says Munich sociologist, Stephan Lessenich.

The new Starbucks roaster-steam engine is an attempt to tell a new story, one for our post-globalized age. Coffee roasted on site before your eyes by people you know. A place to slow down amid the hectic pace of life. An artisanal product, not an industrial one. It’s a story told in thousands of smaller coffee shops where the barista celebrates the preparation of every cup of coffee as if it were a spiritual act and talks shop with the customers about the influence of the Arabica and Robusta beans on the structure of the crema.

It’s part of coffee’s success that no one talks about the reality behind these stories. The brutality of speculators, who push the price of coffee beans according to their whims. The global concentration of the coffee market. The protectionism of German roasters. The ridiculous prices for expensive espresso machines. The terrible quality of the 500-gram vacuum packs of supermarket coffee.

This is about one of the most important raw materials being traded globally. The market for roasted beans is worth over 50 billion euros and each year, around 1 trillion cups of coffee are drunk around the world. In Germany alone, each adult drinks an average of 162 liters annually.

Coffee is constantly being reinvented and repackaged for consumers. But its history is as old as the hills. It shows that much of what we today call globalization, is really just another name for colonialism.

I: The Harvest

A Nespresso pod contains 5.2 grams of coffee and costs between 30 and 40 cents. That’s the equivalent of 60 to 80 euros a kilogram.

Starbucks charges 3.85 euros for a latte, paper cup included. Each cup contains roughly 15 grams of coffee.

It’s possible that Juan Gonzales picked the beans for that coffee. He is 12 years old and works alongside his mother Maria, a Mayan woman, harvesting coffee on the slopes of Toliman, a volcano west of Guatemala’s capital city. The beans that grow here are the Arabica variety, in high demand across the West. The boy and his mother work for a finca that belongs to Carlos Torrebiarte, who sells his coffee to Starbucks, among other clients.

“That sack weighs over 50 kilograms and Juan carried it himself,” his mother says, looking at her son with a mixture of exhaustion and pride. She is barely 30 but looks over 50. She has a steel pin where one of her teeth is missing.

The coffee harvest is in full swing on the mountain and women with droves of children are making their way up the slope. It’s difficult for journalists to speak with them, with an armed guard from the plantation immediately intervening. It’s really only possible to speak with Maria, Juan and the other women and children if you jump on one of the flatbeds that take them back to the village.

The costs are low here at the start of the supply chain. The coffee-bean pickers earn 42 quetzales, around 5 euros, for a 50 kg. bag of picked coffee, a pittance compared to what will be earned with that coffee later on. And even in a country like Guatemala, it’s a starvation wage. In a European Starbucks, it would be just enough for a particularly large caramel macchiato.

Maria shows a yellow control slip, which shows how much she and her son have picked each day. She is paid every 15 days, with the amount dependent on the total weight of the beans she has picked. Sometimes it’s 75 kilograms a day, but usually it’s less. Early in the season, after all, many of the beans have to be left on the bush because they’re not yet ripe.

Maria’s daily wage is usually under the 87 quetzales, or 10 euros, that constitute the legal minimum for a day’s labor in Guatemala. It would be even less without the help of Juan, who is not officially allowed to work, since child labor is forbidden for those under 14. Yet it is a normal part of life for children to work on the big plantations. Without them, it wouldn’t be possible to harvest the coffee so cheaply.

“If you saw children on the plantations,” owner Torrebiarte later tells DER SPIEGEL, “then they are children who want to be with their families.” He does not employ children, he says, adding that he even offers daycare for families.

Coffee company Starbucks also claims not to have seen anything untoward on the farm. The Santo Tomas Perdido plantation was designated a “Top Performer” after an inspection of suppliers in October 2016. The company claims it has a “zero tolerance” policy regarding child labor and that there would be consequences were the plantation found to have been violating it.

The drive home passes the farm’s so-called galeras, concrete and stone huts that house around 100 pickers. Up to two families, including their children, are housed in just one room, which has little more than a bare concrete floor. Cooking takes place out in the mud in front of the huts. There are no private toilet facilities. This is where migrant workers, the poorest of the poor, live during the harvest season.

Emanuel Sabuc has a fair amount of experience with the less pleasant side of the global coffee trade. The 26-year-old lived as a child in one of the huts on the Santo Tomas Perdido plantation. “Back then, it was really like a village, every family had their own shack and lived there permanently,” he said.

