Coffee in a High Market
Celine Herrera looks back to her computer screen at the ‘C’ prices on the international exchange; Arabica coffee is trading at $1.84USD per pound*. Since the beginning of 2010, coffee farmers have watched prices rise over 45% to a 13-year high.
Herrera, the Global Product Manager for Coffee at FLO, comes from a long line of coffee farmers in the Dominican Republic and understands the clamour that surrounds a speculative market.
“When the price shoots up based on speculation, it’s not good for anyone,” she says. “We have to consider the long term stability of the market and how it will adjust and how that ultimately affects producers.”
The high market can be a reprieve for many farmers and producer organizations that base contracts on the current market price. But some are unable to benefit if they have fixed the price in contracts at an earlier date. Price spikes also frequently undermine the long-term financial stability of producer organizations – especially during the current global credit crisis – as they can often only pre-finance a portion of the upcoming harvest.
The current market jump – due to changing weather patterns, coffee bushes reaching the end of their productive cycle, and speculative trading – is a challenge to all players in the world of coffee, including farmers, producer organizations, traders and consumers (See graphs of arabica and robusta coffee prices from 1989-2010**).
Fairtrade helps producer organizations and farmers weather high and low markets by encouraging greater access to financing, relationship building between buyers and sellers, and improved contract terms. Fairtrade-certified producers and cooperatives also benefit from the Fairtrade Premium, a sum of money paid above the purchase price to be used in social and economic development projects.
FLO also recently began discussions of coffee pricing mechanisms to deepen the impact of Fairtrade for coffee farmers and take the positive and negative effects of the turbulent market into consideration.
In the long-term, strong Fairtrade certified producer organizations deliver greater benefits to coffee farmers through stable trading relationships that offer the social and economic infrastructure needed in coffee communities.
*As of 20 September, 2010
**Courtesy of the Fairtrade Foundation