Last Updated on July 21, 2023 by Barry Gray
It’s weird; we all know that coffee is expensive, but many of us never bother to find out why.
Compared to many hot beverages, the price is ‘up there’ on the pricey Richter scale.
Coffee is expensive for several reasons. The difficulty in harvesting, the cost of growing coffee in sometimes restricted areas, the demand continuing to grow, and tax can all contribute to the price we need to pay to enjoy our caffeine hit.
During my travels around the coffee world, whether overseas or just around my local haunts, which are also on the map for high tourism, coffee has always been my first choice when stopping for a sandwich. Sometimes just the coffee shop’s placement can mean a massive hike in price. I understand, but there is so much more to coffee and pricing.
Let’s take a behind-the-scenes look at our favorite beverage and why it can cost a packet, excuse the pun, to buy.
What are the Main Reasons Why Coffee Costs so Much?
I see several key factors that contribute to the high cost of coffee. For me, the key components include the following.
- The cost of coffee beans. Coffee beans cost a fortune to grow. The plants are high maintenance and demand certain conditions for optimal growth. They are also fragile and can be fodder for pests and diseases. On a larger scale, this farming method takes knowledge, patience, workforce power, and space. This in itself costs, you guessed it, money! We are talking crops here, like the spoiled brats of the plant genre. They demand, and they get.
- The cost of processing and shipping coffee beans. Once coffee beans are harvested, they must be processed and shipped to coffee roasters. Processing coffee beans is partly removing the bean from the cherry. This process is a colossal industry done in large quantities. Roasting begins only when the beans are transported, and roasting prerequisites take time and knowledge.
- The cost of roasting and packaging coffee beans. Coffee roasters purchase, roast, and package coffee beans for sale. This process also requires specialized equipment and labor, which can drive up the cost of coffee.
- The cost of marketing and branding. Coffee has to be branded and packaged; this also costs money—enough money to afford the best wizards in the branding business. Branding is big business; it can mean a particular coffee becoming a household name or falling into obscurity. Imagine spending all that time, effort, and money producing great coffee; it just doesn’t get out there and get known. Competition is huge in the coffee industry, just like many industries.
- The cost of labor. The coffee industry employs millions of people around the world. The wages of these workers can vary depending on the country and the region. Try to purchase fair-trade coffee whenever you can. The needed labor is factored into the price of the coffee, and fair trade allows the laborer’s family to live a decent life; being a conscious consumer is the way to go.
In addition to these factors, the cost of coffee can also be affected by supply and demand.
When the need for coffee is high, the price of coffee beans can go up.
When the demand for coffee is low, the cost of coffee beans can decrease.
The fluctuations in pricing, supply, and demand are also a product of competition within the industry. According to economics, this is an excellent dynamic for profit and industry.
Tax is a Major Contributor to the Cost of Coffee
I am not a financial advisor nor an economic wiz, but here are a few educational pointers that might help you learn more about VAT and sales tax. It can also shed some light as to why the cost of coffee varies.
- VAT stands for “value-added tax.” It is a consumption tax levied on the value added at each production stage and distribution of goods and services. VAT is typically charged at a fixed rate, which varies from country to country.
- Tax is a broad term that can refer to any government-imposed levy on income, property, goods, or services. Taxes are used to raise government programs’ revenue or discourage certain behaviors.
The tax on coffee beans varies depending between counties and sometimes states if we are talking about the US.
In the United Kingdom, coffee beans are zero-rated for VAT, meaning they are not subject to sales tax. However, coffee drinks sold in coffee shops are subject to VAT.
In Germany, coffee beans are subject to a special tax called Kaffeesteuer. This tax is charged on roasted and soluble coffee sold within the country. It is not set on green coffee beans.
The tax on coffee beans is a source of revenue for governments.
In the United Kingdom, the tax on coffee beans generates an estimated £100 million in revenue each year. In Germany, the tax on coffee beans generates an estimated €1 billion in revenue each year.
Some have criticized the coffee beans tax as unfair to coffee drinkers. They argue that the tax makes coffee more expensive and disproportionately affects low-income consumers.
Others argue that the tax is necessary to generate government revenue and help support the coffee industry. After reading about how coffee beans are farmed, you may have your opinion now.
The debate over the tax on coffee beans is likely to continue. As the popularity of coffee continues to grow, so will the discussion on the fairness of the tax.
