(CUP) — Walk into any gourmet coffee shop today and your eyes will behold a dizzying variety of specialty brews, blends, and flavors. If you are a bargain hunter, take a stroll through your neighbourhood supermarket and admire the brands — and prices. With so much choice, there is little indication that coffee producers are in crisis. Yet coffee prices closed last week at 50 cents US per pound, a 30-year low spurred by a glut of coffee on the market. Almost all coffee producers are selling their crops below cost, and facing destitution as a result.Central America has been especially hard-hit by falling coffee prices and a severe drought. In Nicaragua and Guatemala thousands of small producers have marched to their respective capitals, demanding government aid. In Venezuela, the crisis has led to large street protests. In Mexico, 300,000 coffee labourers have left the countryside in search of American jobs.
In the meantime, companies like Nestl and Starbucks are announcing record profits, charging more for a cup of coffee than ever before.
The price of coffee has been in decline since 1995, although the free fall began in earnest two years ago. Deborah James, spokesperson for San Francisco-based human rights organization Global Exchange, says that the decline in coffee prices is directly related to the collapse of the International Coffee Agreement (ICA), which set quotas on coffee production so countries could not undercut each other.
The ICA fell apart in 1989 in part due to the lobbying efforts of the International Coffee Association, an industry group heavily dominated by specialty coffee traders. At a time when the gourmet coffee industry was experiencing a rebirth in popularity, these traders felt constrained by quotas which restricted the production of gourmet arabica beans.
James also points to Structural Adjustment Programs (SAPs) in developing countries where international lending institutions granted loans and refinanced development debts on the condition that economic austerity programs be adopted. Coffee marketing boards were quickly put on the chopping block.
According to James, marketing boards act as a buffer between farmers and the volatile commodity market. They guarantee a fair price for crops, and have the resources to weather bad years by holding stocks when prices are down and selling when they are up. Without these boards, many small-scale farmers around the world are put out of business.
James says that international financial institutions responsible for the dismantling of marketing boards are responsible for the coffee glut and associated unemployment and social problems.
Simon Harris, spokesperson at the Organic Consumers’ Association, agrees,
“It sounds sinister but if you look at the policies of the World Trade Organization and the World Bank and the International Monetary Fund and all of these international financial institutions, ultimately they would like to see small scale farming replaced with big monocultural plantations because that’s what’s more economically viable. Of course, they’re not going to say that, they are going to say that this is good for the countries’ economies, but in the end they hurt everyone except for the multinational corporations.”
According to James, in Nicaragua financial institutions have called the government to heel.
In response to the outcry of desperate farmers and coffee-pickers, the Nicaraguan government passed a moratorium on land foreclosures, forcing banks to provide debt-strapped farmers with an additional three months to find adequate financing.
In a show of what James interprets as the World Banks’ veto power over client nations, the Inter-American Development Bank (IADB) — the Western Hemispheric branch of the World Bank — pressured Nicaraguan President Aleman to cancel the bill. The IADB argued that governmental intervention would destabilize the finance sector, reducing bank and foreign investor confidence. With development anti-poverty loans in jeopardy, the president capitulated.
“This is a direct example of the World Bank’s strategy to ‘alleviate poverty’ — which is supposed to be their mandate — while really protecting the finance sector at the expense of thousands of farmers who are now as we speak losing land,” said James.
With the world de-regulation of the coffee industry, coffee production has increased at twice the rate as coffee consumption. This trend is expected to continue for the next five years, further depressing prices.
A recent report by Oxfam, a major development organization, concludes that the collapse of world coffee prices will benefit major players in the coffee industry — players like Philip Morris (owner of Kraft general foods), Nestl, Procter and Gamble and Sara Lee. Multinationals like these control more than 70 per cent of the world coffee market.
“Current trends in over-supply are clearly in the interest of the major players, who have conspicuously failed to pass on falling world prices to consumers [by lowering the price of a cup of coffee],” it concluded.
