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Cover
story Depressed coffee prices yield suffering in poor
countries
By PAUL JEFFREY
Jalapa, Nicaragua
María Ramos doesnt understand why she works so hard
and earns so little. A single mother in the village of Tauquil, high in the
rugged mountains of northern Nicaragua, Ramos works her hillside farm with her
two children. She produces organic coffee, for which she earns a higher price
than she would if she produced it by other methods, yet world coffee prices
have fallen so low in recent years that she cannot earn enough to make ends
meet.
Its a disgrace. I produce good coffee, yet what I get
paid for it barely keeps us alive, Ramos said. I get up every
morning and listen on the radio to hear the price of coffee in New York.
Its always low these days. I could get depressed, but what good would
that do me? I can cry, but crying wont help me buy shoes or food for my
children.
Ramos and millions of coffee farmers around the world, poor in the
best of times, are having an even harder time surviving today because the price
paid for the coffee they produce has fallen to historic lows. Its not
just fickle markets that are generating their suffering, however. Whats
wrong with coffee is whats wrong with globalization.
Coffee is the most heavily traded commodity in the world after
petroleum. Seventy percent of the worlds coffee is grown on farms smaller
than 10 hectares (less than 25 acres), many of them family-run operations. When
prices for coffee are stable, farm families earn money to feed their kids and
send them to school. Steady coffee prices contribute to social stability. In
war-torn Colombia, for example, mountainous areas where coffee is produced have
been less perplexed by violence. Yet coffee prices have plummeted spectacularly
in recent years, leaving children starving and endangering precious progress
made toward justice and democracy in many Third World countries.
The coffee agreement
Until 1989, coffee prices were guaranteed under the International
Coffee Agreement, a Cold War mechanism designed, so the thinking went, to
maintain stable coffee prices and thus avoid the social turmoil that communists
could exploit. Although the agreement was cumbersome, it worked. Between 1975
and 1989, although coffee prices fluctuated dramatically, they almost never
fell below the agreements minimum price of $1.20 per pound. Yet the
United States abandoned the coffee agreement at the end of the Cold War,
contributing to its collapse. Coffee prices plummeted. Except for two temporary
spikes caused by worries about frost in Brazil, prices remained low for most of
the 1990s, usually below the cost of production. In the last two years, the
price paid to coffee producers has averaged well under 50 cents per pound.
Adjusted for inflation, its the lowest wholesale price for coffee in 100
years.
Much of the cause for this is simple: Theres too much coffee
out there. Vietnam often gets much of the blame. The Asian nation produced 1.5
million 60-kilogram sacks of coffee in 1990, yet by 2000 it had kicked its way
into the global economy by producing 15 million sacks. Vietnams
production is today surpassed only by Brazil, which in the last decade
dramatically boosted coffee yields through increased mechanization and other
technological improvements.
Consumption also increased in the 90s, yet didnt grow
apace with production. One of the principal factors in this widening breach
between production and consumption has been a shift in what Northern consumers
drink. In 1970, the average U.S. consumer drank 36 gallons of coffee and 23
gallons of carbonated soft drinks. By the year 2000, the situation was almost
the reverse: The average U.S. consumer drank 17 gallons of coffee and 53
gallons of soft drinks. Thats good news for Coke and Pepsi, bad news for
the 25 million families around the world that grow coffee.
Yet besides this increasing imbalance between supply and demand,
theres something else at play. A decade ago, coffee-producing countries
earned $10 billion from coffee that retailed for about $30 billion. Retail
sales today exceed $70 billion, but coffee-producing countries receive less
than $6 billion. Clearly, the benefits of globalization have been shared
unequally. On average, those who produce coffee receive less than 1 percent of
what a Northern consumer pays for a cup of coffee in a restaurant or coffee
shop, and roughly 6 percent of the retail price of coffee purchased in a
grocery store. The remainder goes to those who market the coffee. As anyone who
bought stock in Starbucks in the last decade knows, business has been good.
Starbucks share price has risen almost tenfold in 10 years, and the
company has steadily raised retail prices while wholesale prices fell.
In a September report, Oxfam International claimed farmers in poor
countries are paid roughly 24 cents a pound for coffee beans, while the four
transnational corporations that buy nearly half of the worlds coffee --
Sara Lee, Kraft, Procter & Gamble and Nestlé -- sell those beans at
an average price of $3.60 a pound. Fermín Pérez, president of an
association of coffee growers in Honduras, accurately sums up the international
coffee market: We coffee farmers are subsidizing those giant
companies.
