The Manitoba

Inside the coffee crisis: The industry and it's casualties

by Michelle French  Features Editor

Walk into any gourmet coffee shop today and your eyes will behold a dizzying variety of specialty brews, blends, and flavors. If you are a bargain hunter, take a stroll through Safeway and admire the brands — and prices. With so much choice, there is little indication that coffee producers are in crisis. Yet according to New York Board of Trade figures, coffee closed yesterday at 50 cents US per pound, a thirty-year low spurred by a glut of coffee on the market. Almost all coffee producers are selling their crops below cost, and facing destitution as a result. Central America has been especially hard-hit by falling coffee prices and a severe drought — 1.5 million are facing starvation. Nicaragua and Guatemala — thousands of small producers have marched to their respective capitals, demanding governmental aid. Venezuela — the crisis has almost halved the countries coffee exports, leading farmers to protest in the streets. Mexico — 300 000 coffee laborers have fled the countryside in search of American jobs. In Chiapas, 500 families a week migrate in search of work. Companies like Nestle and Starbucks are announcing record profits.

Charting the glut

The price of coffee has been in decline since 1995, although the free fall began in earnest two years ago. Organic Consumers’ Association spokesperson Simon Harris, links the coffee glut to World Bank (WB) development dollars. He explains, “the World Bank has very aggressively promoted coffee production, particularly in Vietnam, and so in the last couple of years, the first of that harvest has reached the market and there is a huge glut right now.” Deborah Jane — spokesperson for San Francisco-based human rights organization Global Exchange — implicates the collapse of the

International Coffee Agreement (ICA) in 1989.

“The ICA set a certain amount of quotas so that countries could not undercut each other by drastically overproducing [each other]. A couple of years after [the collapse of the coffee agreement] Vietnam invested a huge amount in expanding its infrastructure, causing a glut on the market,” she said. Jane also points to Structural Adjustment Programs (SAPs) in developing countries whereby international lending institutions granted loans and refinanced development debts upon the implementation of economic austerity measures which forced countries to scale back government spending and regulation. Coffee marketing boards were on the chopping block. According to Jane, marketing boards act as a buffer between farmers and the volatile commodity market. They guarantee a fair price for crops, and have the resources to weather bad years by holding stocks when prices are down and selling when they are up. Without boards, many small-scale farmers were put out of business. 10 million farmers are now destitute in Uganda, Tanzania, Central

America and South East Asia.

Exploring the ICA collapse

According to social theorist William Roseberry, the ICA fell apart in 1989 in part due to the lobbying efforts of the International Coffee Association, an industry group heavily dominated by specialty coffee traders. At a time when the gourmet coffee industry was experiencing a rebirth in popularity, these traders felt constrained by Agreement quotas which restricted the production of gourmet arabica beans. Harris blames the covert agenda’s of the Regan and Bush administrations — in cooperation with international financial institutions. “It sounds sinister but if you look at the policies of the WTO and the WB and the IMF and all of these international financial institutions, ultimately they would like to see small scale farming replaced with big monocultural plantations because that’s what’s more economically viable. Of course, they’re not going to say that, they are going to say that this is good for the countries’ economies, but in the end they hurt everyone except for the multinational corporations,” said Harris. Take Nicaragua for example, where according to Jane, financial institutions have called the government to heel. In response to the outcry of desperate farmers and coffee-pickers, the Nicaragua government under president Arnoldo Aleman passed a moratorium on land foreclosures, forcing banks to provide debt-strapped farmers with an additional three months to find adequate financing. In a show of what Jane interprets as the World Banks’ veto power over client nations, the Inter-American Development Bank (IADB) — the Western Hemispheric branch of the WB — pressured Aleman to cancel the bill. The IADB argued that governmental intervention would destabilize the finance sector, reducing bank and foreign investor confidence. With development anti-poverty loans in jeopardy, the president capitulated. Jane is livid, “this is a direct example of the WB’s strategy to ‘alleviate poverty’ — which is supposed to be their mandate — while really protecting the finance sector at the expense of thousands of farmers who are now as we speak loosing land.”