According to industry statistics, for every pound of coffee sold in the United States — varying in price from $2.69 for a 13 ounce can of Folgers to $8.49 for a one-pound bag of Starbucks beans — farmers receive less than 35 cents and coffee pickers less than 14 cents.
The Oxfam report calls for immediate action to restrict supply.
It also suggests that the corporate sector needs to facilitate a more equitable trading environment, and calls on industry gurus to “emulate the model provided by [the principle of] fair trade.”
The model is as follows — fair trade certification companies set up certain trading criteria and inspection protocols for the sale and trade of coffee beans, such as agreeing to pay a living wage to coffee producers, or to buy only from indigenous coffee co-operatives. Once these criteria are met, the beans are packaged with a special certification label and sent to market, where consumers support fair trade with their dollars.
The success of fair trade coffee initiatives, which first became popular in the late 1980s, have been mixed.
Currently, there are more than 300 coffee cooperatives in 18 countries benefiting from fair trade. Although sales of fair trade coffee in Canada has been positive, it has not hit the target of capturing five per cent of the market by the end of 2001.
Jason Potts is conducting research on the barriers to fair trade in North America in a joint project between the International Development Research Center and environmental group Equiterre.
He feels that government support could drastically improve sales of fair trade coffee.
“If the fair trade criteria are viewed as a way to internalize environmental and social sustainability in product development or product production, then there is a justification for having the government help these products to the market,” he said.
Potts calls upon the Canadian International Development Agency (CIDA) to acknowledge the benefits of fair trade — a move he says would vault certification credibility among importers and consumers.
Right now, anyone can call their product fair trade — which discourages businesses from buying into it and consumers from taking the label seriously.
“While some companies claim to pay over the minimum floor price of $1.26 per pound, there is no way for consumers to verify those claims unless the companies agree to independent monitoring by a third-party agency. Usually when companies say they pay more than $1.26 they’re actually talking about what they pay the importer, or even what they pay the exporter — but unless it’s Fair Trade Certified, the farmers are not getting the money,” said Caroline Whitby, managing director of TransFair, Canada’s fair trade certification agency.
Companies circumvent the label in order to avoid the higher premium paid to producers and the licensing cost of 36 cents, claiming they can monitor their producers without the financial and bureaucratic overhead of certification so more money can go to the producers.
Potts doesn’t buy it. “Some companies want to see all of the money going south. My counter argument is that there won’t be any money going south if [fair trade] gets a bad rap.”
According to Whitby, TransFair has recently adjusted the licensing fee in order to encourage more coffee importers to get certified.
Potts acknowledges that companies may be deterred from fair trade because they are required to offer advance payment to producers. He suggests that northern governments should follow the lead of Belgium and offer guaranteed government loans to offset this credit provision risk.
While Potts hopes to lobby the government for change, other public research groups try to increase market demand by raising consumer awareness and activism.
In Canada, Equiterre, the Canadian Council for International Cooperation, and World University Service of Canada are in ongoing campaigns to educate consumers and provide support for social justice groups who lobby the government, university administrations, unions and NGOs to support fair trade coffee.
Other campaigns go for the corporate jugular.
From September 17 to 23, the American-based Organic Consumers’ Association will launch an international campaign to pressure Starbucks to increase the sale and availability of fair trade coffee.
“Only one tenth of one per cent [of coffee sold] is fair trade. We think this is an abysmal statistic,” said Harris. Starbucks’ fair trade coffee is not available in Canada.
Over 300 organizations in cities across the U.S., Canada, New Zealand, Australia and the United Kingdom, will distribute leaflets outside of retail outlets.
Starbucks began offering fair trade coffee for sale in bulk in October of 2000 in the U.S. after Global Exchange began threatening to organize protests in 25 to 30 different cities. Last May, Starbucks brewed fair trade coffee as part of a promotional campaign.
Harris would like a substantive commitment from Starbucks to place fair trade in regular rotation, especially since the majority of their sales come from individual cups of coffee.