If like me your day has not quite kick-started until you have had that first taste of coffea arabica or coffea canephora (‘robusta’), you will agree, how, where and when you drink it can make or break your day. The stuff of myth, legend and countless tales, coffee has allegedly been part of mankind’s daily ritual since 15th century Sufis in Yemen imbibed it with gusto. Originating in Ethiopia, coffee has historical links with religious rites, has been banned for political reasons and associated with subversive activities. The rise of coffee culture and mass consumption has made the beverage an intricate part of modern society. To such an extent that it is now the second most traded product in the world after petroleum. And just as controversial …
Putting coffee into perspective – the facts and figures
- The global coffee market (fresh & instant) was worth $71 billion in 2011. A 17.5% increase on the previous year. (Fairtrade and Coffee Report: May 2012)
- Globally 1.6 billion cups of coffee are consumed daily
- 125 million people worldwide depend on coffee for their livelihoods
- 25 million small scale farmers produce 80% of the world’s coffee
- Coffee is produced in some of the world’s poorest countries (Honduras, Guatamala, Ethiopia), while the majority of consumption is in the world’s wealthiest countries (European Union – 67%, USA – 22%)
- Coffee growers receive on average 7-10% of the retail price in supermarkets
- Many coffee growers subsist on less than $1 per day
A large share of the profits in the coffee supply chain go to the middlemen and the large roasters. Five large companies control this trade: Neumann and Volcafé (both based in Germany), Ecom, Decotrade (trading arm of Sara Lee/Douwe Egberts) and Taloca (owned by Philip Morris/Kraft), all based in Switzerland.
Six companies control more than half the global retail market:
- Nestlé – Nescafe, Nespresso, Ricoffy
- Kraft – Carte Noire, Jacobs, Gevalia, Kenco, Maxwell House
- Sara Lee – Douwe Egberts, Chat Noir, Cafe Continental
- J.M.Smucker – Folgers, Millstone, Dunkin Donuts, Kava
- Starbucks – house brands
- Tchibo – house brands
Top brands in South Africa (2011):
- Nestle’s Nescafe – 30% of the market
- National Brands’ House of Coffees brand – 10%
- Kraft Food’s Jacobs – 8%
- National Brands’ Kenna and Ciro – 4% each
A massive paradox is at play – global coffee consumption has increased, with related profit increases for the big roasters and retailers, but the small scale growers remain stuck in chronic poverty and destitution. A situation that has worsened over the past 20 – 30 years.
Corporate revenue has increased due to:
- population growth
- the growing middle class with their expendable income
- effective marketing of speciality coffees as an aspirational beverage
At the same time the coffee growers have received little benefit from the rise in global consumption due to:
The collapse of the International Coffee Agreement in 1989
- existed since the 1960s to regulate the global coffee trade through a system of export quotas and buffer stocks, ensuring stable and equitable prices
- collapsed due to abuse of the quota system and the rise of free market policies
Fluctuating markets exploited by opportunistic speculators
- global coffee production varies according to weather patterns and disease, causing volatile price fluctuations
- commodity (coffee) futures markets are used by hedge funds, investment banks and private speculators to gamble on the price of coffee
- in essence, non-commercial traders’ speculation causes distortions in the market, setting up boom and bust cycles
Exploitation of market power by retailers and roasters
- big multinational companies pit 25 million smallholder sellers against each other under the guise of the free market system
Rapid supplier growth, creating a buyer’s market
- funding and encouraged expansion of low cost – low quality robusta coffee has seen Brazil and Vietnam take 48% of the global export market (ICO 2011/2012)
- this has had a massive impact on deforestation and water supplies
- According to the World Wildlife Fund, of the 50 countries with the highest deforestation rates from 1990 to 1995, 37 were coffee producers
WTO and IMF policies
- advised countries to switch to coffee in the 1960’s and 1970’s contributing to a glut in the market
- strict free-market programmes required governments of producing countries to privatise state-controlled industries and open up to competition from private traders, which lead to prices plummeting
Furthermore, subsidies for agricultural products in developed countries (read: Europe & USA) have made it difficult to switch to alternative cash crops. Current high coffee prices are offset by high input costs, resulting in little real income growth.
