SUMMER 2003

COFFEE crisis and revolution

The worldwide coffee crisis of the last three years has brought us tragic stories of farmers, hunger and the difficulties of navigating the free market — but there is a surprising and inspiring revolution in the works

by Robin Mejía

Picking coffee, Costa Rica, photo Julia Powell, The Fairtrade Foundation, 2002.

Historically, the agricultural communities in Veracruz, Mexico were remarkably stable. The traditional coffee crop never brought riches to the region, but farmers made enough money to raise their families. Unlike in many parts of Mexico, where able-bodied men left for the United States in search of better paying jobs, in Veracruz, there was enough work in the community. And enough money, at least, to keep families together.

Carlos Guadarrama-Zugasti and Laura Trujillo moved to Veracruz in the mid-1990s, just in time to see the collapse of that stability as coffee prices plummeted.

Iin 1995, the region where the two live had practically no emigration. Today, men are leaving in droves, looking for work, heading to Mexico City, Florida and Canada. In 2001, six Veracruz coffee farmers died in the Arizona desert on their way to the US.

Guadarrama-Zugasti and Trujillo are researchers with the Universidad Autónoma Chapingo in Mexico. They came to Huatusco, Veracruz, to study its coffee production. They hoped to examine the ecological and economic factors that contribute to sustainable farming – meaning farming practices that help preserve the land and ecological systems. Those practices, they thought, might help Veracruz’s coffee farmers stay in their communities.

A precipitous drop in wholesale coffee prices has made the economic realities of coffee production a hot topic worldwide. According to the global antipoverty organization Oxfam International, wholesale coffee prices are at a thirty-year low. Adjusted for inflation, the real price of coffee today is only twenty-five percent of what it was in 1960. Coffee farmers throughout Latin America Africa and Asia are struggling to stay afloat, and many are failing.

Huatusco, Veracruz, photo Mexican Government

Guadarrama-Zugasti and Trujillo say they now see girls as young as twelve working on the farms, often providing labor to replace fathers or brothers who have left Veracruz in search of better-paying work. Across the region, kids are leaving schools, as parents can’t afford fees and supplies.

Low coffee prices have led to widespread poverty and hunger, on a scale residents compare with a natural disaster. “They think the government should provide help, like for a hurricane. It’s the same level of problem,” said Trujillo.

“Families are falling apart,” says Guadarrama-Zugasti.

The collapse in coffee prices resulted from a convergence of many pressures, including the collapse of the International Coffee Agreement, which until 1989 kept control over worldwide coffee production. Then there was the industry’s switch to lower quality beans in commercial blends. These changes have led to a seemingly simple problem: too much coffee. But the problem has been catastrophic for many small farmers.

This year, farmers are expected to produce nearly ten million 60-kilogram bags, more coffee than will be used. This glut of production, now in its fourth year, has created a buyers’ market for coffee beans, and the big roasters have taken full advantage of their new leverage. At the peak of wholesale coffee prices in 1997, farmers got $1.81 per pound. Today farmers get less than $0.50 – sometimes less than $0.20 -- for virtually the same coffee.

The crisis in Veracruz is mirrored in coffee-producing regions around the world:

• The World Food Program in March 2002 estimated that 30,000 Hondurans were suffering from hunger as a result of the coffee crisis and a prolonged drought.
  
• In Vietnam, Oxfam research showed that the price farmers were getting at the beginning of 2002 only covered sixty percent of their production costs.
  
• In Ethiopia, which produces some of the best coffee in the world, the coffee export revenue dropped from $257 million to $149 million in one year.

The Crisis — How Did it Get This Way

Historically, the coffee market has suffered price swings with periodic crashes. Because of this, it would be tempting to predict that in another year or so, the market would be due for an upswing. But this time, the very structure of the market has changed.

Until 1989, coffee production was managed by voluntary agreements through the International Coffee Organisation. The collapse of that agreement spurred increased production. Then, after a cold freeze ruined part of the Brazilian crop, unusually high prices in 1997 encouraged farmers to put even more acreage in coffee. Another result of the 1997 price peak was that large roasters started to increase the amount of lower quality coffee beans that they used in order to drive down coffee prices as a whole.

Some groups also blame World Bank and International Monterey Fund policies that encouraged countries to specialize in export crops like coffee without paying enough attention to the global picture.

The result is that there’s now more land in coffee than is needed. Currently eight percent more coffee is being produced than consumed, and that won’t change unless producer countries hold to new agreements.

The consolidation of purchasing among a few large roaster companies has also changed the picture. “In the seventies there were ten or twelve big companies buying coffee. Now there are four,” says Trujillo. Globally, Procter and Gamble, Nestle, Sara Lee, and Kraft buy almost half the world’s coffee.

