What’s This About a Coffee Crisis?

As organizations like TransFair make Fair Trade coffee an industry and society buzzword, we’re reading more and more in the news about a coffee crisis. With a new Starbucks popping up on every corner and Dunkin Donuts declaring that “America runs on Dunkins”, the average consumer can certainly be excused for asking, “What coffee crisis?”

The coffee crisis being referred to in this case is the collapse of coffee prices in the late 1990s and early 2000s, from a high of about $1.50 per pound to a low in 2003 of $0.46 per pound, the lowest real price for coffee ever. To understand why the falling prices represent a coffee crisis that has the United Nations working in concert with the International Coffee Organization to encourage quality supports and price supports, you need to understand a few things about coffee’s status on the world markets.

Coffee is the second most traded commodity on the world market. Its production and sale supports millions of families worldwide, but especially in developing countries. Most coffee is still produced on small farms by family farmers, though there are some larger coffee plantations. Until 1989, coffee prices were controlled to some extent by an international agreement. When the ICA fell in 1989, there were hints of an impending coffee crisis, but that failed to materialize for several years because of a spate of bad weather in the South American countries, where crops were devastated. The resulting shortage of coffee for sale kept coffee prices high through the mid-1990s. Even then, though, there were some rumblings that the coffee crisis had not been averted, but merely postponed.

Interestingly, while Americans bemoaned the rising price of coffee, the coffee producers were beginning to see the effects of a drop in coffee prices paid for their commodity. A combination of factors was responsible for this:

– The high prices of the mid-1990s encouraged more farmers to turn over more of their lands to growing coffee. The effects of this weren’t seen for a couple of years, since it takes at least two years for a coffee plant to reach maturity and produce fruit, and four before it is at peak production.

– Among those entering the market in the mid-1990s was Vietnam, who were once major players in the world coffee markets. Years of bad weather, war and poor economy had kept Vietnam out of the market for decades. In just a few years during the 1990s, Vietnam moved from being a nonentity in the world coffee market to being the second largest exporter of coffee in the world. Many market experts trace the roots of the current coffee crisis directly to the re-entry of Vietnam into the market.

The coffee crisis has spawned unexpected effects. The current low prices of coffee are affecting the economy of those countries where coffee is a major part of the gross national product, of course, but they are also directly affecting the quality of the coffee that is being sold and the sustainability of coffee as a cash crop. Again, there are several reasons for the apparent drop in quality of coffee being bought and sold.

First, the coffee grown in Vietnam is mostly of the robusto variety. It’s flavor is substantially different than the flavor of arabica coffee, which is generally more prized and considered to be ‘better’ coffee. It is used extensively in blended coffees with arabica, though, and one of the effects of the current coffee crisis is that the glut of robusto on the market is encouraging many companies to increase the amount of robusto coffee that goes into their blends.

Second, and more importantly, with income from producing coffee not even covering the expenses of growing it, the growers are forced to sacrifice quality in order to reap the highest possible prices. Robusto coffee yields far more coffee per acre of land than arabica coffee. Growing sun coffee rather than the better tasting but more labor intensive shade grown coffee also yields more product and thus, more profit. The low prices also encourage producers to rush through picking, including underripe and overripe berries in the harvest because they can no longer afford to pay for three separate pickings of the crop.

Fair Trade coffees are only one of the solutions being suggested for the current coffee crisis. While Fair Trade guarantees a floor price for raw coffee sold by coffee cooperatives, it is only one part of a comprehensive strategy to stabilize coffee prices at a level that will support its growers. Another is the adoption of a set of quality standards for buyers. Both the UN and the ICO support these quality standards as a way to encourage all growers to adhere to best agriculturual practices for growing coffee.

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