The following is a guest essay authored by R-Squared regular Paul Nash. (Credit to Ronald Steenblik for the “Carter-Reagan Parallel” portion.)
Have We Hit Peak Coffee?
There is continued debate about whether the world will soon hit “Peak Coffee,” with some commentators saying it has already been reached. Analysts point to fast rising demand from China and India as the culprit for the current strain on world markets.
The International Coffee Organization (not to be confused with OCEC — the Organization of Coffee Exporting Countries), dominated by Brazil (the “Brazil” of coffee), Colombia and Costa Rica, moved to assure world markets that they had plenty of “spare capacity,” and that coffee was trading in an “acceptable” price range. This has done little to allay fears around the world that Peak Coffee and subsequent high prices will lead to a shortage and plunge the world into a coffee deprived depression.
Regional Instability and Embargoes
Analysts have pointed out that America’s economy “runs on coffee” and that leaves it exposed to supplies from unstable parts of the world. Meanwhile, fingers are pointed at Big Coffee (Maxwell House, Folgers, NesCafe), with complaints about “windfall profits.”
Coffee prices have shot up and are nearing the record levels, last seen in the early 90’s during the ICO coffee embargo. This happened from an incident in the 1994 Soccer World Cup, in a match between Colombia and the USA, when the Colombian goalie let in an own goal. There was speculation that this was the result of clandestine work by the CIA, attempting to show the Colombian government who was boss. On his return home the Colombian goalie was assassinated, leading to riots. This destabilized the entire Latin America region, home to three quarters of the world’s exportable coffee. The ICO imposed a coffee embargo, which cause widespread panic in the US, leading to coffee hoarding and long lineups at Starbucks.
The situation was so severe that (then president) Clinton had to intervene to defuse the situation. He pledged to break America’s “addiction” to coffee, and started government programs to find alternatives. This lead to things like “unleaded coffee” and also experiments in “bio-coffee” and coffee from algae. Unfortunately these programs were, ultimately, unsuccessful and America’s dependence on imported coffee has only increased in the decade since.
America’s never ending thirst for coffee, and the environmental impact of it, was highlighted by the “Juan Valdeez” incident, where a truck carrying coffee ran aground in Puget Sound en route to a west coast roastery. The coffee spill lead to thousands of sleepless birds and fish, and the environmental impacts of the botched cleanup still linger today, with the water often being brown after a storm exposes fresh coffee.
Price Spikes and the Growing Calls for Alternative Coffees
The price of coffee has risen steadily since 2002, with the benchmark for Arabica coffee topping 100c/lb. Retail prices peaked in 2008 at over $4/cup. It was widely believed that high coffee prices were a factor in the 2008 presidential election. During the campaign John McCain suggested a “summer coffee tax holiday” while Obama talked about a “windfall tax” on coffee companies. Prices have since retreated back to about $3/cup, but the population remembers the pain, and no politician wants to be remembered for seeing $4 or $5 coffee “on their watch”.
Part of the blame is widely laid at the feet of the “Big Three”: Starbucks, Peets, and Tim Hortons, who, over the last two decades have produced ever larger “pick up coffees” and luxury SUB’s (Sexy Urban Blends, like caramel macchiatos), instead of making small, efficient, European style coffees. Even the imported Espresso gets super sized and relabeled the “Americano” for the US market.
Under government pressure, the Big Three have committed to doing research on “hybrid” and “eclectic” coffees, but many see this as them just paying lip service while they continue to sell grande sized caramel macchiatos. Others point to the widespread use of diesel coffee in Europe, which dramatically reduces coffee consumption, but the Big Three have steadfastly refused to introduce it here. Despite being the darlings of the west coast treehuggers and movie stars, hybrid coffees are yet to catch on, and eclectics, which don’t use any coffee at all, are an unknown quantity in the market – it is feared that customers will suffer “caffeine anxiety” and not buy them.
Meanwhile, the Obama administration has funded a number of alternative coffee programs, including bio-coffee, corn coffee, coal-to-coffee, even waste-to-coffee, and others. These XTC programs have been widely criticized as a waste of money, as they can’t scale up and the CROCI (Caffeine Returned On Caffeine Invested) is barely greater than 1.
The Carter-Reagan Parallel
Which reminds us, of course, of that fateful evening, on July 15, 1979, when President Jimmy Carter appeared on national television to outline his plans to address the coffee crisis and improve the efficiency with which Americans brewed the stuff.
In the months preceding his speech, coffee prices had briefly dipped to below $1.50 per pound, but by July 1979 were well on their way up to $2. During what would later be called his “Crisis of Confidence” speech (sometimes known as the “Malaise” speech), Carter encouraged his fellow citizens to do what they could to reduce their consumption of coffee. He announced that he had already imposed coffee rationing on White House staff, and had issued an executive order to subsidize a rapid expansion in the cultivation of chicory root, a home-grown alternative to coffee. Carter seemed poised to announce other new policies, but fell asleep in his chair before he could finish his speech.
Carter’s coffee-conservation policies were later over-turned by President Ronald Reagan, whose 1984 campaign slogan was “It’s morning again in America!” – a subtle reference to the fact that, under his watch, coffee prices had fallen and apparently stabilized at around $1.50 per pound, so people had gone back to their normal early morning routine of drinking prodigious amounts of java at breakfast. In an ironic twist, shortly after Reagan was sworn into office for his second term, coffee prices zoomed back up to $3 per pound.
Birth of the Tea Party
The backlash against Obama and his coffee policies, have spawned a new political movement, the Tea Party, which has its slogan of “Brew, baby, Brew.” They have, paradoxically, pledged to do more to find domestic sources of coffee, pledging to open up the Arctic for coffee exploration, though there is debate as to whether there actually is any coffee there.
Meanwhile the world is running out of new sources of coffee, and unconventional coffee, such as the Venezuelan Coffee Sands, are increasingly being exploited, though many in America reject this as “sludge.” America remains as addicted to coffee as ever, but with the world’s growing population wanting an Americano lifestyle, international competition for coffee will only increase. If the Peak Coffee theorists are right, one day America will wake up to no coffee, and predictions of the consequences range from mild anger to the “Mad Maxwell” scenario.
Only time will tell…