The Tax the Business Pays Makes a Huge Difference
The main difference between VAT and tax is that VAT is a consumption tax, while tax can be either a consumption or an income tax.
If you are looking at VAT at a consumer level, this is the definition of VAT.
However, on a business finance level, VAT is a levy a business pays the government to increase funds in the government kitty. Coffee shops and coffee businesses are not exempt in any way from paying this.
Most businesses have to earn a certain amount before they pay VAT, just as individuals do. It’s like your personal tax that you pay, but the company pays that at a business level.
Consumption taxes are taxes paid on the consumption of goods and services, while income taxes are taxes paid on the income of individuals or businesses.
VAT is set at a lower rate than income tax.
For example, the standard VAT rate in the United Kingdom is 20%, while the top income tax rate is 45%.
In the US, tax rates vary across states and can be as low as 1%. Individual tax rates vary in the US, but the highest is 37%. This is a variable, though, and is announced during budget releases.
Because VAT is designed to be a consumption tax, and consumption taxes are generally said to be more efficient than income taxes, more revenue is generated from VAT.
Another difference between VAT and tax is that VAT is charged at the point of sale. VAT is assigned to the final consumer, while tax can be levied on businesses at different stages of production and distribution.
Distribution meaning, is this a coffee shop on the pavement or a coffee shop that is a franchise, catering business, etc.,
All of this adds value and profit to your cup of coffee.
So, is Expensive Coffee Worth it?
That depends on your individual preferences. If you are a coffee connoisseur who enjoys the taste of high-quality coffee, then expensive coffee may be worth the price. However, less costly options are available if you want a way to get your caffeine fix.
But if you are concerned about the cost of coffee, here are some tips to reduce the costs without it affecting your coffee-drinking experience.
- Make coffee at home. Making coffee at home is the most obvious way to save money on coffee. You can buy coffee beans in bulk and grind them yourself. Making coffee at home can be just as pleasurable and social.
- Buy coffee beans from a local roaster. Local roasters often have lower prices than big-box stores. They also tend to have a wider variety of coffee beans.
- Look for sales and discounts. Coffee shops and grocery stores often have sales and discounts on coffee beans and drinks. Be sure to check your local stores for the latest deals. You can also get hold of a store compare app where costs are live.
- Use coupons and promo codes. Several websites offer coupons and promo codes for coffee shops and grocery stores. Be sure to check these websites before you make a purchase.
These tips stand me in good stead for purchasing a variety of coffees to have on hand.
However, I have just three more additional tips that I think some people may appreciate regarding the cost of coffee.
- Choose coffee beans that are grown in countries with a solid fair-trade movement. This will help ensure that the coffee you buy supports ethical farming practices.
- Buy coffee from companies that are transparent about their sourcing practices. You should find out where your coffee is grown and whether it is ethically produced.
- Support small-scale coffee farmers. Small-scale farmers are often the most vulnerable to exploitation in the coffee industry. By buying coffee from small-scale farmers, you can help to support their livelihoods.
Save Money By Storing Coffee Correctly
Finally, one way to save money and fight against the cost of coffee is to know how to store it correctly. When you do this, it lasts longer than you expect, and you will still have a delicious brew at the end.
I have five tips on how to store beans to ensure they do not go stale immediately after buying them.
- Store coffee beans in an airtight container. Coffee beans are porous and will absorb moisture from the air. Making them stale and flavorless. An airtight container will help to keep the coffee beans fresh by preventing them from absorbing moisture. The great thing is there are so many to choose from now. If you go for plastic, make sure it is PVA-free.
- Store coffee beans in a cool, dark place. Heat and light can also cause coffee beans to go off. Store them in a cool, dark place away from direct sunlight.
- Store coffee beans in an opaque container. Light can also cause coffee beans to lose their flavor. Store them in an opaque container to protect them from light. So there are better choices than those glass jars when storing your precious beans.
- Store coffee beans in a small container. If you use only some coffee beans in one sitting, store them in a small container in your pantry to prevent them from becoming stale.
- Store coffee beans in the refrigerator or freezer. If you need to store coffee beans for an extended period, you can keep them in the fridge or freezer.
Coffee is expensive for a number of reasons, and it’s not something you can actually change. Sadly, if you want to continue to enjoy your cup of java, then you will have to pay for it.
But when it tastes so good, I think every cent is worth it.