Coffee prices are slumping (not that you would know it in Starbucks)

By Steve Crawshaw May 2001

GM beans threaten farmers' meagre livelihoods The contrasts are so glaring as to be obscene. On the one hand, coffee-producing countries and farmers of the Third World are suffering from the worst-ever slump in prices; on the other, global coffee giants, such as Starbucks, which sells lattes by the billion in the cities of the Western world, are profiting as never before. This is the sharp end of globalisation ­ the globalisation of poverty.

At the Park Lane Hilton in London today, the great and good of the coffee world gather for a three-day "debate and exchange of ideas" (and, of course, cocktail receptions and a banquet). The organisers, not wishing to be accused of understatement, describe the event as "the most important meeting of the decade".

In some ways, they could be right. The collapse of international coffee prices in recent years and the misery that this has caused are indeed enormously important for millions of people around the world. But anybody who expects serious action to be agreed at the Mayfair conference is likely to be disappointed. Few believe that this talking-shop, attended by such luminaries as Howard Schultz, the billionaire chairman of Starbucks ("Pour your heart into it", in the words of his autobiography), will agree substantial action which could address the core issues.

Starbucks, now a fixture on British high streets, can charge £2.70 for a single coffee; millions of us are ready to pay. The seemingly unquenchable desire for a decaf skinny latte, a chocolate brownie frappuccino or an iced caffé mocha has sent profits into the stratosphere ­ up by 40 per cent in the first fiscal quarter of this year. Starbucks' profits tripled in the past five years. Nor is Starbucks alone. Caffe Nero, Costa Coffee, Coffee Republic ­ the names multiply.

But while prices (and profits) rise steadily in the gleaming coffee bars of Europe and the United States, prices on the world market are now at their lowest level in real terms. Oxfam, in a report published to coincide with the opening of today's conference, argues that the failure to reverse current trends will have "devastating consequences" all across the developing world.

Not that the designer coffee merchants seem too bothered. Starbucks likes to talk of its social commitments; millions of small coffee producers might be forgiven if they haven't noticed. Kevin Watkins, the author of the Oxfam report, Bitter Coffee, talks of "a schizophrenic approach" by companies which seek to portray themselves to their customers as socially friendly while still shrugging their shoulders at the relentless logic of the market. He argues: "It just doesn't work, if something is destroying people's livelihoods on an epic scale, to run a few [community] projects in Central America. That doesn't solve the problem."

Nestlé ­ co-sponsor of the conference at the Hilton ­ proudly boasts that its profits (estimated coffee profits last year: $1bn) have increased "thanks to favourable commodity prices". In short: poverty does us very nicely, thank you.

Oxfam notes that the small farmers most directly affected by the price slump will be "conspicuous by their absence" at this week's conference which will discuss their fate. About 70 per cent of the world's coffee is produced on farms of less than five hectares (12 acres).

Oxfam cites a plethora of examples from around the world of the knock-on effects on the ground. In Tanzania, smallholder farmers have been forced to take their children out of school, making it even more difficult for them escape poverty in the years to come. In southern Mexico, wages of seasonal labourers already on the poverty line have been further cut, prompting many to migrate.

Primitivo de la Rosa, an elderly coffee farmer from the Dominican Republic, defiantly told Oxfam researchers: "I produce coffee because my father did so. I won't give up on coffee." But he admits to being in a minority. "Two-thirds of our community has left. Many houses which are now empty are on the verge of collapsing." Elsewhere in Latin America, coffee cultivation has in past years been encouraged as an alternative to coca, in an attempt to reduce production of cocaine; given the collapse of the coffee prices, coca is likely to seem an attractive option for the peasant farmers once more.

Coffee prices are now at less than 50 cents a pound ­ less than half the cost of just two years ago. The seemingly unstoppable downward spiral is especially bad because production consistently outstrips consumption. If production could be cut back, the problem would partly be solved. In practice, dog-eat-dog is a more popular option.

Until a decade ago, an international agreement regulated the volume of coffee exports. Now, it is each country for itself, so that coffee exports have increased hugely while export revenues are lower than they were 20 years ago. Javier Ojeda, president of the Mexican coffee producers' union, reckons that the cost of producing coffee is now double what it can reach on the market. He argues: "We are facing the risk of the complete abandonment of the coffee sector."

Brazil and Colombia have tried to encourage exporters to implement a coffee retention plan to prevent the flooding of the market. But not everybody is willing to play ball. Indonesia and Vietnam, for example, are in competition with each other to increase market share ­ a competition which Nestlé or Starbucks is unlikely to discourage.

There will, no doubt, be much "Oh, it's a bad business" woeful shaking of heads at the Park Lane summit this week. But Oxfam, in its Bitter Coffee report, believes genuinely tough action is finally needed, for coffee prices to have a chance of at least sliding back past the one-dollar mark. In addition to the destruction of low-grade coffee (with estimated compensation to the farmers of $250m or £175m), and in addition to a retention of 20 per cent of world exports, Oxfam proposes the imposition of a windfall tax on major coffee roasters such as Nestlé and Kraft (owner of Maxwell House), to help fund such compensation schemes.

It also suggests long-term reforms which could make the coffee market more sustainable, and calls for the wider use of fair-trade schemes, with guaranteed higher prices. Mr Watkins argues that if "only a halfpenny extra" went from every cup of coffee to the coffee producers, the situation would be transformed".

We have come to think of coffee as a pure pleasure zone; inventively named coffees have become a profitable marker of relaxation. But not for all. The Park Lane Hilton doubtless does excellent banquets. The cost of merely attending this week's conference is more, however, than some coffee-growers could earn in 100 years. It would be nice to think that the conference guests will bear that in mind. Nice, but unlikely.