One of the touted solutions to the above disparities is ‘fair trade’ – an organised social movement focused on helping producers in developing countries create better trading conditions through certification and promoting awareness of ethical trade practices.
The biggest and most well known fair trade organisation is Fairtrade, which also includes FLO-CERT, an independent certification company. FLO-CERT inspects producers and traders to ensure they comply with Fairtrade standards. Global coffee exports totalled 6.2 million tonnes in 2011 of which less than 88,000 tonnes were Fairtrade. That translates to less than 1.5% of the total coffee traded globally.
Criticism of Fair trade:
- None of the big coffee retailers carry more than 10% fair trade certified product, which could be seen as window dressing.
- Discrepancies between retail premiums on fair trade coffee and what reaches the grower have been pointed out.
- Opportunity for corruption via false labelling or slack certification procedures.
- Fairtrade certification is not free – application fees, initial certification fees, membership dues and annual audit fees may cost thousands of dollars/euros – huge amounts for small farmers.
- Duplication of existing labour and contract laws in some countries, e.g. minimum wage regulations.
- Administrative burden for often illiterate small producers.
- Artificial markets are created in stead of farmers being more productive or switching to a more profitable crop or industry. It creates dependency and subsidises inefficiency.
- Accusations of evolving from a socio-economic advocacy group into a marketing model for ethical consumerism (basically becoming a player in the market).
- Lack of independent trade impact studies, detailing fair trade efficacy.
- Imposition of socio-political standards on societies who don’t necessarily agree with them – an extension of the greater Western chauvinism when dealing with marginalised communities.
Fair trade’s greatest legacy could well be the increased awareness of global socio-economic inequalities, and how consumerist societies are linked to marginal ones.
Its biggest crime may be propping up a flawed system and providing jobs for aspiring NGO bureaucrats.
At the core of all global economic inequities is the ‘might is right’ attitude of multinational conglomerates and the apathy of consumers. The arrogance of the global companies date back to the mercantilism of the 16th – 18th century, when colonial powers such as the Dutch started coffee plantations in Java and Ceylon after subjugating the local populations. Many European countries plundered their way to developed status, only to continue to do so under the guise of trade. Consumer apathy can be ascribed to both ignorance and moral laziness.
A few possible solutions to look at:
- Oversight of ‘fair trade’ groups and their impact with regular reports and audits provided by independent bodies.
- Global clamp down on commodity futures speculation with regards to essential foods.
- Overhaul of the World Bank, IMF with accompanying trade policy changes (this will never happen as long as the USA and EU run the two organisations).
- Renegotiate the terms of fair trade, with all role players having an equal input.
- The fair trade certification process should include the total fair trade percentage of a company to avoid window dressing. A minimum threshold should be determined before fair trade certification is awarded.
- Media exposure to both Fairtrade certified companies and options offered by uncertified companies. Sometimes companies that are uncertified, because they can’t afford the Fairtrade certification or don’t agree with the Fairtrade process, still run ethical businesses.
- Increased price regulation and supply control by resurrecting the International Coffee Agreement.
- Aiding coffee-producing countries to diversify crops by reducing subsidies and other trade barriers.
- A global online information bureau that provides consumers with regularly updated statistics regarding individual company performance in relation to fair trade.
Due to its high trade volume and mass consumption, coffee is at the vanguard of the global battle for fair trade. Companies will keep on doing what they are created for, the maximising of profits. Despite the best efforts by individual governments, fair trade organisations and advocacy groups, it boils down to individual consumers to hold companies accountable with the most powerful weapon at their disposal: money. The internet and other forms of modern mass communication have taken away the excuse of ignorance. The only one that remains is apathy.
Recommended documentary: Black Gold (2006)
An award-winning documentary film about the international coffee trade and its ramifications for the farmers who grow coffee. Find out more at: www.blackgoldmovie.com
If you want to drink ethically produced coffee click here to view a selection of Fairtrade coffees available in South Africa.