Standard markets and their alternatives

In a report tabled by Oxfam, research indicates that coffee production has increased at a rate twice that of consumption in the last 10 years. This trend is expected to continue for the next five years, further depressing prices. The report implicates corporate influence — “current trends in over-supply are clearly in the interest of the major players, who have conscpisciously failed to pass on falling world prices to consumers.” The major players include Philip Morris (owner of Kraft general foods), Nestle, Procter and Gamble and Sara Lee, multinational which control more than 70 per cent of the world coffee market. Harris concurs, “during this coffee crisis, none of the coffee companies have actually responded to the lower coffee prices by lowering the price of their coffee drinks.” Said directing manager of TransFair Canada Caroline Whitby, “with the world market price under 50 cents a pound, the crisis for farmers is a real profit bonanza for big companies.” According to industry statistics, for every pound of coffee sold in the United States — varying in price from 2.69 for a 13 ounce can of Folgers to 8.49 for a one-pound bad of Starbucks beans — farmers receive less than 35 cents and coffee pickers less than 14 cents.

The report calls for immediate action to restrict supply. It also suggests that the corporate sector needs to facilitate a more equitable trading environment, and calls on industry guru’s to “emulate the model provided by fair trade.” The model is as follows — fair trade certification companies set up certain trading criteria and inspection protocols for the sale and trade of commodities. Once these criteria are met, the product is packaged with a certification label and sent to market, where conscientious consumers will support fair trade with their dollars. For coffee, certification requires importers to purchase coffee directly from democratically organized farming cooperatives at a price of 1.26US for one pound of coffee. This guarantees coffee producers a living wage, and supports a more sustainable, long-term trading relationship between producers and importers. Long-term trading relationships facilitate cooperative access to importer loans to carry the farmers through until harvest. The cooperative structure provides small-scale farmers with enough resources to negotiate from a stronger position, distribute profits more equitably, and utilize those profits for collective projects — such as schools and hospitals — that remain within the community. According to TransFair certification manager John Young, fair trade is a social criterion that must be met — although producers must “work on becoming more environmentally sustainable,” such as growing shade grown varieties of coffee. Cooperatives sprang up in the late eighties, gaining momentum as the ICA collapsed in 1989. There are more than 300 coffee cooperatives in 18 countries benefiting from fair trade. TransFair Canada certifies about .1 per cent, or 150 metric tonnes of coffee to 67 licensed companies. In 2001, managing director Caroline Whitby hopes to sell 300 tonnes. “It has been an organic growth process in Canada because a lot of the companies we have are small, or started small and are growing very much in their fair trade sales,” she said. Across Manitoba, Canadian companies such as Kicking Horse (BC), Pistol and Burnes (BC) and Just Us (NS) are well represented in gourmet coffee shops such as The Marquis Project in Brandon, and Humbolt’s Legacy and Organza in Winnipeg. The Mondragon Bookstore and Coffeehouse sells Equal Exchange, an American-based, collectively structured company. There are five retail locations in Manitoba that sell fair trade coffee. The province has no roasters. Although growth in Canada has been positive, it has not outpaced earlier TransFair predictions of capturing 5 per cent of the market by the end of 2001. Jason Potts is conducting research on the barriers to fair trade in North America ñ a joint project between the International Development

Research Center and Equiterre.

