2 Jul 2019
There is only one way out of the global coffee crisis... pay more
The global coffee industry is facing an unprecedented price crisis which not only threatens our daily cup of the black stuff but also – far more importantly – jeopardises the livelihoods of millions of small-scale growers around the world.
by Darío Soto Abril, CEO, Fairtrade International and Roberto Vélez, CEO, Colombian Coffee Growers Federation (FNC)
Coffee traders, roasters and retailers must face the fact that not paying a fair price to farmers risks the future economic sustainability of the global coffee business.
Coffee is one of the most frequently traded commodities in the world. The global coffee business is worth over US$200 billion a year. Consumers in many wealthy countries are willing to pay more than US$3 for their daily fix. One up-scale London outlet recently priced coffee at nearly US$20 a cup. However, as one Guatemalan farmer summed it up: “The problem isn’t the price there. It’s what they pay here.”
On the international markets, coffee prices are at their lowest ever in real terms. In May this year Arabica beans were trading at 86 cents a pound on the International Commodities Exchange (ICE) futures – the lowest since 2004. Over-production, volatility fuelled by speculation and a weak Brazilian real - Brazil accounts for a quarter of global coffee supplies – have combined to create a coffee price crisis affecting more than 25 million smallholder coffee farmers worldwide.
Coffee farmers are in effect subsidising the profits of a booming coffee market. According to one recently published report, nearly 61 per cent of producers are selling their coffee at prices under the cost of production. Today’s global market price of less than US$1 per pound is significantly below what farmers in Colombia, for example, need for a decent income. Central American growers need to get between US$1.20 and US$1.50 a pound simply to break even. Faced with this unsustainable future, many coffee farming families are turning to other crops or even abandoning their plots to migrate north to the United States.
Fairtrade coffee growers do at least enjoy some protection from the crisis. The Fairtrade Minimum Price of US$1.40 per pound (US$1.70 per pound for organic) is a vital safety net for the nearly 800,000 Fairtrade coffee farmers in 30 countries. They also benefit from an additional Premium of 20 cents per pound, which earned them an extra US$94 million in 2017. But for many, even that doesn’t amount to a decent income.
On a recent visit to Colombia, coffee farmers told us that Fairtrade's minimum price and the premium have been key to provide stability in times where price fluctuations are driving many coffee farmers to extreme poverty.
At the heart of the coffee crisis is price. Yes, climate change, over-production and currency fluctuations all play a part, but the crisis is driven mainly by unsustainably low prices. Unless growers get a fair return for their crop, the economic, human and environmental costs will get worse. Lack of investment in new equipment or more efficient farming techniques will lead to lower coffee quality, which further hurts sales.
Fairtrade and the Colombian Coffee Growers’ Federation (FNC) say the coffee crisis will only end when farmers are paid a fair price. Coffee companies must, as a first step, match the Fairtrade minimum price – currently around 40 per cent higher than market prices. They must then move to paying a decent income based on independent benchmarking, enough to support a decent standard of living, covering basic housing, food, healthcare, education, transportation and a bit extra for unexpected expenses. Governments can also play their part – for example through tax breaks for farmers and by insisting on rigorous procurement policies.
Ultimately, however, the coffee crisis – described by the World Coffee Producers Forum as a “humanitarian crisis” – is only going to be solved one way. It’s down to coffee companies to pay a fair price to farmers.
This content first appeared in In Depth News.