Specialty Coffee and Chocolate, Assessing the Price Tag
Niche markets are exclusive for two reasons - they target a self-selected crowd and because of their smaller market size, carry a larger price tag. This larger price tag is expected to carry deeper efforts into maintaining the quality of the product, local connectedness/ community engagement as well as efforts to improve the value and supply chain from whence it came. Coffee and Chocolate are just two of the relatively newer food specialty markets. Specialty coffee has gained widespread popularity with the 3rd wave movement (think Folgers as 1st wave, Starbucks as 2nd wave, Blue Bottle/ Stumptown as 3rd wave) and can be found roasting locally in every mid to large size city in America. Craft Chocolate is a newer market that has grown from 5 producers in 2006 to upwards of 200 in the last 10 years.
Both markets carry price tags vastly higher than what is normally expected thanks to the omnipresence of "Big" chocolate and 2nd wave coffee. Due to capital investments and market size, the dominant corporations of Big chocolate and 2nd wave coffee can afford to produce coffee and chocolate at basement or even below production costs which translates to a price tag of $1-2/bar. On average the cost for a cup of black coffee at a 3rd wave roaster will come at $3 minimum. Craft chocolate bars start around $4/oz. (Woodblock Chocolate, Holla) but most bars come in around 1.5-2oz. so the end price is somewhere between $6-$10. For a great step-by-step analysis on how and why craft chocolate is so different from big industrial chocolate and for light on the true differences down to the specific cultivated genetics of specialty cacao, the Chocolate Noise (CN) wrote a really great article, "Why That Bar of Chocolate Is Worth $10." Yes, it is still answering to Mast-gate, but this is still an important moment for Craft Chocolate and artisan foods in general to define itself and CN is making good use of this opportunity.
Industrial Chocolate - Majority of the industrial cocoa grows in West Africa where it is considered a cash crop. 90% of the time it grows on genetically engineered trees that are disease resistant and high-yield (CCN-51 comes to mind). In South American producing countries like Nicaragua and Ecuador the government is pushing to replace the natural and heirloom cacao with these genetically engineered trees because they appeal to large companies like Mars and Hershey who are looking for a large reliable supply. The cocoa farmers have to haul their harvests to processing coops where they will sell their beans quickly at floor prices (CN cites 0.80$/lb via the Cocoa Barometer). If the cocoa is grown on large estates then it is well documented that various forms of indentured servitude and slave labor are used to harvest (see daily beast 9.30.15, Food Empowerment Project, Sackett 2008, Chanthavong 2002.) Bottom line- the people growing and harvesting the cocoa are not receiving a subsistence level wage, and they are not encouraging their children to follow in their line of work. Ultimately the quality of the cocoa inherent to this conventional system is extremely poor and results in bad tasting chocolate that needs to be homogenized and diluted in order to sell.
Next step for industrial chocolate is making the chocolate. This involves roasting the beans black, homogenizing the origins, adding extremely processed ingredients like soy lecithin, vanilla, sugar, milk powder and cocoa butter. US industry standards only require 10% cocoa solids content in order for the product to be considered chocolate. Hershey bars contain 11% cocoa solids. The bars are wrapped by big machines and shipped all over world.
Craft Chocolate - The breakdown to Craft Chocolate goes cocoa is harvested, carefully fermented and dried. The cocoa is then either shipped to specialty distributors/ chocolate makers or more often she cites that the chocolate makers are at the farms "hanging out" ready to test out the beans for quality on the spot! No matter which method, both buyers of the specialty cocoa are invested in a longer lasting contract thus forming the Direct Trade relationship (Defining Direct Trade) paying between $2-8/lb of dried beans.
As for the chocolate production, the beans are roasted to different degrees depending on their age, origin and harvest in order to showcase the terroir of the bean and bring their best flavor forward in the chocolate which is more likely to contain 65-80% cocoa solids. This process is automatically more intensive and requires mastery of the equipment and a deep working knowledge of the cocoa bean. People are needed here where machines are used indiscriminately in the industrial model. After roast, the beans are cracked, winnowed then ground with a small amount of sugar to produce a silky texture. The craft chocolate makers then age the chocolate for 1 month minimum before tempering, molding and hand-wrapping with specialty papers and tags. The specialty stores where these bars end up are tended to with sommelier-like attention and have a price tag between $4-20.
