How Corporations and Executives Captured the Coffee Industry’s Profits
![How Corporations and Executives Captured the Coffee Industry’s Profits](/content/images/size/w1200/2024/07/coffee-profit-1.jpg)
Coffee is big business. The global industry is worth hundreds of billions of dollars, much of that spent by American consumers whose thirst for coffee shows no sign of slowing down.
Around the world, hundreds of millions of people rely on coffee for their livelihoods, from farmers and factory workers to roasters, and baristas. For much of the 20th century, many of those roles were, if not lucrative, then at least viable vocations. On the production side, that was due in part to the International Coffee Agreement (ICA) and its precursors, which set export quotas with the goal of creating long-term price stability in the industry. While those doing the importing, roasting, and selling—as opposed to the growing and harvesting—were still keeping most of the revenue from coffee, the split was at least more equitable.
“Through the early 1970s, a little over half of the total coffee income remained in the consuming countries”, wrote John M. Talbot in a 1997 study. The main reason for this, Talbot suggested, was the strength of the various ICAs, which he called “the most successful commodity agreements negotiated in the post-war period”.
But by the 1980s, Talbot wrote, the rise of neoliberal economic policies and market consolidation “undermined the consensus among producing states, consuming states, and [transnational corporations], leading to the collapse of the ICA and the huge transfer of surplus out of the producing countries”.
Since then, coffee profits have soared, and even as the cost of producing coffee continues to rise, farmers’ incomes have remained stagnant—or even fallen. A yet-to-be-published update of Talbot’s research shows that today, producing countries’ share of coffee income is just 20% compared with more than 30% in 1975.
Things aren’t much better at the other end of the industry. Roasters, baristas, and other customer-facing workers regularly report how hard it is to make a living, citing low pay, minimal benefits, and sometimes-dangerous work environments.
These factors don’t seem to add up. If the coffee industry is making more profit than it ever has, why do so many workers feel like they’re missing out? All that profit must be going somewhere. It’s time to follow the money.
There’s Always Money in the Banana Stand Coffee Shop
Coffee consumption worldwide has more than doubled since 1970, and the global market has grown from around $30 billion in the 1980s to upwards of $460 billion today. According to the National Coffee Association, Americans spent almost $110 billion on coffee in 2022 alone. The cost to the consumer has also risen: A cup of coffee in 1987, the year I was born, cost $1.29; in 2015 that same coffee was $2.70, and this year it’s up to a whopping $4.76.
On the consuming side, the industry is dominated by a few large corporations—if you’ve been reading my work for any amount of time, you probably know them: Nestlé (via Nescafé and Nespresso), JDE Peet’s, Keurig Dr Pepper, Starbucks, and a few others. In fact, 10 multinational roasters were responsible for 35% of all green coffee trade in 2019.
And those multinationals are earning more and more, although it’s worth noting that in some cases their revenue was not just derived from coffee. Nestlé’s revenue in 2015 was $89 billion; in 2023, the conglomerate brought in $105 billion. JDE Peet’s saw its sales climb 12% from 2017 to 2023, while Starbucks’ revenue went from $19 billion in 2015 to $36 billion in 2023. Keurig Dr Pepper’s sales, meanwhile, rose from $11.6 billion in 2020 to $14.8 billion in 2023. Their profits have also risen in this timeframe.
Clearly, these companies are raking it in. And they’re continuing to raise prices—in some cases, several times in a matter of months—while blaming inflation, the pandemic, and increased green coffee costs.
At the same time, each of these corporations has funnelled cash to its executives and shareholders in the form of pay rises, dividends, and stock buybacks. It’s hard for money to trickle down to farmers and workers when it gets hoovered up before it even leaves the building.
Buy It Back
Companies can do a lot with their profits. They can use them to grow, invest in infrastructure and improvements, and give their workers raises. Or they can reward their shareholders and upper management with dividends—a share of profits that’s paid to investors—and stock buybacks (many of them incentivised by corporate tax cuts).
As well as returning money to shareholders, buybacks reduce the number of shares in circulation, increasing the worth of those that remain and pushing up the stock price—which in turn means higher executive pay.
In a 2014 Harvard Business Review article, the economist William Lazonick summarised the wide-scale economic fallout of such policies: Even though the stock market might be buoyant and corporate profits high, that doesn’t translate to a prosperous economy for all. Lazonick pinned the blame for this contradiction on buybacks and dividends, and the executives who benefit from them.
“Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives’ pay, and buybacks drive up short-term stock prices”, Lazonick wrote. “Buybacks contribute to runaway executive compensation and economic inequality in a major way. Because they extract value rather than create it, their overuse undermines the economy’s health”.
It should come as no surprise that coffee multinationals are big fans of buybacks and dividends. JDE Peet’s spent more than $500 million on buybacks in 2022; Keurig Dr Pepper earmarked $4 billion for “a share repurchase program” the year before; and Nestlé bought back more than $21 billion in shares between 2022 and 2024. And this is just in the last few years—Nestlé did another buyback in 2017, another in 2010, and another all the way back in 2005.
Starbucks offers a particularly pertinent example of this process of corporate wealth capture. The company has conducted plenty of buybacks over the years, but in 2022 returning CEO Howard Schultz paused the program “to invest more profit into our people and our stores” in the face of a growing unionisation drive.
Once it had received plenty of positive press over the move—financial adviser the Motley Fool thought the decision “could be a net positive for the company if it wisely deploys the money it would have spent on buybacks”—Starbucks quietly restarted the program, returning $20 billion to shareholders in buybacks and dividends.
