Wednesday, December 01, 2021


The crisis brewing in the coffee world.

Every year, an average of over 400 billion cups of coffee are drunk throughout the world.

It is the planet's favourite beverage.

In fact, coffee is the second most important raw material in commercial volume, following oil.

Coffee production employs 25 million people working in a small-scale family economy, where the entire farming production process is virtually done by hand, demanding a delicacy and expertise passed down by ancestral tradition.

But today, behind every cup there is a story of poverty and death for coffee farmers in countries held hostage by blind market forces.

On average, coffee is priced at US$1.10 per kilogram, even though production cost is more than $1.76 per kilogram.

This means a great crisis for small producers, especially in Central America and other areas of Latin America and the Caribbean, east and west Africa and South-East Asia.
International Monetary Fund and World Bank policies that fix market prices for basic products and prevent governments from regulating those prices or protecting their farmers have resulted in calamity for coffee growers.

Ever since the International Coffee Agreement's economic clauses were broken at the end of the '80s, the region's coffee producers have been left without any serious means of coordination or organising policy.

Before this rupture, policy was clear-cut: neither banks, nor multilateral institutions, nor governments were authorised to promote expansion in coffee producing areas.

All this disappeared.

Every country set its own policy; everyone thought that they could sell and trade on better terms than the othersî, commented Jorge Cardenas, who presided over the first International Coffee Conference held in London during the middle of last year. 600,000 jobs lost Central American exports have fallen by more than one billion dollars in the last two years.

In Costa Rica, where some of the best coffee in the world comes from, coffee producers are asking why the government allows its best cultivators to bleed to death.

In Central America alone, almost 600,000 full and part time jobs have been lost in the coffee sector over the last few years. According to a report by British-based charity Oxfam, carried by IPS, many children in some coffee growing areas in Central America and East Africa are seriously malnourished. Under the title ìMugged: Poverty in your coffee cupî, Oxfam proposed that the main processing companies (Proctor & Gamble, Kraft, Sara Lee, Nestle, Starbucks and Tchibo), which together buy over half the world's coffee produce, should pay higher prices for the bean.

Oxfam asked the biggest commercial enterprises to convert at least 2% of their total annual purchases into buying coffee grown in the fair trade way, and increase that percentage over the following years.

The term fair trade was invented by the Fair Trade Labelling Organisation ó an international group seeking greater equity in world trade so that coffee workers can receive a dignified salary and sell their product to enterprises that authorise loans to farmers without access to credit, among other forms of aid. The most sensible thing for producer countries to do would be to coordinate the sale of coffee among them.

If each one makes its own policy then long-term results are extremely negative, Cardenas warned.
Some analysts point out that current low prices are due to better offers for Brazilian coffee and the strong emergence of Vietnam on the market.

Some 20 years ago Vietnam produced 5000 tonnes of coffee; now it produces 800,000 tonnes.

But the Asian nation, where coffee cultivation was promoted to boost rural employment, has also experienced one of its worst years. Production costs are almost double what the country currently receives for every tonne it exports. Coffee is Tanzania's main crop and one of its most important exports, but since 1994 producers have suffered by the introduction of a free market.

Under a nationalised system, farmers were assured of sales to cooperatives, but sale guarantees were lost with the liberalisation of the market. Production costs also went up. For example chemical pesticide prices rose, increasing production costs by between 25% and 30%. For many small farmers, it's simply too high a price, especially if one takes into account the uncertainty of finding a buyer. The government offered compensation as an incentive for some who had left their plantations.

In Cuba, where the state guarantees buying the coffee harvest from growers and even raised prices for small farmers and workers in order to stimulate production, the price crisis has also affected exports. The difference is that, on the island, coffee producers have not been harmed.

Cuba is known for the quality of its coffee and the island is looking to improve prices by promoting organic options, an experience that has been successful in diverse mountain areas. The crisis and its true causes While the situation of small farmers becomes ever more desperate, multinational coffee corporations become increasingly prosperous.

Starbucks tripled its profits between 1997 and 2000, while Nestle made 26% profits on instant coffee alone. Oxfam proposed that, under the auspices of the International Coffee Organization, coffee-producing countries could agree on a plan to stimulate demand and thus push up prices. Nevertheless, such a plan would only work with the backing of processing enterprises and consumer countries, advised the report.

On October 7, the World Bank announced that Nicaragua is to be the first country to implement an international price risk mechanism for small-coffee producers. Similar experiences have been successful in some areas of East Africa. This way, contends the World Bank, if coffee prices fall then producers will be cushioned by a guaranteed minimum price; if prices rise then they will receive the highest price for their crop.

The World Bank's Basic Products Risk Management Group indicated that this could become a model for the region and has pressed its application to local credit organisations.

But the Nicaraguan experience, which only extends to 250 producers from Matagalpa, is partly financed by a Swedish corporation. While countries with basic raw materials receive less and less benefits for their efforts and transnationals make greater and greater profit margins, the World Bank proposal only patches up the real problem: the trend in low prices for raw materials in developing nations while sales rise for the biggest corporations. Behind every cup of opulent coffee drunk by millions all over the world hides the sad story of unequal exchange. Source: