1 Aug 2023
Realistic and fair prices for coffee farmers are a non-negotiable for the future of coffee
“The situation coffee farmers are enduring globally due to financial hardships and climate change is unsustainable and, quite frankly, puts the entire future of coffee at risk.”
This stark warning from Silvia Gonzalez, Manager at the Nicaraguan coffee producer UCA Miraflor, is a perspective shared by coffee farmers around the world.
There are many actions that need to be taken to avert this catastrophe, which isn’t just about coffee of course, but about the millions of people who depend on it for their livelihood. In fact, around 125 million people depend on coffee for their livelihoods around the world, from Honduras to Ethiopia to Indonesia and countless places in between.
In our recent consultations around the Fairtrade Standards with farmers and businesses, one resounding message was clear: Coffee farmers need to be paid more, or they can’t continue to grow coffee. The future of coffee is at risk – and fair prices are needed if there is to be a future for our morning brew.
Here’s why, and what Fairtrade is doing about it.
Farmers aren’t earning enough to cover their costs
Many farmers are getting paid less for their beans than it costs to grow and harvest them. This has only gotten worse with inflation in recent years.
Of course, coffee buyers, roasters and brands are affected by higher costs just like any other business, and smaller-scale companies have felt the effects of the higher prices in recent years.
But farmers simply don’t have margins to cut, as they often need to hire workers during harvest time or risk losing their crop, they need fuel to transport beans to their cooperative and on to a port for export. Too many farmers are facing terrible choices of scraping by, going a little further into debt, or just walking away from farming altogether, as has been extensively reported over the past few years.
According to available data, smallholder farmers produce 60 percent of the world’s coffee yet nearly half of those smallholder farmers are living in poverty; nearly a quarter of them live in extreme poverty. Studies have shown that producers typically retain around one percent of the retail coffee price which, for a $4 USD cup of coffee, equals around $0.04 USD per cup.
A decent price for their work and product is only fair considering consumers and businesses expect high quality coffee that is sustainable.
Price security means farmers can better plan for needed investments – including producing sustainably
Another problem is that the highly volatile nature of conventional global coffee prices prevent farmers from having the stability or certainty to make investments that would improve their incomes longer term.
With greater price security, farmers could take steps such as replacing older and under-producing trees with new ones. Cooperatives could invest in value-adding equipment like roasting machines, or branch into online direct sales or new areas like agrotourism.
Farmers are also taking on the hard work of sustainable transition that businesses and governments increasingly require for supply chain due diligence purposes – from adapting to climate change, to protecting forests and human rights. These efforts are essential – and come at a cost as well. A cost that the industry as a whole should be financing if we are to secure the future of coffee.
Ultimately, farmers and their organisations benefit most from stable, predictable markets that allow them to negotiate good terms of trade and plan for the future. As the producers on which the entire coffee industry depends, farmers should not be left to face rising costs and climate risks alone.
A realistic Fairtrade Minimum Price for a more challenging present (and future)
To reflect these realities, we recently reviewed our Fairtrade Minimum Price for coffee through an extensive consultation process with farmers from certified producer organisations, Fairtrade coffee traders, roasters, and other key stakeholders. The Fairtrade Minimum Price is a safety net that provides certified cooperatives and their members protection from unfair and unsustainable market pressures.
First, we completed a thorough cost of production analysis in 2022, based on 2021 harvest costs, and calculated the weighted average costs of production. We then conducted a robust and inclusive consultation spanning three months including outreach to more than 600 producer organizations and 745 commercial partners. There were more than 540 respondents– 86% of whom were farmers – from 40 countries who provided critical inputs ultimately resulting in a proposal to raise the Fairtrade Minimum Price. The Standards Committee, a multi-stakeholder body which includes farmer and trader representatives, deliberated on the proposals and consultation findings, and made the final decision.
The clear decision was to adjust our Minimum Prices: US$1.80/lb for Arabica coffee and $1.20/Ib for Robusta coffees, effective as of 1 August 2023. The organic differential also increased by 10 cents to $0.40/lb, reflecting the additional costs that organic production requires.
Pricing as usual will no longer cut it. What we heard in our consultation is that farmers need a higher Minimum Price. The alternative – relying on a safety net price that no longer reflects actual costs, and hoping for more reliable higher market prices – is a recipe for failure.
“We all felt such a big relief” at the news of the new Fairtrade Minimum Price, said Roberto Salazar, Chair of CLAC’s Coffee Network, in a recent joint statement from the three Fairtrade Producer Networks. “We weighed the potential risk of losing Fairtrade market share, against the reality of losing farmers, unable to stay in farming with prices that do not cover the basic costs of production.”
Monika Firl, Fairtrade International’s Global Product Manager for Coffee, also sees the timing as right for this change. “In the past, there has been uncertainty about companies’ loyalty to the concept of fair pricing, and there was doubt that it was the right time to raise prices. We are hearing that exact same thing now from some parts of the coffee industry. But farmers will lose more with that approach. It’s time now for everyone to walk the talk on fairness and sustainability.”
Looking ahead to a sustainable coffee supply
Everyone – from traders all the way to consumers – need to recognize what producing coffee actually costs, and pay accordingly. Farmers simply cannot continue with “prices as usual” to subsidize the $200 billion coffee industry.
There are companies that recognize the urgency of farmers earning fairer prices.
While the new Fairtrade Minimum Price represents a strengthening in the safety net for farmers, it is actually well within the range of global coffee prices over the past year and a half that buyers and traders have been paying to cooperatives. The difference now is that farmers will continue to earn a price that better covers their average production costs, even if the global market price drops in the future.
Additional programmes – for instance to improve coffee quality or increase climate change resilience – can and should still play a role in advancing toward a sustainable coffee industry. They should be developed on top of fair prices though, not as a substitute.
”As a brand we couldn’t be more excited about the new Fairtrade Coffee Minimum Price because it started with the farmers, not the consumer,” said Adam Thatcher, CEO and Co-Founder of Grade Farm Foods in the US. “Supporting farmers and creating security in their communities is the most important action a company like ours can do; because without farmers, we have no coffee… then we have no customers!”
Fairtrade also offers options for companies that want to work with cooperatives and pay their fair share of farmers progressing toward a living income – one that covers the cost of sustainable farming as well as things like decent housing, a nutritious diet, children’s education, and more. We have calculated Living Income Reference Prices for four coffee origins as part of a holistic strategy that includes improving productivity and other factors.
Farmers need the stability of fairer prices long term in order to continue producing high quality and sustainable coffee on which the industry – and all coffee lovers – depend.
“If we’re going to be serious about tackling poverty in the global supply chain, then everyone in the supply chain – from consumers to retailers to traders – must do their part and pay farmers their fair share,” said Silvia Gonzalez, Manager at the Nicaraguan coffee producer UCA Miraflor and Board Member at Fairtrade regional producer network CLAC.
We are hopeful about the future of the industry, one in which farmers are listened to, paid fairly, and are partners in designing the path to sustainable coffee. We are encouraged by the innovation we see every day with our producer and business partners alike, and are energized by the enthusiasm for a better cup of coffee for all.