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PRODUCTS >> Coffee |
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| Why FLO
deals with Coffee While the coffee industry’s profits are setting all-time records, coffee farmers in Africa, Asia and Latin America are despairing. After oil, coffee is the Southern hemisphere’s most important export product, directly involving between 20 and 25 million farmers and workers on plantations, normally ensuring the livelihood of over a hundred million people. Yet in the past three years, world market coffee prices halved to 0,45-0,50 US$/lb., their lowest level in 40 years and far below what is costs most farmers to produce the crop. The consequences are dramatic: economic crises in Burundi, Guatemala, Tanzania and other countries that depend on coffee exports for economic health, millions losing their livelihood and many more who can no longer pay school fees, medical care and even hunger. At the same time, the five multinational companies that buy 70% of the world’s coffee have never earned more. The world’s biggest coffee buyer Nestlé posted a 2001 profit of about 4,5 billion euro, 16% higher than the year before. Kraft Foods over 2001 have increased with 16% to approximately 4,5 thousand million Euro. Sara Lee/DE reported a 1st-quarter 2002 net profit increase of 6,6 %. The roots of the problem Experts agree that the main cause of the current coffee crisis is overproduction. In the past decade, the growth of coffee consumption in the world has slowed down, while coffee production has continued increasing. Although new technologies (coffee plants with higher yields and more resistant to diseases and adverse weather) are increasing productivity, the single most important factor has been the explosive development of coffee production in Vietnam, stimulated by the coffee multinationals, the Vietnamese government and international banks. The result: warehouses around the world bulging with unsold coffee, pushing prices for coffee far below what this beautiful product is really worth. But there are other causes, less often mentioned. One is that the liberalization of the coffee trade since the collapse of the last worldwide Coffee Agreement in 1989 has increased multinational control of the coffee trade, reducing the bargaining power of especially the small and medium-sized coffee producers, allowing the world’s big coffee buyers to virtually dictate conditions and prices. Another is that many coffee producers hardly have an alternative to growing coffee. So that when coffee prices fall, most will try to produce even more coffee as a means to maintain their income – thus automatically exacerbating the problem of overproduction. The free-market fallacy Of course, liberal economic theory has it that when prices are too low, a product’s offer will decrease by itself, causing prices to rise - the famous principle of elasticity of supply and demand. Yet hardly a coffee drinker will start drinking more just because the price of coffee has gone down. And more important, the world’s coffee production isn’t likely to decrease either. Faced with prices for his crop that no longer cover his production costs, most farmers will evaluate his alternatives - producing coca, selling his land and become a landless - or even worse: migrant - laborer, or ending up without an income altogether - and continue to produce even more coffee, in expectation of better times. While in recent years Corporate Social Responsibility has become a buzz-word in many an industry, the major coffee companies don’t yet seem to take theirs seriously. The one or two social projects they support shouldn’t distract the attention from the main problem: the extremely low prices these companies are paying does not leave any room for a sustainable living wage for farmers and workers. Fairtrade Labelled Coffee as a positive alternative Every research shows that consumer sympathy and the market potential for Fairtrade are very high. Ever since Fairtrade labelled coffee was launched in 1989, its sales have kept growing, continuing its upward trend in markets where coffee consumption is stagnating. Fairtrade has a proven track record as a market-conform, business-friendly instrument for delivering development to several hundred-thousand coffee producers and their families. Still, the coffee crisis imperils the very existence of millions more. By adopting and seriously investing in Fairtrade, like some big companies and major retail chains have started doing, the coffee industry can contribute to ensuring that the poorest producers don’t end up bearing the biggest costs of the crisis. Undoubt-edly, coffee drinkers will reward them for it. > BACK TO TOP |
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