Then around 20 years ago, Torrebiarte bought the plantation and that precarious idyll was over. “The entire village was forced to leave the farm,” Sabuc says. Torrebiarte, who is one of the most influential members of the national coffee association, Anacafé, dismissed this accusation. No workers were pushed off the farmland, he says.

Today the harvest is carried out by seasonal workers, while the plantation is cared for by so-called parcelistas, Sabuc says. They are employees of the farm and responsible for specific parcels – and are completely depended on the plantation owner or his foreman, Sabuc says. “If you complain, you’re out.”

II: The Roasting

Coffee prices have hit rock bottom. For too long, companies like Kraft and Melitta have prioritized mass production and in doing so, they have promoted monoculture in addition to environmental overexploitation in the source countries. They have also hurt their own margins: A kilogram of coffee often costs just 6 euros in supermarkets.

The parsimoniousness often displayed by German consumers is particularly apparent when it comes to the standard, 500-gram vacuum-packed block of ground coffee. The price has remained low for years – with devastating consequences for the quality of the beans that go into the product.

To keep the supermarket prices low, roasters have to work with beans that are of poorer and poorer quality. Indeed, to produce a product that is at all palatable, they are forced to rely on tricks. It used to be that the different varieties of coffee that make up each brand were roasted and ground together. With the quality of the beans falling, that’s not enough anymore. Each different variety is roasted separately to pull the last bit of flavor out of it. And they are ground separately so that the size of the grains can be varied according to quality. Only at the very end is everything combined, a procedure that allows good roasters to get the last bit of flavor out of even the poorest quality beans.

Roasting is the most interesting point in the production process, not only for connoisseurs, but also from a profit-margin perspective. It’s here that cheap coffee beans are turned into a sometimes-expensive consumer product. It is at this point in the supply chain where value is added.

Brazil is the world’s biggest exporter of green coffee, the raw material that is eventually turned into the coffee we drink. The country sells every kilogram that is laboriously picked in the fields for $2.70. Germany, meanwhile, is the world’s biggest exporter of roasted coffee – and sells each kilogram for $6.21. That’s a markup of over 100 percent.

Germany and the European Union protect their coffee industry. A tariff of 7.5 percent is imposed on roast coffee imported from most countries while green coffee can be imported tariff-free. One can call such an economic policy coffee protectionism or colonialism. The result, however, is the same.

Probat head Wim Abbing, the man who believes that narrative is one of the most important factors of success for coffee, knows more about coffee roasting than almost anybody in the world. His factory is located in Emmerich, a town just across the Rhine River from the Netherlands. The company founder invented the world’s first “ball roaster” in 1870. Before that, most people had simply sizzled their coffee beans in a pan at home. Probat soon began supplying the entire world with its machines, from small coffee manufacturers to major companies.

Abbing speaks enthusiastically about the roasting process, about roasting time and amount, and how adding air can speed up the process. He notes the trend toward smaller, artisanal production. From big plants to drum roasters. He doesn’t, though, want to say much about the tricks used by the coffee roasters themselves and avoids talking about the problems faced by his clients. He only says that he is sometimes surprised by the “swill” that is sold to the masses.

Probat doesn’t sell any coffee itself but it produces its own brand of beans to test its machines, which is then only sold to employees at cost. “It’s around 12 euros per kilogram,” Abbing explains. “You can’t seriously produce good coffee for anything less.” However, most consumers are not prepared to pay that much.

III: The Pods

For a long time, no one at Nestlé, the world’s largest food and beverage company, believed that coffee sold in small aluminum tins could ever be a success. Within the company, working for Nespresso was seen as a career killer.

Jean-Paul Gaillard was also warned before he began working in the hapless department back in 1988. Many of his coworkers tried to persuade him against making the switch.

But the executive managed to infuse the small tins with the allure of class, opening boutiques in which grand cru coffees were celebrated like expensive wines. Within a few years, a sort of sect had emerged, one that was as loyal to the Nespresso pods as Apple consumers are to its products. “We were the iPhone of coffees,” Gaillard says.

