Human
Biology and the Energy-Boosting Appeal of Coffee
I am a lucky person because
all my
relatives on my father’s side have low
blood pressure even in old age. My normal
blood pressure is 110/70 mm Hg. Some 2 or 3 hours
after a run or a
workout, it sometimes drops
to 95/60
mm Hg. That is why I always
thought coffee had such
a good effect on
me because
it was raising my blood
pressure. But that is not the
whole point (I do not consume sugar
and milk
at all).
The thing is that coffee
contains caffeine. And caffeine,
in addition to raising blood pressure, is
a light and fast-acting
nootropic substance that stimulates mental activity by improving
connections between brain
nerve cells
or neurons.
There is not so much caffeine
in tea.
Black or
green tea
has no effect on
me whatsoever. I drink them
like water.
In addition to caffeine, other types of natural and
synthetic nootropics are also available today: omega-3s, l-theanine, racetams, gingko biloba,
Panax ginseng, rhodiola, creatine.
In Eastern Europe,
piracetam (Nootropil, Lucetam) has been actively used
for fifty years in order to improve
the mental concentration of children during
the educational process, for example, when
taking exams (!).
It is recommended not
only by local family
doctors or GPs, but also
by neurologists. Its effect is very similar to that of caffeine: your thinking becomes
extremely clear.
As far as I know,
over the period of fifty years there
has been only one
case of a significant side effect
experienced by an individual who ate more
than seventy (!) pills at once. And
it was claimed that the effect
was rather
due to the large cumulative intake of sorbitol in
those pills.
It is obvious that omega-3
acids also improve the functioning of your brain. However, it is hard for me to
say how fast they act.
But the most interesting
thing is that such traditional
Chinese remedies as
Ginkgo biloba or
ginseng are also classified as nootropics. Eventually, China
will have to master the cultivation
of coffee, while other coffee
producers will have to master the cultivation
of Gingko biloba and
ginseng.
It may seem that
these are unfounded fantasies.
However, the history of coffee suggests
otherwise.
The History of Coffee Cultivation
and Consumption
I think many know that the
homeland of a coffee tree is Ethiopia that is located in East Africa. However, in
the 15th century various coffee drinks began to gradually spread to other
regions. First, they moved to Yemen. Then they moved to the Ottoman-controlled Middle
East, Persia (modern Iran), India, and North Africa.
With the expansion of the Ottoman
Empire’s power on the European continent, coffee drinks were becoming increasingly popular in the
countries of Central Europe (Hungary, Austria), as well as in Southern Europe,
first of all in Italy. Fairly soon Western European countries joined this trend.
This was facilitated by the fact that many Western European countries – the Netherlands,
United Kingdom, France, Spain, and Portugal – possessed large colonial empires,
particularly in tropical regions.
As a result, coffee began to spread in those
colonies not only as a drink for everyday use, but also as a plant for
commercial cultivation.
Despite the fact that the Dutch
were the first who tried to commercially cultivate coffee in the Dutch East
Indies, present day Indonesia, it was
Brazil, a former colony of Portugal, that came to dominate the world of coffee
cultivation in the 19th century and early 20th century, alongside other South
and Central American countries (Colombia, Ecuador, and others).
According to the UN Food and Agricultural
Organization (FAO), the global coffee harvest was around 10.8 million in 2022,
split between the Arabica (60%) and Robusta (40%) variety. The total market
share of South and Central American countries amounted to 50%, where Brazil was
still the world’s largest producer of coffee beans with the market share of
30%.
Arabica is undoubtedly smoother
and milder in taste. But Robusta has twice as much caffeine. Arabica definitely
cannot wake me up. That is why I need a cup of bitter, intense Robusta espresso
(without any sugar and milk!).
Asia came second in terms of
production with 33%, while the homeland of coffee beans – Africa – is only in
third place with 17%.
From a country perspective, the story
of Vietnam, the world’s second largest coffee producer, is obviously very
compelling. Coffee production became a prominent industry In Vietnam when the
country was still part of French Indochina. However, the most exciting chapter
of this story began in the 1980s and 1990s.
In order to stimulate economic
development following the Vietnam War, the Vietnamese government allowed
private businesses to operate in the agricultural sector back in 1986. In the
1990s, on the back of Vietnam’s improved relations with Western countries, the
World Bank advised the Vietnamese government to develop its coffee industry since
coffee was seen as a very promising export commodity that could be easily sold
to rich countries in exchange for hard currency. Due to the fact that East and
South-East Asian people are famously disciplined and hard-working, Vietnam was able
to increase its share of the coffee market from 0.1% to 18% in just 30 years.
As a result, it became the second largest coffee producer and exporter in the
world (see Picture 1 below).
That is why China, which now ranks 16th in terms
of production, has a potential of becoming one of the leading coffee producers
if necessary.
As for coffee consumption, the producing
countries consume 30% of total production. In terms of coffee imports, developed
countries obviously dominate with the European Union accounting for 24% of
total global imports, while the United States’ share is 16%.
The average global coffee consumption per
capita is about 1.3 kg annually. However, regional consumption trends are very
different. According to World Atlas, the Nordic countries are the largest
consumers of coffee with Finland coming in first place (see Picture 2 below.
Pardon me, Luxembourg! But we need larger countries for comparison purposes).
In this country, on average, the annual coffee consumption amounts to 12 kg per
capita, that is, four cups of coffee every single day. Furthermore, Finnish
legislation stipulates that employees are entitled to 2 coffee breaks, from 10
to 15 minutes each, during the working day. Norway is in second place with 9.9
kg of annual coffee consumption per capita, while Iceland came third with 9 kg and
Denmark is in fourth place with 8.7 kg. In general, in terms of per-capita
consumption, the European countries are the largest coffee consuming countries.
