David Griswold, ex-President of the SCAA and co-founder of the innovative coffee importer Sustainable Harvest, asked a panel of coffee luminaries at last month’s Let’s Talk Coffee event in El Salvador if the coffee business is broken. The answer was a resounding yes.
Much of the conversation in specialty coffee over the past year has focused on the coffee leaf rust epidemic in Central America. And the Let’s Talk Coffee event during which David posed this question was followed by a separate event devoted exclusively to the search for solutions to the current CLR crisis. But coffee leaf rust was not the issue that was weighing heaviest on the minds of the experts he had assembled. They were more concerned about coffee prices.
They are low—lower than costs of production. And they are falling.
They are volatile.
The prices roasters pay for their coffee bears no relation to what it costs farmers to grow it.
And the primary mechanism for determining prices—the NY C exchange—is increasingly influenced by factors not directly related to the underlying fundamentals of coffee supply and demand.
The expressions of concern for the coffee business at Let’s Talk Coffee were notable for their candor.
Luis Fernando Samper, Communications Director for the powerful Colombian Coffee Growers Federation, said Colombia can’t make it in coffee in a $1.04 market. He should know: Colombia’s government has responded to not one but two national strikes led by coffee growers, with a march on Bogota scheduled for 3 December, and the Federation is currently paying growers subsidies to keep them afloat in this miserable market.
Chad Trewick, who spent many years buying coffee for one of the largest specialty coffee retailers in the United States, confirmed that farmers aren’t breaking even with today’s prices. He wondered aloud how many of us would continue to work in a business in which our earnings were so often negative, and were determined by processes as inscrutable as the movements of the futures exchange are to the average coffee farmer.
Gilbert Gitali of KZ NOIR in Rwanda was asked what single message he would convey to consumers if he could communicate with them directly. His answer: You need to pay more for your coffee.
Oscar Schaps, a fourth-generation coffee grower and risk guru from Hencorp, said there is simply too much coffee out there, and that farmers who can’t achieve high levels of production efficiency or cup quality don’t have a future in coffee.
The coffee business, in other words, is broken. And the biggest problem in the coffee market may be the market itself. Or at least, the way it goes about determining what prices farmers will earn for their coffee.
But price is only one of the ills ailing the coffee business. There is a long list of other challenges at origin that we know about–limited farmer organization for the market, low productivity, low quality, rising input costs, limited access to agronomic and financial services, limited investment in research, diseases like CLR, gradual loss of coffee suitability due to climate change, seasonal hunger in coffee communities, etc. And there are, most likely, other challenges at origin we don’t yet fully comprehend.
The coffee business can be fixed. But before we start talking treatments and cures, we would be well-advised to spend a bit more time agreeing on a diagnosis.
I was just in Aceh Sumatra with Lutheran World Relief and Fair Trade USA visiting our farm partners. While the efforts of these two groups was impressive, even more impressive was the fact that the vast majority of the three Fair Trade and Organic Coffee Coops coffee we visited is sold at below break even commodity pricing. The only thing that is floating the boat is the 30%+ that is sold under Fair Trade and Organic contract.
Even so, most farmers responded to my question of whether their sons and daughters would be continuing farming tradition with a resounding “Yes”.
Specialty Fair Trade premiums when combined with organic premiums do make a difference. We need to get behind programs that work and have proven themselves and are evolving to be even better. Low prices for specialty coffee only reinforce a cycle of insanity in our industry that is not sustainable. If you are a specialty roaster or retailer, you will not be able to count on quality in a low market. A farmer cannot possibly support coffee quality when his/her family is starving!
Thanks for your comment and the reminder of the redeeming value of Fair Trade’s most unique value proposition: the guarantee of a minimum price.
Is the Fair Trade minimum flawed? Yes.
Is there something unfair about applying a single minimum price across all origins regardless of local production costs? You bet.
Does $1.40 always and everywhere exceed the cost of production? Not necessarily.
Is Fair Trade nonetheless the best instrument out there for building some stability into farmer income? I think so.
You will remember, Randy, that when the C market was in the $3 range a few years ago people all along the chain, from growers to retailers, were questioning the relevance of Fair Trade. Of course, this critique was based on a unidimensional reading of Fair Trade that focused only on price and ignored the other sources of value it generates for growers, including incentives for organization and social investment, access to services and markets, and of course the stable incentive you mention for organic farming. Now that the C market is closer to $1, Fair Trade pricing seems anything but irrelevant.
Here in Colombia, where we are supporting farmers participating in a Fair Trade Certification pilot for independent smallholders, we have had a similar experience to the one you describe in Aceh. While $1.40 may not be enough to ensure a comfortable margin for growers, it is certainly more attractive than the alternative. Farmers participating in the pilot are telling us they want to increase the volumes they sell into the Fair Trade market next year. And their neighbors are asking how they can get involved. In a region where farmer organization has proven challenging, we are hopeful that Fair Trade’s primary differentiator–the guarantee of a minimum price–may entice farmers to commit to what may be its most lasting developmental benefit–farmer organization.
I echo a lot of this. Although, while it’s true that it’s not just about price, it’s still the key issue. Most things we fear now – loss of next generation farmers, lack of productivity, low quality, leaf rust, seasonal hunger – come back to the fact that we (many, not all of us) have been slowly, slowly starving the people who produce coffee by refusing to honor the true value of the product (and not just coffee, it goes for the cocoa, tea, banana, sugar folks too).
Any argument saying that a price of $1.04 is fair b/c the market says so is a cop out; any claim of ‘if it wasn’t profitable, farmers would just get out’ too. From my time with farmers while at in Peace Corps, Coffee Kids, and now working with Fairtrade International, you hear/see the same thing over and over again. People aren’t earning enough to keep farming, but there are few options otherwise, so just keep farming.
After watching how agriculture in the US was driven to mass consolidation and all of its attendant problems and the slow return to small and local, I think we can do something different in coffee. Do something where we can acknowledge that funding programs to combat leaf rust, coming up with strategies to lure youth into coffee, massive ‘sustainability’ initiatives by the biggies, and all that jazz are not a replacement for treating people fair (not to say those projects aren’t needed, of course).
The progressive associations and cooperatives are on the right track, not only investing in productivity and quality, but helping their members and their children diversify and find new opportunities in coffee (and outside of coffee). But this can only come when people have something to invest after paying the bills instead of struggling to sell every last bean so they can put food on the table.
Farmer organization is key for smallholders. But the incentives have to be there for farmers to get organized and stay organized. That means prices high enough to cover costs of production and generate stable if modest returns to farmers–enough for them to feed their families and make the kinds of investments necessary for their kids to have more options than they did. Isn’t that what we all aspire to in the places that drink most of this coffee? To give our kids more opportunities and options than we had? Why should we settle for anything less for our supply chain partners?
I think the Fair Trade value proposition is coming into clearer resolution now that prices are slumping, just as it did in the aftermath of the coffee price crisis in 2001. The guaranteed minimum price is only one aspect of the Fair Trade value proposition, and arguably not the most important one over the long term. But over the short term, with no end to low prices in sight, it does make Fair Trade an awfully attractive option for growers.
Now get back to work growing the demand, will you?
Back at you, my friend. Keep up the good work and keep speaking and writing about it. Demand will follow. I still credit you with convincing my skeptical mind that Fair Trade has a solid role in lifting up coffee farmers — was it 2010? Back when you presented at a NetImpact panel at the Ross Business School in Ann Arbor, MI.
I am currently writing a paper on the coffee market for my economics class and I am confused as to the conflicting information I’m getting. If the supply is low increasing the demand shouldn’t the price naturally gravitate towards the equilibrium price?