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About Griffin daily news. (Griffin, Ga.) 1924-current | View Entire Issue (Feb. 17, 1977)
Griffin Daily News Thursday, February 17,1977 Page 18 Coffee wealth unevenly divided Editor’s Note: Soaring coffee prices have brought profit to many along the chain from bean to brew. But the wealth is unevenly divided. Here is a look at who has been sharing in the price spiral. By DAVID C. MARTIN and TERRY KIRKPATRICK Associated Press Writers If you’re wondering where the money you spend on coffee is going, look first to the countries that grow it. Brazil, the world’s largest producer, earned $2.3 billion from coffee sales in 1976, about 2*6 times more than in 1975, although its exports rose less than 7 per cent. Colombia, the second largest producer, boosted its coffee revenues by about a third to $917.7 million, despite a nearly 25 per cent drop in exports. Since July 1975, when a frost hit Brazil, suddenly making future supply uncertain, the retail price of a pound of coffee has jumped from an average $1.27 to over $3 in some places. Although it’s difficult to give an exact breakdown of the retail price, most of what you pay for coffee goes to the producing countries. And indications are that no segment of the American coffee industry has reaped a comparable windfall. From farm to grocery shelf, the sharing of the new coffee wealth looks like this: PRODUCERS Green coffee beans account for more than 90 per cent of the cost of producing a can of roasted coffee. In Brazil, a 132-pound bag of green coffee sold last month for $240. (That is about $1.82 a pound, but it takes more than a pound of beans to make a pound of roasted coffee.) Os that $240, according to exporters and officials, the government takes $lO3 in export tax; local levies, com missions and fees account for $27 and the grower gets sllO. He spends about 68 per cent of his share for salaries and production costs, leaving him with a profit of about $35. In 1975, before prices started soaring, the 132-pound bag of coffee sold for $64. The government export tax was s2l and, according to one exporter, the proportion of money the grower had to spend for local levies, labor, etc. was about the same as it is now. That left the grower with a profit of about sll or sl2. Prices for beans have almost quadrupled; profits for the grower have just about tripled. The growing nations need coffee revenue to buy oil and American tractors. Earning as much as they can from coffee, industry observers say, is no different from what U.S. farmers do in times of shortage. “Whether it’s right for a producing country to hold back on its coffee or not, it’s a free market mechanism,” said a commodity analyst. “The alternative is to pass a law that you can’t drink coffee.” ROASTERS There are more than 100 U.S. coffee roasters, who turn green beans into ground and instant coffee. They sell to grocery stores from their inventory at a price based on the cost of replacing the green beans, although the coffee actually going to the store was bought several months before. When prices rise, the coffee they have in warehouses is more valuable, a gain known as inventory profit. Two weeks after the Brazilian frost, Maxwell House, the nation’s largest roaster, raised its wholesale prices by 20 cents a pound. Folger, the second largest, cut temporary reductions it had been offering to grocers. General Foods, the parent company of Maxwell House, said that in the three months ended July 3, 1976, profits were 61 per cent higher than in the same period a year earlier. “Inventory profits from anticipatory price increases on coffee account for a sizable portion of the recent ear nings,” the Argus Research Corp, said in an analysis of General Foods. The big roasters could have reaped even larger in ventory profits had they raised wholesale prices as much as green bean prices were rising, analysts say. Maxwell House says its profit margin actually is lower than it was before the frost. In those days, it took 71 cents worth of beans to make one pound of coffee selling at a wholesale price of $1.26. Today, it takes $2.69 worth of beans to make a pound of coffee selling wholesale at $3.11. Maxwell House says the markup dropped from 55 cents to 42 cents. IMPORTERS Although roasters hold about 80 per cent of the nation’s -tfwuwfa lyy WERSAR? SPECIAL! POLYESTER ** FIBERFILL 100% pure polyester SV K f fill. Non-allergenic, Resil , ient, washable. BEN • FRANKLIN □ 1 a coffee stocks, inventory profits were also important for the some 100 importers in the United States, who buy coffee in producing countries and ship it to roasters. Any importer with a warehouse of coffee when the frost hit made a quick profit. “We made some good bucks right after the frost,” said one importer, who didn’t want to be named. Most import firms are privately owned and don’t reveal their profit figures, but all agree that the postfrost boom pulled their business out of the doldrums. “This was a very, very depressed industry,” one said. “Only now in the last six months has the coffee importer been able to make a reasonable profit.” The importers are realizing a continuing profit on their inventories since the coffee they buy overseas is worth more by the time they sell it to the roaster. “Our firm’s position was to buy more coffee than we needed,” another import executive said. “You always gain a lot more in an up market because your inventory appreciates in value. But you get killed when the market goes down.” SPECULATORS Although not a direct part of the flow of most coffee, the U.S. and London commodities markets became a source of profit for speculators attracted by the price advance. |/?.SIGMAN BUICKJ*\] 1303 W. Taylor Street Phone 228-2700 Service Dept. 228-7700 I Atl. No. 522-2371 Sales Office Hrs. Mon.-Fri. 8:30-9:00 Sat. 8:30-5:00 I Service Dept. Hrs. Mon.-Fri. 8:00-6:00 W I "WHATEVER IT TAKES WE GIVE" I I MMK “WE ARE OVERSTOCKED” DONN “ I I WE MUST SELL 38 NEW BUICKS BY SATURDAY I I ‘THIS IS THE BIGGEST SALE I I IN THE HISTORY OF SIGMAN BUICK” I I $ 175 00 ’OVER DEALER COST I I W ANY CENTURY, REGAL, SKYLARK, OR SKY HAWK I I 1977 BUICK SKYLARK I Ser. No. 4933 I List Price 5611.35 I ■ Sale Price 5092.42 ■ Sales Tax 152.70 ,*sßl ■ Tag & Title 25.00 PMI'IIIIIBIIMF r I ■ Total $5,270.19 I ■ Down Payment $570.19 ■ ■Amount To Finance $4,700.00 ■ I $128.76 PER MONTH I APR. 11.83 48 Month Financing I No Monthly Payment Until March I Ask For One Os “The Good Guys”: Lanier Shivers, Donnie Wilson, Zach Hayes, ■ T Mark Luke, Melvin Lester, Colin Reeves, Kerry Bunn, Melvin Waldrop, I --K j Hon,er Sigman, Eric Sigman, Randy Skates iW j I I “BIGGEST LITTLE DEALER IN GEORGIA” I ■ *PLUS SALES TAX, TAG C DOCUMENTARY FEE ■ ■ ZACH LANIER | A futures contract is an agreement to buy or sell a cer tain amount of coffee at a fixed price at a later date. If you buy coffee now and the price goes up, you make money. If it goes down, you lose. An example: a speculator agrees now to have 100 bags of coffee delivered in three months for S6O a bag. If the price were to rise to SBO, his profit would be S2O, less his broker’s fee. He could take delivery of the actual coffee, or just sell his contract back in the futures market before the delivery date, realizing the profit either way. Speculators can also profit when prices go down, if they sell before the drop. In this case, a speculator agreeing to deliver 100 bags of coffee at S6O a bag in three months would be able to buy the coffee he needs to make delivery for less than he will receive for it. How active speculators were in the coffee price ad vance, and what their profits were, aren’t known. One analyst estimated that speculators not in the coffee business account for 25 per cent of active futures con tracts. Most futures trading, however, is done by coffee mer chants. They can protect themselves by buying futures equal to their planned purchases of actual coffee or by selling futures equal to their inventories. -. i ** k ,- . 29 mSHK?- < lofi Gloria Crawford shops