The only exception is Canada that came tenth.
The Irresistible Rise of Coffee Prices
As for coffee prices, the current price of Arabica
coffee on the New York Mercantile Exchange is around $2.56 per pound ($5.64 = €5.28 per 1 kg), compared to $1.79 per pound ($3.95 = EUR 3.68 per 1 kg)
a year ago.
At
the same time, the price of Robusta
coffee on the Intercontinental Exchange is around $4,376 per ton ($4.38 or €4.10 per 1 kg) rising from $2,697 per
ton ($2.70 or €2.52 per 1 kg) a year ago.
In
other words,
prices for both varieties rose by 43% and 62% over the past year.
In a historical context, though,
one should admit that today’s prices cannot be
considered extreme. These were higher both in 2011, reaching $3.05 per pound
(+19% compared to today’s prices); in 1997, reaching $3.15 per pound (+23%);
and in 1986, reaching $2.73 per pound
(+7%). Historically,
Arabica coffee reached an all-time high of $3.35 per pound back in 1977 during
the last major stagflation period (+31% compared to the current price) when
prices for many commodities rose drastically over a short span of time. The price of Arabica coffee rose from
$45 per pound in 1975 up to $335 in
1977. In other words, it grew almost 7.5 times in just 2 years.
What About Cocoa?
It
is interesting to note that coffee is native to Africa. However, it is mostly
cultivated in South and Central America today. In turn, cocoa is native to South and
Central America, while today
it is mainly cultivated in Africa (Ivory Coast, Ghana,
Cameroon, Nigeria) that accounts for 67% of world cocoa production according to the UN
Agricultural Organization (see Picture 3
below).
This
is the result of a process called the Columbian Exchange
when populations, plants, animals, minerals,
and diseases
were exchanged between the Old World
(Europe, Africa, Asia)
and the New World (North
and South
America) (see Picture 4 below and The Columbian Exchange: A History of
Disease, Food, and Ideas”, Nathan Nunn and Nancy Qian, Journal of Economic
Perspectives, Volume 24, Number 2, Spring 2010, Pages 163–188).
Human Biology and the Relaxing Appeal of Cocoa
Why do we like cocoa so much? In addition
to caffeine, cocoa beans contain a significant amount of a related substance
called theobromine. Theobromine is an alkaloid. Unlike caffeine, it is absorbed
much slower. But, most importantly, it has a relaxing effect on our respiratory
system and vascular smooth muscles. Therefore, when chocolate, that is made
from cocoa beans, is claimed to be a relaxant, there is a certain degree of
truth in this statement.
However, Paracelsus, the father of toxicology, insisted back in the 16th
century: “In all things there is a poison, and there is nothing without a
poison. It depends only upon the dose whether a poison is poison or
not…”
That is why cocoa is harmful to humans in large quantities and can be the
source of food poisoning. For dogs and cats, cocoa is toxic even if it is eaten
in small quantities (!).
Furthermore, its relaxing effect should be used sparingly too. The thing is
that theobromine might lead to improper relaxation of the lower esophageal
sphincter muscle. And this is one of the main causes of acid reflux and heartburn.
The Tremendous Rise of Cocoa Prices
The price of cocoa on the
Intercontinental Exchange is around $7,332 per ton ($7.33 or €6.86 per 1 kg)
rising from $4,051 per ton ($4.05 or €3.79 per 1 kg) a year ago. This implies
an 81% rise over the past year. Furthermore, the market price of cocoa reached
its all time high of $11,878 per ton in April 2024, thus substantially
exceeding the previous historical high of $4,541 reached back in 1977.
It is quite possible that if
the current trend of high cocoa prices continues, it may be necessary to start
growing cocoa in other parts of the world. We’ve seen this movie before, haven’t
we…
Coffee and Cocoa as Investment
Opportunities
There are several ways of investing in coffee and cocoa. You can certainly
do it indirectly by investing, for example, in coffee retailers like Starbucks
or chocolate manufacturers like Nestle. However, those companies’ stock prices are
influenced by a myriad of other factors that are not directly related to coffee
and cocoa.
Fortunately, new financial products are available these days. These are collateralized
Exchange-Traded Commodities (ETC) that give you direct exposure to many hard
(oil, natural gas, precious and industrial metals) and soft (grains, cotton,
sugar, meat, and other agricultural products) commodities, including coffee and
cocoa. In fact, these are just commodity exchange-traded funds (ETF). Furthermore,
leveraged versions of those ETCs are available too.
For example, you can find WisdomTree Coffee ETC, WisdomTree Coffee 2x Daily
Leveraged ETC, WisdomTree Coffee 3x Daily Leveraged ETC, WisdomTree Cocoa ETC
and WisdomTree Coсoa 2x Daily Leveraged
ETC. These are the baskets of coffee
and cocoa futures that are traded on commodity exchanges. These can be used
both for hedging and trading purposes.
Predicting Coffee and Cocoa Prices
When
I was writing my PhD-thesis in the Netherlands, my Dutch economics professor
told me his personal “coffee” story.
Back in the 1990s, a broker advised him to invest in coffee futures
arguing that Brazil was experiencing a particularly fierce cold snap and a poor
harvest was all but inevitable. As was predicted, coffee prices rose sharply. In fact, these nearly doubled. My professor finally
was ready to “exploit” this market bubble and bought coffee futures.
And
it just so happened that it coincided with the
period when Vietnam began to actively export its coffee to world markets. As a
result, the market price of coffee collapsed by 80%. My professor lost a lot
of money. But, most importantly, his wife, after all these
“investing adventures”, firmly said that she would not follow the advice of
economists anymore.