The staging is phenomenal. George Clooney is the face of Nespresso in the ads while black-clad employees welcome visitors to the shops. In the “Tasting Area,” they gently inquire about a customer’s preferred flavor as though they were asking about something intimate. The entrance looks like that of a bank, with machines that look like ATMs, only classier. The customers swipe their credit card and pods fall into paper bags decorated with gold lettering.

Gaillard is no longer a believer. He never got much further at Nestlé after Nespresso and he left the company – and then sabotaged it. In 2008, he founded the Ethical Coffee Company (ECC) and launched his own pods, as a direct competitor to Nespresso. His pods not only could be used in Nespresso machines, but were also 25 percent cheaper and, he claimed, biodegradable.

Nestlé fought back and, for a time, introduced a mechanism in Nespresso machines that destroyed foreign pods. The ECC sued in response. A Nestlé spokeswoman now says that the company no longer produces those types of machines.

The Unfairness of Fair Trade

A lot of money is at stake. Nespresso is estimated to have an annual turnover of 4 billion euros. Despite the new competition, its profit margin is still around 25 percent; in Germany alone, it sells 2 billion pods a year.

Nespresso and Starbucks have awoken the sleeping coffee industry – and made it greedy.

Suddenly, the small profits from the mass-produced, 500-gram, vacuum-packed blends were no longer enough. Asia discovered coffee. Starbucks expanded, even into China, a tea-drinking country. And suddenly, a whole new group of people became attracted to a once staid industry.

IV: The Business

Peter Harf is like a German version of John Malkovich: Not much hair and lots of charisma, though he is a bit more jovial. The 71-year-old Rhinelander is currently the most powerful investor in the business. He is sitting in the gilded elegance of the five-star Excelsior Hotel near the Cologne Cathedral, where coffee is served in fine porcelain. Harf, though, seems to have little interest in the beverage. It wasn’t passion but common sense that drove him into the coffee business.

Coffee is a raw material, a stable business with high returns. “Coffee will always be drunk,” he says, “regardless of what else is happening in the world.”

Harf runs the investment firm JAB Holding Company, which is worth billions. Within just a few years, it rose to become the third biggest coffee company in the world after Nestlé and Starbucks. One in five cups of coffee is brewed using beans from the JAB empire.

The flow of money into Harf’s business never seems to dry up. His biggest investor is the Reimann family, one of the richest clans in Germany, which has already built an empire with consumer goods like Calgon, Finish and Clearasil. Now it wants to conquer the next multi-billion-euro market.

In 2012, Harf started to buy up coffee brands like Jacobs, Douwe Eberts, Senseo and Tassimo. The JAB portfolio now covers almost all sectors of the coffee industry, from producers of filtered coffee to pod suppliers to café chains and bagel bars, worth around 30 billion euros in total.

The regional companies that remain must now consider whether they want to compete with a company that is active across the globe, or simply give up and sell.

Harf’s campaign of conquest is having a greater impact on the coffee world than the pod revolution did. It is becoming more concentrated, more global and more industrialized. JAB has merged several regional brands into a conglomerate that it is now imposing cuts to improve efficiency and profitability. He and his colleagues have “completely changed the industry,” Harf says, “by taking on a leading global position.” Harf likes to refer to things like “economies of scale.” In less academic terms, it means that JAB is particularly skilled at capitalizing on its market power.

If a coffee company is acquired by JAB, that means that its suppliers face tougher conditions. Suppliers to JAB firms report that they are often only paid for green coffee after 180 days instead of 30 days. Those who don’t agree to the new conditions are rejected.

The benefit for JAB is that while their suppliers are waiting months to be paid, they can already sell the coffee and invest the profits elsewhere – for example in further acquisitions. In this way, the suppliers are financing JAB’s growth.

“The traders are basically paying an interest-free loan,” says Sara Morrocchi, founder of Vuna Origin Consulting, which advises coffee producers. “In the worst cases, these costs are then passed on to the small farmers.”

Harf disputes this. The companies in JAB Holding are committed to “sustainable and lasting relations with our more important supply partners.” He says that “all sides profit” from the negotiated contracts. Indisputable, though, is the fact that JAB has thinned out its network of green coffee suppliers. Those deemed insufficiently competitive to the new owners have been weeded out.

