Magazine ad for the FNC,
featuring the Juan Valdez logo
Coffee in Colombia
In an interview published in the New York Times on January 17, 2000, the Colombian Ambassador to the USA, Luis Alberto Moreno-Mejia talks about his country's reputation among Americans. "I'm sure that if you did a poll, the first thing that would come to mind is the association with cocaine. It's bad for me, and it's bad for Colombia. I think the self-esteem of Colombians is very much hurt when we are perceived this way." The fact of the matter is that Colombia's major export to the United States is not cocaine. It is petroleum, followed by coffee, followed by cut flowers.
The subject of this note is coffee. This is an ancient commodity which has been popular all over the world across many eras. For example, in Johann Sebastian Bach's Kaffee Kantate (BMW 211; written in Leipzig, Germany in the year 1732), the soprano sings,
If I can't drink my bowl of coffee three times daily,
then in my torment I will shrivel up like a piece of roast goat
Mm! how sweet the coffee tastes,
more delicious than a thousand kisses,
mellower than muscatel wine.
Coffee, coffee I must have,
and if someone wishes to give me a treat,
ah, then pour me out some coffee!
Today, coffee is a multi-billion global industry. It is grown in many tropical countries in Africa, Asia and the Americas. In Latin America, the two largest coffee producers are Brazil and Colombia. The contemporary history of the coffee industry contains many extraordinarily interesting stories, especially with respect to policy analyses and marketing strategies. The interested reader can consult the many books listed at the bottom of this page.
As a product, coffee requires many intermediary steps before the coffee beans can reach the consumer. This is a product in which the end user has no chance to purchase directly from the grower. Instead, there is an entire chain of intermediaries who serve different functions. Given that coffee is a mass consumer product with billions of cups served daily around the world, it has been much more effective for industry organizations and multinational corporations to coordinate activities.
In the early part of the century, Brazil was the largest coffee growing country in the world. Coffee sales in Brazil was coordinated by a growers' agency called the Instituto do Café (IBC), which bought coffee from growers and sold it on the world market; it served a very important function in regulating the price and quantity of available coffee through supply controls.
Magazine ad for the FNC,
featuring the Juan Valdez logo
When an organization like the FNC wields such vast influence, one is apt to ponder about whether a monopoly is earning unjust profits. Evidence against this is the empirical observation that when coffee crop prices crashed in the early 1990's, the retail cost of coffee did not fall at all. This is an indication either of the negligible contribution of the cost of the coffee beans or collusion by the distributors. According the book by Dicum and Lattinger (1999, figure 10, page 109), for each dollar that a consumer spends on coffee, 8 cents go to farm labor, 5 cents to the grower, 3 cents to value added services in the producing country, 6 cents to cover transport and loss, 67 cents for valued added services such as roasting, grinding, packaging and trucking in the consuming country and 11 cents to the retail store. Based upon these figures, it is hard to complain about unjust enrichment by the coffee-growing countries.
While Colombia is known worldwide as a major exporter of quality coffee, we will be dealing here with the consumption of coffee within Colombia itself. We present some coffee consumption data from the TGI Colombia study, a consumer survey of 7,035 persons in Colombia conducted by IBOPE Columbia to collect demographics, media usage, product usage and lifestyle information. This information will refer to the consumption of coffee within a household, and therefore omits any consideration of out-of-home consumption, such as offices, restaurants and even Internet cafés (see, for example, the El Tiempo's listing of Café Internet en Colombia).
Cafe Con Aroma De Mujer,
a Colombian telenovela
In the following table, we present the household
percentage separately by socio-economic class, geographical region and
household size. There are no discernible differences among the
socio-economic classes. Geographically, the Antioquía region
appears to be slightly lower in consumption. Consumption increases with
household size, because more people in the household increases the chance
that someone wants coffee.
|
Demographic Variable / Class |
% Households Serving Coffee Once or More Daily |
| Socio-economic Class Alto (6,5,4) Medio (3) Bajo (2) |
88% 88% 88% |
| Region (Principal City) Antioquía (Medellín) Bogotá (Bogotá) Cafetero (Pereira) Caribe (Barranquilla) Centro (Ibague) Oriente (Bucamaranga) Pacifico (Cali) |
82% 90% 86% 88% 87% 89% 89% |
| Household Size 1 - 3 persons 4 - 6 persons 7 - 9 persons 10+ persons |
85% 89% 91% 95% |
| TOTAL | 88% |
(source: TGI Colombia, IBOPE Colombia)
What allows coffee to remain popular over the years is that it is in fact not a single uniform product. There are many, many ways in which the coffee bean can be served, and even now there seems to be no end in what an active imagination can wrought. The consumer has a choice of any combination of bean origin, labor practice, environmental friendliness, processing, roast, grind, extraction method, concentration, caffeine content, adjuncts, flavor, sweetener, temperature, color, serving container and locale. This creates some rather complex segmentation of the coffee market. But with this complexity come the opportunities for positioning and marketing.
For the purpose of illustration, we will present a simple segmentation by two types of coffee: ground coffee versus instant coffee. On a typical day, 72% of Colombian households serve ground coffee and 40% serve instant coffee, with 24% of the households serving both types. Something interesting appears when we break down these percentages by socio-economic class, geographical region and household size.
| Demographic Variable / Class | % Households serving ground coffee | %Households serving instant coffee |
| Socio-economic Class Alto (6,5,4) Medio (3) Bajo (2) |
64% 72% 75% |
52% 41% 35% |
| Region (Principal City) Antioquía (Medellín) Bogotá (Bogotá) Cafetero (Pereira) Caribe (Barranquilla) Centro (Ibague) Oriente (Bucamaranga) Pacifico (Cali) |
44% 77% 62% 72% 75% 71% 79% |
62% 40% 50% 33% 41% 42% 29% |
| Household Size 1 - 3 persons 4 - 6 persons 7 - 9 persons 10+ persons |
67% 73% 76% 80% |
42% 41% 37% 36% |
| TOTAL | 72% | 40% |
(source: TGI Colombia, IBOPE Colombia)
The consumption of ground coffee increases with larger household size and decreases with higher socio-economic class. Instant coffee consumption increases with higher socio-economic class and decreases with household size. Comparatively speaking, instant coffee may be more expensive but easier and quicker to make. Geographically, instant coffee is more popular in the Antioquía region, while people in the other regions prefer ground coffee. So while the market segmentation is complex, there is a logic that can be deduced from the appropriate data and taken advantage of.
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(posted by Ivan Galvis and Roland Soong on 1/21/00)
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