Coffee is one of the most popular commodities in the developed world. Throughout the United States, Europe and Asia, supermarkets and coffee shops are always stocked with a bountiful supply of coffee blends and flavours. The huge selection of coffee is wonderful for the average coffee drinker, but for many coffee producers worldwide it is an entirely different story.
There are more than 25 million coffee growers throughout the world. Most of these farmers are based in developing countries and operate on a very small scale. The overall coffee market has doubled in the last 10 years. During these 10 years, the corporations who dominate the retail coffee market have seen profits steadily rising. If everyone in the supply chain were reaping the benefits, this would not have generated the global crisis that currently exists in the coffee producing industry. The problem is that the prices now paid to coffee farmers have fallen below the cost it takes them to produce it. In the past ten years, the coffee producing nations have seen their profits fall from 1/3 of the total revenue to about 1/10 of the total revenue. While wholesalers and retailers continue to sell at a profit, the dollars lost in the drop in profit has been borne almost entirely by the farmer. Simply put, this means that farmers and their families are subsidising the cost of growing coffee. Farmers, the poor shareholders, are selling at a tremendous loss while branded coffee sells at a hefty profit. With poor transportation system to local markets, and without access to information about global coffee prices, the vast majority of the coffee farmers are at the mercy of the savvy traders offering a ‘take it or leave it’ price. Worldwide, coffee production has exceeded consumption with catastrophic consequences for the coffee farmers, if not the world coffee market. The price paid to farmers for their coffee has fallen by nearly 50% in the past three years to a 30-year record low.
Many developing countries depend on coffee production for their export earnings. Countries such as Uganda, Haiti, Honduras, and Vietnam have been seriously affected by the current coffee crisis. The effects are enormous - farmers lose their land, exporters face bankruptcy, and the country’s entire economy is thrown into an economic tailspin. For example, in the mid-90s, the boom in coffee prices enticed many westerners to Vietnam's coffee industry and coffee production sky-rocketed. Major loans from the World Bank, the Vietnamese government and the Big Four made it possible for thousands of poor Vietnamese to become coffee farmers. Vietnam rapidly rose to the position of the world’s number two coffee exporter. Six years ago Vietnamese farmers were earning more than $2,000 per ton of produce. Currently these same farmers are receiving a mere $450 per ton – a massive price decline. An in-depth coverage of this issue can be found at the International Coffee Organization (ICO). Statistics available for Vietnam reveals that the Vietnamese farmers are selling their coffee beans for a significant loss - only 60% of the cost of producing coffee beans.
Trouble Brewing by Alexandra Seno, Newsweek: Apr 16 '04
The Global Coffee Economy in Africa, Asia, and Latin America, 1500-1989 by William Gervase Clarence-Smith. Publisher: Cambridge University Press (June 16, 2003)