The blueprint for Harf’s activity is the beer market, which has been dramatically changed in recent years by a single global company. The Belgian firm AB InBev purchased brands in 150 countries, from the American brand Budweiser to Beck’s and Franziskaner in Germany, reducing costs and increasing profits.

Harf was the chairman of the board at AB InBev for many years and he is even friends with the owners. What has worked so well with beer should also work with coffee, he believes.

V: The Consumer

Marisa Benvenuto and her sister Nadia took over the running of the family business from their father. Gian-Carlo was a pioneer of good taste when he emigrated from La Spezia in Italy to Hamburg back in 1959. He was just one guest worker among many, but in addition to working in the port, he began to supply espresso beans to Italian restaurants and ice-cream parlors. There was no competition back then and no one saw much opportunity in the business. Back then, German coffee culture consisted of filter machines and condensed milk.

In their store in Hamburg, the Benvenuto family sells expensive and extremely expensive espresso machines alongside their coffee beans, top brands like La Pavoni and Elektra that were originally intended for cafés and restaurants, but which slowly found their way into the kitchens of the upper-middle class.

Here too one can draw a parallel between the worlds of coffee and beer. As a reaction to the standardized flavors offered by the industry, a scene has arisen which not only values individuality, quality and taste but is also willing to pay higher prices: as much as 30 euros a kilogram for the right espresso mix and several thousand euros for the perfect espresso machine.

“The Germans,” Marisa Benvenuto says, “take this incredibly seriously.” They treat the purchase of an espresso machine like that of new car. Unfortunately, they also expect it to function like a car. “You can’t just set up an espresso machine and coffee grinder and expect them to work the same way all the time,” she explains. The way espresso must be ground and brewed depends on the weather, the temperature, the humidity, the mix and quality of the beans. Without a certain passion and knowledge, even the most expensive espresso machine can end up being a wasted investment.

Since the machines are only a side business for her, she sometimes advises customers against the purchase. “If you only want to drink an espresso now and then, a simple stove-top pot is a perfectly good way to make an espresso.”

Although she’s profiting from the boom, she’s also critical of it. “The market lacks a middle ground,” she says. At the top end, customers are being ripped off with huge espresso machines, overpriced pods, and questionable premium roasts. In the mass market, meanwhile, people are being sold cheap blends that have little to do with proper coffee.

For Benvenuto, the nice thing about a good coffee is that it combines indulgence and the everyday, a mix of class and mass. “A good espresso is a drink free of class distinction. A daily luxury for everyone.”

VI: The Seal

Why is it that hardly any consumers are prepared to pay a little extra for fair-trade coffee, but so many are happy to pay multiple times the usual price for fancy pods?

It’s the same when it comes to bananas, T-shirts or gold jewelry. Yet the injustice is particularly obvious with regard to coffee. And consumers have known about it for decades.

“Maybe that’s also a problem,” says Stephan Lessenich, the sociologist from Munich. Fair-trade coffee is “perhaps too politicized,” reminiscent, for many consumers, of Nicaraguan coffee, left-wing or even communist projects.

Lessenich has little faith in the ability of thoughtful consumerism to help change the world. “Most people don’t give any thought to consumer politics,” he says. Indeed, despite all of their professed commitment to sustainability and justice, he says, most Germans aren’t particularly bothered by all the misery in the world.

“At the end of the day, we couldn’t care less about what effects our coffee consumption has on other people’s lives,” he says. “And if we do ever consume ethically, it’s just to make us feel better about ourselves.” Yet most Germans think they are model consumers, he says, at least in international comparison, simply because they separate their trash and think about buying an electric car.

But how fair is fair trade exactly?

Fernando Morales-de la Cruz, a Guatemalan living in Strasbourg, grows enraged when speaking about the fairness of fair trade. The fair-trade seal, one of the most famous certification logos in the world, often appears on brands like Darboven, Tchibo or Lidl. Morales-de la Cruz thinks it’s all just an expensive placebo to soothe the consciences of Western consumers. In the end, he says, all it does is help industrialized countries secure more cheap sources of raw materials. It does little to address fundamental problems of fairness, such as the way Germany protects its roasting industry.

“Fair trade actually contributes to preserving poverty and child labor in the supply chain,” Morales-de la Cruz says. “The fair trade premium is around a third of a cent per cup of coffee. How can such a meaningless amount be called fair?”