He feels that governmental support could turn the tables on lagging certification figures. For example, the Canadian International Development Agency (CIDA) creates linkages between Canadian business and development projects in the south ñ but it has barely taken notice of fair trade. “If the fair trade criteria are viewed as a way to internalize environmental and social sustainability in product development or product production, then there is a justification for having the government help these products to the market,” he said. To Potts CIDA’s acknowledgement of fair trade would vault certification credibility among importers and consumers. Right now, anyone can call their product fair trade — which discourages businesses from buying into it and consumers from taking the label seriously. Said Whitby, “while some companies claim to pay over the minimum floor price of $1.26 per pound, there is no way for consumers to verify those claims unless the companies agree to independent monitoring by a third-party agency. Usually when companies say they pay more than $1.26 they're actually talking about what they pay the importer, or even what they pay the exporter — but unless it's Fair Trade Certified, the farmers are not getting the money.” Companies circumvent the label in order to avoid the higher premium paid to producers and the licensing cost of 36 cents, claiming they can monitor their producers without the financial and bureaucratic overhead of certification so more money can go to the producers. Potts doesn’t buy it, “they want to see all of the money going south. My counter argument is that there wonít be any money going south if [fair trade] gets a bad rap.” According to Whitby, TransFair has recently adjusted the licensing fee — the more certified coffee an importer buys the lower the cost of certification. Potts acknowledges that companies may be deterred from fair trade because they are required to offer advanced payment to producers. He suggests that northern governments should follow the lead of Belgium and offer guaranteed government loans to offset this credit provision risk. While Pott’s hopes to lobby the government for change, other public research groups try to increase market demand by raising consumer awareness and activism.

In Canada, Equiterre, the Canadian Council for International

Cooperation, and World University Service of Canada are in ongoing campaigns to educate consumers and provide support for social justice groups who lobby the government, university administrations, unions and NGOs to support fair trade coffee. Other campaigns go for the corporate jugular.

From September 17 to 23, the American-based Organic Consumers’

Association will launch an international campaign to pressure Starbucks to increase the sale and availability of fair trade coffee. Said Harris, “only one tenth of one per cent [of coffee sold] is fair trade. We think this is an abysmal statistic.” Over 300 cities in the US, Canada, New Zealand, Australia and the United Kingdom will distribute leaflets outside of retail outlets. Starbucks began offering fair trade coffee for sale in bulk in October of 2000 in the US after Global Exchange began threatening to organize protests in 25 to 30 different cities. Last May, Starbucks brewed fair trade coffee as part of a promotional campaign. Harris would like a substantive commitment from Starbucks to place fair trade in regular rotation, especially since the majority of their sales come from individual cups of coffee. In light of the coffee crisis, Global Exchange has recently jumped on board the campaign. “They aren’t acting responsibly as a company. All they are doing is offering another product. Fair trade is not a flavor,” said Jane. Starbucks’ fair trade coffee is not available in Canada.

Marquis Project, local project

While activists in consumer countries are lobbying governments, consumers and corporations to buy and sell fair trade coffee, owner of Brandon-based Marquis Project Zac Gross works towards the same goals — with much less fanfare. He has been selling fair trade coffee for ten years. In a year the Project sells approximately 20 000 dollars worth of fair trade coffee, quadruple what they used to sell two or three years ago — and demand is growing every month. “Coffee used to be more of a side line, because we have a craft store and we sell magazines and T-shirts and coffee was just one thing. Now it is the fastest growing area in the store and weíre giving it more and more space,” he said. A social change organization, the Marquis Project brings fair trade coffee out to communities in Brandon and other rural areas. Most of their sales take place in church basements, malls and fairs. To Gross, this is what makes the Marquis Project different from larger retail outlets. “You’re not going to see Starbucks setting up at a United Church after a service to sell congregates the coffee but we do it all the time,” he said. Many organizations also ask the Project to donate their coffee for special events in exchange for promotion. These “little alliances” generate business and spread the word. “I think the trend is toward people drinking a little less coffee but buying a little better product. They see fair trade coffees as a better product both for their conscience and taste,” he said.

More than just a niche market

In addition to fair trade coffee, the Project also sells TransFair Canada certified tea and sugar and hopes to expand into other fair trade products when they become available. TransFair Canada also hopes to shift alternative trade into the mainstream and uses Europe as a model, where fair trade products occupy almost 8 per cent of the market. Whitby is hopeful that the recent signing of supermarket retailer Van Houtte to the fair trade label will help, because 60 per cent of people purchase their coffee in grocery stores. She also acknowledges the role of public pressure in guiding certification into the mainstream. Walk into the Marquis Project next time you drive through Brandon. You can choose from Pistol and Burnes, Kicking Horse, or JustUs! — all Canadian-based fair trade roasters. More are springing up all the time. But it’s not a consumer choice — it’s a social one. For a few cents more a cup, is there a choice?