Coffee on the plant, photo iStockphoto

Various groups, from Oxfam to Fair Trade certifiers to the coffee collective in Veracruz, have estimated how much farmers need to earn for each pound of coffee in order to survive and maintain their families. The numbers vary between locations, but they start at about $1.20 a pound. Unfortunately, that’s more than double what farmers can get today on the commercial market.

In September 2002, Oxfam launched a campaign to “make the coffee market work for the poor as well as the rich.” The group’s fifty-seven page Coffee Rescue Plan makes a number of recommendations, from the general — suggesting that roasters pay a price that allows farmers to have enough food, buy medications, and send children to school — to the specific, such as the creation of a fund to support the transition of some coffee land to other crops, the endorsement of specific coffee quality standards, and the recommendation that five million bags of the lowest quality coffee stocks be destroyed.

Oxfam’s coffee rescue plan is really a set of recommendations and is not binding or enforceable. But it’s helping spur discussion about the problem, which was one of the group’s goals. “We were tired of the complacency,” said Liam Brody, the Coffee Program Coordinator for Oxfam America. After watching the effects of the drop in prices firsthand, Brody says the group “couldn’t stand by and watch the complacency run its course.”

Some of the folks whose actions Oxfam targets seem to be paying attention. Brody said an important first step happened in late September when the International Coffee Organisation met: “every producer country walked away fully endorsing the coffee quality scheme.”

In November, the US House of Representative passed a resolution calling on the United States respond to the coffee crisis with a coordinated global strategy that includes import quality controls.

The same month, the Mexican government destroyed 8.4 million pounds of low quality beans, grinding them into fertilizer, in line with its commitment to the International Coffee Organisation (ICO).

Even the fact that the coffee industry hasn’t attacked the group’s plan seems encouraging, he says. And the top industry players — the so-called “big five” roasters — are a powerful group. Together, Proctor and Gamble, Nestle, Sara Lee, Kraft (which is owned by Philip Morris), and German giant Tchibo control over half the coffee market, and, so far, the large roasters have seemed content to absorb the low coffee prices into large profit margins.

It’s tough to get exact figures for these profits because large companies don’t call out earnings for coffee by itself on their financial reports, but Sara Lee’s beverage unit, which deals largely in coffee, had a 17 percent margin in 2002, according to Oxfam, at the same time that many farmers weren’t covering their production costs. Nestle was the only large roaster that had articulated support for managing coffee supply and maintaining coffee prices when the report came out.

The revolution: the fair trade movement

While international groups like Oxfam are pressuring corporations to act more responsibly, projects to reduce farmer’s dependence on the good behavior of the big roasters are germinating locally in coffee centers like Huatusco, Veracruz.

Some coffee-producing regions, like Ethiopia, have a history of producing high quality beans for the specialty coffee market. But the majority of the world’s coffee farmers sell to traders whose beans eventually go to one of the big five roasters. Farmers have little negotiating power against the traders — who themselves have little control over the price — and they generally have to accept what’s offered.

In Huatusco, farmers are organizing in order to improve their position in the coffee value chain. Specialty coffee programs pay premiums for coffee that’s certified organic, or shade grown, or, most prominently, certified Fair Trade.

Fair Trade is the term used for coffee that pays a greater percentage of the wholesale price directly to the farmer. Farmers receive a “fair price” for certified Fair Trade coffee, which in theory is supposed to provide enough income to cover not only subsistence, but also pay for things like family schooling.

When I spoke with Liam Brody, he was getting ready to leave for Guatemala, to a town where the school is funded by Fair Trade Coffee revenue. He says while benefits such as schooling were the original intent of Fair Trade concept, he’s now hearing from families in some communities who say that Fair Trade is what keeps them on their land and not sending their men to the US.

But producing specialty coffee requires skills and equipment beyond managing coffee plants. Farmers need to accomplish at least the initial processing, which removes the cherry flesh from the green bean. This lets growers demonstrate the quality of the coffee. Growers like those in Veracruz, who have historically sold on the regular commercial market, also need to learn how to manage their coffee plants for quality, not just quantity.

If they can meet these challenges, Veracruz farmers seem poised to sell to the specialty market. The quality of coffee beans, like wine grapes, depends heavily on soil type, altitude and climate, and Veracruz provides nearly ideal growing conditions. Trujillo says even traders comment on the conditions when they visit the region.

Roasted beans , photo iStockphoto

The revolution: good for the land

Guadarrama-Zugasti and Trujillo organized a tasting event last spring, encouraging growers to compare Veracruz coffee against premium international beans like Kona. Trujillo says growers were surprised at how well their Veracruz beans held up.

