International Coffee Day-should we be celebrating?

Mon 1st October 2018

It’s International Coffee Day – should we be celebrating?

Opinion piece by Professor Jonathan Morris, Research Professor at the University of Hertfordshire
It’s International Coffee Day today, but what exactly is there to celebrate?  Coffee prices have fallen to their lowest levels for 12 years.   The International Coffee Organisation (ICO) composite price last week stood at US$0.98 per lb, compared to over $1.20 a year ago.  The current levels are widely considered to be below the cost of production for many farmers, particularly those small holders who make up 95% of the world’s coffee farmers.  These include many of those Women in Coffee whose role the ICO is rightly celebrating during International Coffee Day.  One reason that women are increasingly involved in coffee cultivation is that men, particularly the young, are leaving the land to look for more lucrative opportunities in the cities. Those who remain are increasingly tempted to grub up their trees and switch into more profitable, if illegal crops, such as drugs.  

Yet over the last thirty years there has been a revolution in coffee consumption habits, epitomised by the rise of the international coffee shop chains.  This is widely perceived to have transformed coffee into a premium product, delivering high margins to hospitality operators.   How can it be that the latte revolution has still failed to deliver sustainability throughout the coffee economy?  

This question is hardly a new one.  During the last coffee crisis between 1998 and 2007, a host of analyses and proposals were put forward to resolve this so-called ‘coffee paradox’.  Oxfam published a scathing report warning consumers about the ‘poverty in your coffee cup’, the film ‘Black Gold’ flew Ethiopian farmers to London to witness the disparity between the price they received, and that for which their coffee was sold on the supermarket shelves, while Starbucks found itself at the centre of anti-globalisation riots in its home city of Seattle.  The apparent injustices of the market spurred a range of ‘ethical coffee’ initiatives, notably around the Fair Trade movement, as coffee roasters scrambled to sign up to schemes that demonstrated their corporate responsibility.  

Yet despite all of these efforts, the fundamental instability within the world coffee trade remains.  It takes up to five years for a coffee tree to reach commercial maturity, so there is a significant lag in the response of supply to demand.  Over the last 100 years we have all too frequently experienced instances when, as now, an excess of supply has led to price collapse.  

During the 19
th century, Brazil became the world’s principal coffee producing country supplying the mass market for coffee that was developing in the United States.  The coffee barons of Sao Paolo, the centre of the Brazilian industry, followed a strategy of increasing their overall revenues by expanding production further into the interior, and accepting low prices so as to further stimulate consumption in the US.  This Brazilian strategy was made easier by the fact that the large coffee plantations were worked by slaves up until the 1880s, and by indentured peasants thereafter.  These colonos had little choice but to accept the compensation offered them.  The system reached its zenith in 1906 when Brazil produced over 20 million sacks of coffee (compared to 5.5 million in 1890), 85% of the world’s output.

The bumper harvest of 1906 led prices to fall by over 50% from 13 to 6 US cents per pound.  The Brazilian authorities, worked in cahoots with a consortium of US bankers and brokers, to keep the surplus stocks off the market.  This policy of ‘valorization’ resulted in a price recovery by 1910, but became increasingly difficult to enact as other volume producers, such as Colombia, entered into the coffee market.  Having expanded production as a result of the growth of the US market in the 1920s, the Brazilian authorities were so desperate to get rid of excess stocks in the 1930s that they began mixing coffee and tar to create an alternative fuel for locomotives. 

Post-war affluence in the West led to an intensification of coffee production in the Americas, further stimulated by developments in agronomy.  Meanwhile the newly- independent African states of the 1950s and 60s rapidly expanded their production by planting robusta, a cheaper and hardier species, well suited for use in the increasingly popular  instant coffee products. During this era a new mechanism for managing supply was created with establishment of the ICO which operated a production quota system as a form of price management.  This was accepted by the major consumer countries, principally for political reasons connected to the Cold War.  After America withdrew its support in 1989, the system swiftly collapsed.

Subsequently one county has been the great disruptor within the coffee economy: Vietnam.  In 1991 Vietnam produced 1.3 million bags, in 2001 14.8 million bags, and in 2018 30.9 million bags – the vast majority of this being Robusta.  It is now the second largest producer in the world behind Brazil, with an output that it is greater than the whole of Africa. It is this increase that lay at the heart of the coffee crisis between 1998 and 2007, and again today.

How can we move on from this?  It is chilling to note that the ending of most of the price crises during the last century has been achieved not through good policy, but as a result of natural disasters, such as the severe outbreak of coffee rust in Latin America in the early 2010s, which, of course, had devastating effects on individual farms.  Do we really want to rely on climate change to bring prices back into line?

While a return to the ICO quota system might appeal to some, we need to recognise that this was much less beneficial to farmers than to government agencies who used it to secure foreign exchange returns for themselves.  The years the quota system was in operation did see a significant diminution of price volatility, but much of this was probably a consequence of the disastrous Brazilian frost of 1975 which destroyed many trees, leading to a tripling of the coffee price. 

In fact, it’s unlikely that the so-called specialty coffee revolution of the last 30 years would have occurred without the ending of the quota system.  Under it, coffee tended to be sold in homogenised lots according to basic classifications which provided no guarantee of flavour.  Today, by contrast, it is possible to buy micro-lots of coffees from particular farms: in July a new world record price of $803 per lb was set at auction for a lot from Panama. 

While the disparity between this price and that for commodity coffee might seem to reinforce the lack of connection between the sectors, further investigation shows how it might point a new way forward.  The lot in question was purchased by a Taiwanese roaster, with the next two highest bids coming from Japanese coffee companies.  Asia has overtaken North America as the second largest continental market in the world by volume after Europe, and is by far the fastest growing market in the world for coffee, recording an average annual compound growth rate between 2012 and 2016 of 4.5% pa. 

The reason for this is, at heart, a simple one – the success of Starbucks and similar international coffee chains in transforming the image of coffee from an everyday beverage into a premium lifestyle product.  Emulating this western lifestyle has driven a growth in world consumption (both in and out of home) to the point that just under half the world’s coffee is drunk beyond the traditional markets in Europe and North America. 

Driving this growth represents by far the best bet for creating a more sustainable level of income for coffee producers.   Instead of seeking to manage supply, coffee producers need to stimulate demand, principally in their own markets.   This has already begun to happen – Brazil is now the second largest consumer country in the world, while Indonesia is the fifth. The potential for growth remains enormous – per capita consumption in Asia is still only 10% of that in the United States.   Coffee chains such as Java House in East Africa are reconnecting producers and consumers in countries such as Kenya, Tanzania and Rwanda.

If International Coffee Day can help persuade consumers in these non-traditional markets to drink more coffee, then it will be well worth celebrating as an initiative with the potential to transform coffee from a product grown in the Global South for the benefit of the Global North, into one that confers benefits – and pleasure – all along its value chain. 

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