The effects of this disparity between South and North can be
witnessed throughout the coffee-producing regions of the world. In Central
America, more than 540,000 part-time and permanent jobs have been lost.
Unemployed coffee workers camp out in city parks and along roadsides, begging
for food. Combined with a recurring drought, conditions in many poor villages
are worse than during the violent civil wars of the 1980s. In Honduras, riot
police in July beat coffee farmers -- including Pérez -- who came to the
capital looking for assistance. In Guatemala, unemployed seasonal coffee
pickers have invaded private farms, often with help from church lawyers. The
countrys Catholic bishops wrote President Alfonso Portillo on Nov. 12
asking that he declare a state of emergency because of the difficult and
anguished situation of small farmers and laborers left without income by
the fall in coffee prices.
Losing tax money
Yet governments have a harder time meeting needs when they lose
tax income from exports like coffee. Local governments in coffee regions have
been especially hard hit. In Jalapa, where municipal authorities charge a 1
percent tax on coffee production, the decline in income has left the
towns streets an impassable labyrinth of potholes that can swallow whole
trucks. This comes precisely at a time when international financial
organizations are forcing cutbacks in central governments in the name of
decentralization. With a downsized central government and no funding for local
government, the country has become virtually ungovernable.
Some foreign governments have chipped in to help, but the money
hasnt reached small farmers. Taiwan gave the government $20 million
to help out coffee producers, but it was just used to pay off the debts of big
coffee farmers. It resolved the problems of the bankers, not the small farmers
who never get credit, said Concepción Ponce, president of a
coalition of coffee cooperatives in Jalapa.
The coffee crisis has undone much of the progress achieved by debt
activists in recent years. Because of the initiative to lessen the burden on
highly indebted poor countries, Ethiopia, for example, achieved the
cancellation of $58 million of its debt payments in 2001. Yet in the same
period the African nation lost almost twice that amount from the decline in
coffee revenues.
Progress toward democracy may be a casualty as the coffee crisis
exacerbates suffering and problems with governance. People who are hungry
are desperate people, and you can have lots of nice ideas about peace and
democracy, but if people are hungry you wont achieve them. Hunger is
worse than war, Pérez said.
According to Constantino Casabuenas, a regional policy adviser for
Oxfam UK, the economic base of political democracy is eroding. They
promised 10 to 15 years ago that the free market was going to bring benefits to
all. But what has really happened? Coffee is a good example of how the free
market has produced a concentration of wealth, greater poverty and inequality,
and contributed to greater ungovernability and crisis. If we dont attack
the structural roots of the regions problems, well never find a
solution, he said.
With oversupply part of the problem, having farmers diversify to
other crops may be part of the solution. Yet to what? In Colombia, many
desperate farmers are pulling up coffee plants and cultivating coca, the raw
material of cocaine. Not only does this shift make the poor more susceptible to
the violence that accompanies the production of illegal drugs, but it also
damages the environment, since shade-grown coffee helps maintain natural
diversity and conserve water sources.
Well experience the environmental impact of this
crisis long into the future, because when peasants rip out their coffee plants
and cut down their trees to sow corn and beans, theyre taking a big step
toward turning this into a desert, said Fr. Jack Moynihan, a Maryknoll
missioner from the United States who works with coffee cooperatives in Jalapa.
Moreover, while such a decision may produce some food in the short term,
regional trade pacts and massive subsidies for U.S. producers have undercut
local prices for basic grains, so the farmer in the global South is unlikely to
sell the harvest for any profit. And should coffee prices rise in the future,
it will take four to six years to get new coffee bushes producing, even longer
to reestablish a suitable tree canopy on denuded slopes.
Decisions in the boardrooms
For many caught in the coffee crisis, the only alternative may be
to go somewhere else. According to church activists who work with migrants, the
coffee crisis has contributed to an acceleration in illegal immigration to the
United States from Central America and Mexico. For Pérez, thats a
direct consequence of decisions made in corporate boardrooms in the North.
We farmers who produce the coffee are just as much the raw material of
their profits as the coffee beans we harvest. Yet if the coffee companies
dont take better care of the raw material, dont share their profits
with us, then in the long run their profits will dry up and well end up
migrating North to the rich countries because we dont want to die
here, he said.
According to a World Bank study last March, failure to deal
quickly with the coffee crisis will generate a broad social and
environmental crisis. Yet even international financial institutions like
the World Bank have done little to ameliorate the crisis, and their rosy
commodity price predictions have seduced producing countries to hold out for
better days that may not come.