The researchers are training farmers in quality production and encouraging the adoption of sustainable farming practices, both to preserve the Veracruz environment and to open up new markets.

They are fortunate that in coffee farming, environmentally sustainable practices overlap with the methods that produce the best taste. Shade grown coffee is sometimes advertised as being good for bird populations and sometimes as providing the best flavor – both are true. Coffee farms can complement tropical forests, as they do in Veracruz, not just replace them.

Steve Gliessman, an environmental studies professor at the University of California Santa Cruz and a pioneer in the field of agroecology, explains that when farmers use environmentally sound farming practices, they create benefits for the community they live in and sometimes the world as a whole, by helping keep their watershed and rivers clean, and maintaining trees that support wildlife and absorb greenhouse gasses. “There are people calling for payment for these ancillary services,” he says.

In addition to working towards certifications, smaller community-based programs like the one in Huatusco are seeking to connect with coffee drinkers more directly.

Guadarrama-Zugasti and Trujillo are working with a new nonprofit, the Community Agroecology Network (CAN) recently launched by Gliessman and his wife, Robbie Jaffe. CAN connects farmers in Huatusco, Veracruz with colleagues in the US, Costa Rica and El Salvador. The group’s goal is to develop more coffee production capabilities in each community, and to eventually collaborate on marketing their coffees in the United States.

“Just like we think organic [farming] is good, and it is good, we think Fair Trade is good, and it is. We just need more,” said Gliessman.

Farmers in CAN’s Copa Buena, Costa Rica group are already processing their own beans.

On a recent visit to their California home, Gliessman and Jaffe showed me a vacuum-sealed one-pound bag of Copa Buena coffee they’d just received. It looked just like the brands I see at the supermarket. They explained the economics of the program: if they can keep the shipping costs at $3.50 per bag and sell the coffee for $8.50 per pound, farmers could realize at least two dollars per pound profit. Compare that to the 20 cents they might get with regular commercial coffee.

Gliessman and Jaffe are currently exploring ways to market the coffee, possibly to buyers cooperatives or existing “Community-Supported Agriculture” programs, which sell shares of a farmer’s harvest directly to families.

Jaffe, who has a long history of supporting family farms, seems to view the work ahead as clearly manageable: “When farmers’ markets got started in the seventies, there were all these roadblocks. We’re at the same place with coffee now.”

In the same way that farmer’s markets and community-supported agriculture programs help small farmers connect with buyers in their community, Jaffe envisions more direct linking between coffee growers and drinkers. “You can create a global village that benefits the small farmer,” she says.

Convincing the coffee drinkers

Coffee shop, photo Bartek Golebiowski, istockphoto

By its nature, the specialty market will only solve the price problem for some farmers. After all, millions of Americans are happy with their Folgers and Yuban, and any comprehensive solution to the coffee crisis needs to involve them as well.

In fact, advocates say they’re counting on consumers to bring pressure on roasters. Over seventy percent of the world’s coffee is still grown on small farms, many with less than ten hectares of coffee. To those farmers, multinational buyers seem to hold all the cards. But consumer action has shown that even multinationals have an Achilles heel – the fickleness of consumers.

Consumer groups have forced companies from Nike to Gap to change their labor policies by threatening the companies where it hurts – their bottom line. Many hope that consumer campaigns will encourage the big roasters to change their business practices, too.

“We believe that most people are good people who want to make a difference,” says Oxfam’s Brody. “People don’t realize that there are 25 million people on the brink of extinction.”

Right now, even most Fair Trade-certified farmers can only sell about 20 or 30 percent of their crop on the Fair Trade market, says Gliessman. That means that that 20 or 30 percent of their crop earns a fair price, but most of the crop is still sold for low prices on the commercial market.

Although Fair Trade coffee sales grew twelve percent in 2001, there’s still much room for improvement. According to Oxfam, Fair Trade still only accounts for about two percent of the total coffee market.

The consumer component of Oxfam’s Coffee Rescue Plan calls on coffee drinkers to buy Fair Trade coffee for home and to ask for it when they’re out. Brody calls the Oxfam program a ‘buycott,’ meaning they’re asking coffee drinkers to show the big roasters a demand for Fair Trade. Right now, Brody says Starbucks promotes Fair Trade coffee in its stores as the “Coffee of the Day,” once a month. He’d like to see that increased to once a week.

“There’s so much more coffee on the market that could be sold as Fair Trade that’s not” says Brody.

Given that coffee is one of the few commodities still grown primarily by small farmers, it’s clear that by themselves, growers can’t solve the problem. Especially at a time when many are going hungry.

Oxfam argues that getting 25 million families through the coffee crisis will be a test of international commitment to making globalization work for the poor as well as the rich.

© 2003 Robin Mejía and El Andar Magazine