He suggests a transparent wage system, whereby workers on coffee plantations receive a minimum of 10 cents per cup of coffee. This is the only way to reduce poverty in the coffee-producing countries, he says.

The premium that fair trade pays coffee producers on top of the global market price is currently 20 U.S. cents per 454 grams of coffee. There’s also a minimum price guarantee of $1.40 per pound of coffee, which currently is superfluous since the global price, which fluctuates wildly, is a bit higher than that benchmark. There are additional premiums for particularly high quality or organic products. It’s rare for a coffee farmer to make more than 2 euros per pound, even with fair trade.

Last year a study showed that in the Brazilian coffee region of Minas Gerais, even workers on farms certified by various organizations earned around 300 euros a month, which is around 25 percent below a living wage.

Dieter Overath, head of Fairtrade Deutschland, Germany’s fair-trade organization, thinks this approach is short-sighted. He doesn’t want to boil down the benefit of the fair-trade seal to money. “By exclusively working with cooperatives in the coffee sector, we are giving back small farmers their right to self-determination,” he said.

Many farms and cooperatives get multiple certifications so that they can meet, for example, both the AAA standard of Nespresso and fair-trade criteria. However, that doesn’t mean the quality or taste is always good enough for the buyers. As a result, there is an absurd level of over-certification. In the period 2014-2015 around 560,000 tons of green coffee was certified as meeting fair-trade standards, but only 157,000 tons were sold with the fair trade seal.

“Fair trade always means that the added value moves from the north to the south,” says Ndongo Sylla, who used to work as an adviser to Fairtrade Deutschland.

Sylla, who is originally from Senegal, is now one of the organization’s biggest critics. “When surplus fair-trade products have to be sold as conventional products, then it’s the rich consumers in the north who avail of the added value: they get fair trade products without having to pay a cent more.”

VII: The Project

At the end of the day fair trade is simply tinkering with the symptoms of the injustice that will always prevail as long as one party only exports the green coffee and the other makes the profit from roasting and selling it. There is probably only one way to end this coffee colonialism: with coffee-producing countries roasting, milling, packing and exporting the finished product.

Felix Ahlers is trying to do just that in Ethiopia. The 51-year-old roasts coffee and espresso beans in Addis Ababa, which he then sells to supermarkets in Germany under the brand name Solino.

Ahlers’ main job is running FRoSTA, a producer of frozen ready-to-eat meals that doesn’t use any food additives. Ahlers is regarded as an unconventional thinker in an industry not known for its willingness to change.

“Ethiopia is the biggest green coffee producer in Africa,” Ahlers says. “But the real money in coffee is only made when it’s processed – and they don’t do that in Ethiopia.” That was what had to change, he thought.

By controlling the supply chain up to the final product, it should be possible to see 60 percent more in turnover. That will profit not just the coffee farmers, but everyone involved in production, from the women sorting the coffee beans, to the men who roast them, to the printer in Addis Ababa who prints the labels for Solino’s bags of coffee.

“If you want to take development aid seriously, you need to do more than just pump money into a country,” Ahlers says. It’s about anchoring the supply chain there in the long term. And that means, above all, training Ethiopian workers such that their products meet the demands of the German market.

“The printer has to learn that the label will only work if the EAN code can be read by the scanners in Karstadt and Edeka. The roaster has to know that the quality of the beans has to always be the same. And there has to be someone in Ethiopia who knows how German customers tick and what they want.”

Ahlers has been pushing ahead with the project for almost 10 years. He has secured start-up funding and machines, employed and trained roasters, got permits from the authorities and has constantly monitored the quality at every stage of the process. Officially he is just a middle man who imports the finished coffee into Germany and sells it on to Edeka and Karstadt.

For Ahlers, the calculations are simple. If all the coffee that Ethiopia exported was processed in the country, over 280,000 jobs could be created in the country. “That would achieve a lot more than a classic development project,” he says.

But Solino is just one small project. Ahlers only imported and sold around 30 tons of coffee from Ethiopia last year. That’s compared to the 200,000 tons of unprocessed green coffee that Ethiopia exports each year. Despite his efforts, coffee remains a colonial product in the country.

By Susanne Amann, Markus Brauck, Simon Hage, Nils Klawitter and Christoph Pauly

 

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