As economists, activists, and unions have noted, stock buybacks specifically hurt workers. Take Starbucks, again: A 2018 report by the Roosevelt Institute think tank found that, if the company had reallocated the money spent on buybacks to worker compensation, every employee could have received a $7,000 raise.
You Make How Much?
Speaking of raises, while lower-level workers are systematically underpaid, those at the executive level are rewarded handsomely. Let’s again look at Starbucks: Howard Schultz, the boomeranging former CEO, is now a billionaire (although he doesn’t like that title).
You can technically become a billionaire through a regular CEO paycheque—but, as the average CEO salary is only in the tens of millions, it would take a long time. The quickest way to amass that much wealth is to own a bunch of shares in the company you run, and then cash in when the stock price goes up using buybacks and other tactics. Schultz, who took a symbolic $1 salary during one of his interim stints, owns nearly 22 million shares in Starbucks, collectively worth almost $2 billion. His wealth grew by almost $1 billion during the first two years of the COVID-19 pandemic.
Other coffee executives, while not billionaires, are still doing well for themselves. Robert Gamgort, CEO of Keurig Dr Pepper, made more than $12 million in 2022. Nestlé’s CEO Ulf Mark Schneider earned a similar amount in 2021, while the company’s board earned $57 million collectively that year. New Starbucks CEO Laxman Narasimhan was “lured” to the company with a total compensation package of $17.5 million, while his predecessor Kevin Johnson got a 40% pay rise in 2021, increasing his remuneration to more than $20 million.
It’s hard to square the above numbers with the reality of being a regular employee at one of these companies. The wave of coffee unionisation drives in recent years has been in large part because of these discrepancies—the average Starbucks barista makes just $15.42 per hour.
Sometimes it’s so obvious even British tabloids join the dots. In 2015, Andy Harrison—CEO of Costa Coffee’s then-owner, Whitbread—claimed that a rise in the U.K.’s living wage to £7.20 per hour would force the company to raise prices and make “efficiency savings” to pay for it. At the same time, as the Daily Record pointed out, Whitbread’s pre-tax profits the year before were £464 million, while Harrison took home an £11.4 million salary.
Specialty Wealth Extraction
These high salaries, along with stock buybacks and dividends, are a major source of the coffee industry’s inequality. Karl Wienhold, coffee economics researcher and author of the book ‘Cheap Coffee’, sums it up thusly: “It seems to me that the money mostly goes to shareholders of the companies, good salaries for a lot of the people in the middle, and unnecessary expenses that are only possible because there is so much money that can be slurped up in the middle of the chain”.
While most of the really serious money is concentrated among a few giant coffee multinationals, the specialty side of the industry hasn’t been immune to these dynamics either. Wienhold is collaborating on an update to Talbot’s 1997 study which shows that the amount of coffee income going back to farmers has fallen significantly since the 1970s.
This is backed up by other research: An analysis carried out by researchers behind the Specialty Coffee Transaction Guide shows that, since 2014, the retail price of specialty coffee has risen more than 28% on the low end and 75% on the high end, while the average producer share of total coffee income is just 12%.
Specialty coffee is itself big business. While private equity investment has poured into the specialty sector over the last decade, its goal is to extract more wealth. As I have written about previously, that money has mostly been spent on supercharging growth, generally in the form of expansion. Opening new locations brings more income, which looks good on the financial reports that venture capital firms can use to attract new investment. This growth can bring benefits—it creates jobs, for one thing—but that can also go the other way if things don’t work out as planned.
And these investors aren’t investing for no reason. “We know that there’s a massive potential for dividends or profits because of all the private equity money going into specialty coffee these days”, says Wienhold. “They want one thing, and that’s to suck dividends out or to make it into something that they can sell for more”.
Of course, most coffee companies are not venture-capital-funded, and many small businesses are struggling. The costs of running a coffee shop have climbed massively over the past decade—rent is more expensive, energy costs have increased, and the cost of labour has also gone up (although not nearly enough, if you ask me).
But when the farmers who grow the crop that is the basis for the entire industry are earning a pittance—one report estimated the amount going back to the producer from a cup of coffee is just one penny—and workers are having to unionise and fight for scraps from their employers, the whole structure of the industry seems unsustainable.
Regulation or Revolution
So what’s the solution, aside from raising the retail price of coffee and crossing our fingers that some of it might trickle down to farmers and other workers? (Spoiler alert: It won’t.)
When I ask Wienhold the question, his answer is blunt. “You have two options: one is regulation, and two is revolution. Revolution can be violent, or it can be more about organisation. I think by far the most viable way forward is simply the powerless organising together to leverage their collective power. Maybe that means buying roasting machines; maybe that means just the threat of withholding coffee the way labour unions threaten to withhold labour”.
Wienhold points to Pachamama Coffee, a California-based roasting company owned by coffee farmers, as a small example of a better way of doing business. Another is Andina Coffee in Glasgow, which roasts in Colombia and then ships the coffee to Scotland for sale. Roasting and retail is the point where most value is added to coffee, and so roasting in the country where it was grown keeps more of that value in said country.
But as Wienhold notes, the way the industry is set up makes real change incredibly difficult. “I don’t think there are any mechanical solutions to this”, he says. “You cannot engineer a better supply chain that will just make farmers prosperous, because behind the distribution of the division of labour, who’s doing what jobs, are power dynamics that makes one profitable and one unprofitable, makes one volatile and the other very stable. So whatever changes we can make to the superficial level of the supply chain will not change the underlying power dynamics below it. I think these dynamics need to change first”.