Why are taxes higher for roasted coffee?

  • Many consuming countries levy a tax on roasted coffee, but not green beans
  • For example, Japan has a tariff on roasted coffee of up to 20%
  • Some of these taxes date back to the 17th century

IT’S WIDELY accepted that roasting at origin allows for more of coffee’s value to remain within its producing country. Despite this, it’s a rare occurrence. Actors in many coffee-growing countries simply don’t have the infrastructure, resources, or equipment to compete in many major coffee-consuming countries.

However, among the issues with roasting coffee at origin are tariffs and taxes. In most coffee-consuming markets, there is often a higher tax on imported roasted coffee than on imported green coffee.

Several of the largest coffee-importing countries in the world have higher tariffs on roasted coffee. Germany imposes a 9% tax, plus a “Kaffeesteuer” (coffee tax) of €2.19/kg of roasted coffee, while Japan has tariff rates between 3% and 20%, with some exceptions for specific trade partners.

But these import tariffs aren’t just limited to major consuming markets with developed economies; they exist globally. For example, in India, Mexico and Panama, tariffs on non-decaffeinated, roasted coffee are 100%, 45% and 54%, respectively. In Brazil, the world’s largest producer of coffee, the tariff on coffee imports ranges between 10% and 35%

Given that these tariffs exist globally as an industry standard, it’s important to litigate where they come from and why they exist. 

Why is roasted coffee taxed and green coffee isn’t?

As a value added product, it’s standard for roasted coffee to be subject to indirect taxes in consuming countries, particularly value added tax (VAT) and excise duties. However, VAT and similar taxes on roasted coffee vary from country to country – Hungary imposes a VAT of 27%, while Denmark imposes 25% plus an excise tax.

Despite this, the import and trade of roasted coffee has continued to grow. Within the EU, more than 910 thousand tonnes were traded in 2021. However, less than 1% of these imports (3.4 thousand tonnes) were sourced directly from coffee-producing countries, with most coming from other European countries.

“There is a lot of variation in both the way export markets are structured, as well as who has access to those structures, and how,” says Spencer Ross (Ph.D), Associate Professor of Marketing at the University of Massachusetts Lowell. 

“Rather, the ability to do so is also dependent on well-capitalised value chains on both the production and consumption ends of the supply chain.” 

Why do these tariffs exist?

For the countries or trading unions imposing these tariffs, the motivations are clear. Importing “finished” products adds little value to domestic markets while importing an “unfinished” product allows for value addition in local supply chains, i.e. through traders, roasters, and resellers.

“As a function of trade policy, import tariffs are taxes that a country places on imported goods. The primary purpose of import tariffs is to protect (or advantage) the domestic production of goods,” says Spencer.

“Typically, these taxes are passed along to the end consumer as a function of the good’s final price. With regards to roasted coffee, tariffs give domestic roasters an advantage over roasters in other countries (whether at origin or elsewhere).” 

In the EU, non-decaffeinated green coffee is able to be imported tariff-free, in order to “ensure value addition” after being imported and made into a consumable product once within its borders. On the other hand, roasted coffee incurs a standard tariff of 9% within the EU, driving up costs for both those importing it and the end consumer.

Essentially, in many cases, this means that import tariffs on roasted coffee allow them to retain as much value as possible. It makes roasting and selling coffee domestically the most valuable proposition – and means that in most major coffee-consuming markets, it is rarely cost-effective to buy coffee which has been roasted in other countries. 

Are these taxes going to change?

Ultimately, import tariffs are standard practice for any good which enters a country from abroad. However, in the coffee industry, it also symbolises a wider trend: the addition of a disproportionate amount of value in the latter stages of the supply chain.

“Value in the coffee industry is added to the product right up to the point of consumption. Coffee is not a finished good until a barista or brewer or drip machine or pod brewer uses the roasted coffee to transform it into a consumable beverage,” Spencer says. 

“This means that value keeps accumulating through the value chain (whether the return for that value is equitably distributed is another subject), which means any tax on value would see its greatest return just prior to consumption.” 

And while the International Coffee Organization (ICO) reports some reductions in some import tariffs for coffee, often via various regional and multilateral trade agreements, they are still prevalent across the industry.

“If there is a consumer market that is willing to pay for a particular coffee (i.e., low price sensitivity), then any costs added into the price of the coffee becomes a non-issue for them,” Spencer says. 

“If there is a producer market that has the resources to roast and package domestically and then make a market abroad (i.e., has ‘access’ to a global consumer), the odds are high that they’re bypassing a traditional export market.” 

Given the fact that import taxes on roasted coffee has existed for so long, it’s unlikely they are going anywhere anytime soon. They reflect wider power dynamics in the coffee industry – which themselves exist because of historic colonial structures. Altogether, they remain part of a larger conversation about the industry’s approach to value addition.

Coffee Intelligence

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