My personal critique of CN is that as much as I love craft chocolate and am deeply invested in the movement, I wish the delivery were more straight forward. Like I mentioned before, after reading through Mast-gate, I am automatically on-guard for what new level of attempted and potentially feigned craftsmanship I'm about to be sold on next. Another key element left out by CN is some history of why industrial chocolate makers got to the point of market domination. That's because the capital investment required in the existing machinery up until the early 2000s was exorbitantly high and it only came in an industrial scale. The roaster was hooked up to the crusher, the crusher to the winnower, and the winnower to the grinder. Then after the nibs are ground into cocoa liquor there was another machinery station setup to temper and mold the chocolate. These machines filled warehouses and produced 2 tons of chocolate a day, roughly. CN does briefly address the phenomenon where Craft Chocolate makers often build their equipment, but does not do this effort justice. I feel this is a key component that separates and defines the two industries, because without this mechanical dedication both small batch and craft chocolate would not have come to be. Now there are distributors that have patented different smaller machines but by and large, these chocolate makers are either building their own or commissioning their specific machines.
Coffee Time!!
2nd Wave Supply Chain - I found this supply chain the hardest to parse through. I kept finding lots of percentage values available without any specific numbers to attach to the percentages. This made it hard to break down and trace the costs of a single cup. Here are some links to what the Starbucks value chain looks like and why it's important (Bajpai 2014, Dudovskiy 2015.) And here is a link about transparency at Starbucks with the current goals outlined, Transparency at Starbucks?. Cost of commodity coffee is roughly $2/lb, and it is safe to bet that Starbucks is paying that much or lower/lb. An additional factor that drives costs down for a large corporation like Starbucks is their vertical integration. Since 2010 the company has reformed to include more shipping and logistics efforts so they don't have to export any part of the supply chain. Establishing these networks internally allows them to consolidate their order and ideally ship their coffee more efficiently.
3rd Wave- Coffee is sold in both the conventional commodity market aka the “C” market as well as its own specialty market. This specialty market came into existence to combat the intense price fluctuations that coffee goes through as well as protect quality producers through organizations like ACE, Alliance for Coffee Excellence. This market came into existence to combat the intense price fluctuations that coffee goes through as well as protect quality producers. Specialty roasters send their Green Coffee buyers to these auctions where the coffees are cupped, rated and sold at prices dependent on the quality ratings they receive, this way the market both rewards and incentivizes quality production. However this is when the system works. Because this system operates above the open market prices sometimes industrial coffee buyers can get in the mix and buy a lot before a specialty roaster even if there is a pre-existing plan for the specialty roaster to buy the lot. When this happens the specialty supply takes a hit with a lower supply and while prices will artificially increase, the quality-incentive diminishes in value. Lucky Peach ventured into this delicate system to assess the cost structures and transparency. This article is great, Why Does a Cup of Single-Origin Cost 3.50, and I will use it primarily to analyze the specialty coffee price tag.
According to surveys of specialty roasters, the average price paid to farmers for their green coffee is $3/lb (Hill 2014, SCAA Economics of Coffee Supply Chain 2014). Logistical factors of shipping, customs, warehousing, importer profit add $3.53/lb. Processing and production costs at the roaster add $8.81/lb. Last step is factoring in the costs associated with brewing and serving the coffee. These factors include shop rent, marketing, shop equipment, cups, lids, labor, and taxes to shop add $30.lb. Now for the breakdown- there are roughly 15 cups/lb which brings the cost of each cup to $2.54. Profit to coffee shop at $3.50/cup is $0.96, however this does not include the variation in rent prices.
In conclusion yes, the prices are high. There is no getting around that. However the dedication and skill brought to each level of growing, sourcing and producing specialty coffee and chocolate both affect and enhance the product. Ultimately, I would like to see these prices even higher in order to bring the hands involved at each step of production an even greater quality of life and hopefully better products to the consumers. Don't opt out of these specialty markets because their price tags seem alienating, instead make an effort to get involved and learn what is going on. Those of us involved are really excited about what we are doing and involved with. We love to share our work and there is the added bonus that the flavors, experiences and conversations you will have might create your new standard.