One solution to the coffee crisis that has proved popular among
church groups is purchasing fair trade coffee. Fair trade coffee guarantees a
steady price to producers, currently about $1.26 per pound (even more for
organic coffee), who in turn guarantee certain environmental practices and
usually organize into cooperatives. Although fair trade represents only about 2
percent of the global coffee market, it grew by 12 percent worldwide in 2001,
and was up 36 percent that year in the United States.
Fair trade is a powerful response to the coffee crisis
because its not charity, said Paul Rice, director of the
Oakland-based Transfair, which certifies fair trade products for U.S.
companies. The dominant model weve had for addressing poverty and
powerlessness in poor countries, a model based on international aid, is clearly
bankrupt. It failed to a large extent to help local communities develop their
own capacity to resolve their own problems. And it particularly failed to help
local communities find a way to insert themselves in the international market
in a way in which theyre not victimized.
According to Moynihan, what makes fair trade work is the emphasis
on organization and education. Left on their own, small farmers are
cheated by loan sharks and bankers and coffee intermediaries and politicians,
and they lack the resources to invest in improving the quality of their
product. If they organize [into cooperatives], they can better defend their
rights, learn together how to work more efficiently and improve the quality of
their product, and then receive a more just price for their product, he
said.
Fair trade coffee faces the same oversupply problem as the larger
market, however. The half million farmers certified by Transfair produced 170
million pounds of coffee in 2001, according to Rice, yet only 40 million pounds
could be sold under fair trade terms. The rest was sold at normal market
prices. María Ramos in Nicaragua belongs to a cooperative that sells to
a fair trade organization, but only 30 percent of her harvest receives the fair
trade premium. If more people would buy fair trade in the North, she could get
a better price for the other 70 percent of her harvest.
A bad rap
Fair trade coffee was initially plagued by complaints about bad
quality, yet producers have made great strides in improving the quality of the
brew and it has found a comfortable niche in the specialty coffee market,
alongside organic coffee and other similar labels, such as sustainable
coffee. After years of public pressure from activists who singled it out
because of its high visibility and yuppie clientele, Starbucks now sells fair
trade coffee in all its stores and has given it prominent play in university
markets. Rice, whose organization gets paid 10 cents a pound by Starbucks to
certify its fair trade coffee, thinks its time that activists turn their
pressure elsewhere.
I think Starbucks gets a bad rap. Its a mistake for
people who support fair trade to target Starbucks because they are not doing
enough, and not target Kraft or Nestlé or Proctor & Gamble who
arent doing anything and wont even return my calls, Rice
said. Its just not smart activism to target someone who is doing
the right thing but you feel theyre not doing enough, rather than target
people who arent doing the right thing at all.
According to Dennis Smith, president of an independent corporate
monitoring group in Guatemala that has surveyed conditions in Guatemalas
coffee fields, fair trade agreements are a positive development. Nonetheless,
his group has found anecdotal evidence that fair trade-certified cooperatives
and small holders have similar problems of child labor, less pay for women,
inadequate medical care, use of dangerous chemicals, and nonpayment of minimum
wages as do large coffee estates. Smith suggests that the expansion of
independent external verification of working conditions, similar to whats
begun in a small way in the maquila industry, as opposed to internal voluntary
monitoring by the coffee industry and its allies, would address some of these
problems.
In its September report, Oxfam praises fair trade, and encourages
large companies to buy more fair trade coffee. Yet Oxfam recognizes that fair
trade isnt enough to overcome the current crisis, and suggests additional
steps to resolve the worlds coffee crisis. These include the destruction
of $100 million worth of low-quality coffee already in Northern warehouses, a
campaign to improve quality in producing countries, the reinvention of a
guaranteed pricing structure, and a fund to support diversification away from
coffee, especially in low-altitude areas where its difficult to grow good
quality beans.
Oxfam also wants coffee companies to do what they do best, which
is promote more consumption, including in producing countries. Mexico, for
example, is a net exporter of coffee, yet Mexicans drink little coffee
themselves. And when they do, its likely to be imported Pérez,
which contains low-quality coffee from more than a dozen countries. If every
Mexican drank just one cup of coffee a day, the country would become a net
importer of coffee and prices paid to producers would improve.
Paul Jeffrey is a free-lance writer who lives in
Honduras.
National Catholic Reporter, February 7,
2003
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