Re: POLITICS coffee Oxfam's Mugged Coffee Report

[Guest guest]

This is from " Mugged " Oxfam's Coffee Report. Notice a couple of

things - first that coffee prices are plummetting, as a result of

opening up the market (WTO and IMF idea); second, that supply is

outstripping demand with 2% growth in supply and only 1.5% growth in

demand - so the coffee market is flooded and the growers can't even

earn what it cost them to grow the coffee. Drinking more coffee

would only be a short-term solution since the more of a market you

create, the more people would want a piece of the pie, and there

would be more over-supply, right? Or am I doing my economics wrong?

" The coffee market is failing. It is failing producers on small

family farms for whom coffee used to make money. It is failing local

exporters and entrepreneurs who are going to the wall in the face of

fierce international competition. And it is failing governments that

had encouraged coffee production to increase export earnings.

Ten years ago producer-country exports captured one-third of the

value of the coffee market. Today, they capture less than ten per

cent. Over the last five years the value of coffee exports has fallen

by US$4bn; compare this with total debt repayments by Honduras, Viet

Nam, and Ethiopia in 1999 and 2000 of US$4.7bn.

The coffee market will also, arguably, end up failing the giant

coffee-processing companies, at present so adept at turning green

beans into greenbacks. The big four coffee roasters, Kraft, Nestlé,

Procter & Gamble, and Sara Lee, each have coffee brands worth US$1bn

or more in annual sales. Together with German giant Tchibo, they buy

almost half the world's coffee beans each year.

Profit margins are high - Nestlé has made an estimated 26 per cent

profit margin on instant coffee. Sara Lee's coffee profits are

estimated to be nearly 17 per cent - a very high figure compared with

other food and drink brands. If everyone in the supply chain were

benefiting this would not matter. As it is, with farmers getting a

price that is below the costs of production, the companies' booming

business is being paid for by some of the poorest people in the world.

Paying prices as low as they can go - whatever the consequences for

farmers - is a dangerous business strategy in the long term. And even

in the short term it does not help the business interests of the

producers of instant coffee. It is particularly risky given that

these companies depend on the goodwill of consumers. The rise of Fair

Trade sales in recent years has demonstrated that consumers care

about the misery of those who produce the goods they buy.

The coffee industry is in the process of a radical and, for many,

extremely painful overhaul. It has been transformed from a

managed market, in which governments played an active role both

nationally and internationally, to a free-market system, in which

anyone can participate and in which the market itself sets the coffee

price. Recently this has brought very cheap raw material prices for

the giant coffee companies.

At the same time, Viet Nam has made a dramatic entry into the

market and Brazil has increased its already substantial production.

The result is that more coffee is being produced and more lower

quality coffee traded, leading to a cataclysmic price fall for

farmers. Eight per cent more coffee is currently being produced than

consumed. In the meantime coffee companies have been slow to comply

with what one of them identified as being their core responsibility

within the current crisis: the generation of demand for coffee. The

current growth rate of 1-1.5 per cent per year in demand is easily

outstripped by a more than two per cent increase in supply. "

[Guest guest]

On 5/1/08, haecklers <haecklers@...> wrote:

> This is from " Mugged " Oxfam's Coffee Report. Notice a couple of

> things - first that coffee prices are plummetting, as a result of

> opening up the market (WTO and IMF idea); second, that supply is

> outstripping demand with 2% growth in supply and only 1.5% growth in

> demand - so the coffee market is flooded and the growers can't even

> earn what it cost them to grow the coffee.

So they are suffering because of low international demand. That seems

like it supports my belief that buying the coffee is better for them

more than it supports your argument that buying the coffee makes their

situation worse.

>Drinking more coffee

> would only be a short-term solution since the more of a market you

> create, the more people would want a piece of the pie, and there

> would be more over-supply, right? Or am I doing my economics wrong?

Assuming a free market, the supply and demand would come into an

equilibrium where the price would settle at one that brings the

suppliers maximal profit. At present, they are losing money so the

incentive is to get out of the coffee business; this would lower

supply and cause the price to raise until those left are making a

profit. However, the market isn't necessarily free in these

countries. If they aren't making any money, the question arises of

why they are entering the coffee market.

[snip]

> Profit margins are high - Nestlé has made an estimated 26 per cent

> profit margin on instant coffee. Sara Lee's coffee profits are

> estimated to be nearly 17 per cent - a very high figure compared with

> other food and drink brands. If everyone in the supply chain were

> benefiting this would not matter. As it is, with farmers getting a

> price that is below the costs of production, the companies' booming

> business is being paid for by some of the poorest people in the world.

[snip]

Sounds like fair trade coffee would help -- the farmers get more of

the share, is my understanding.

Chris

[Guest guest]

It helps slightly, but the farms must enter a co-op that is certified

as fair trade, which costs them between $1000 and $4000; some of the co-

ops need to hire someone to handle the paperwork, etc. So the small

amount of " extra profit " could easily be mostly eaten up by coop fees,

the certification fees, etc. A committee gets to decide what happens

to the bit that is left (of the extra amount they get from it being

fair-trade). Ideally the committee is made up of the farmers who are

the growers, but again there may be an economic incentive for outsiders

to set up co-ops to cash in on the high demand for fair trade coffee

(evidently 70% of the coffee in parts of Europe is fair trade). So

again you have outside speculators coming in, with incentives to set up

co-ops and recruit farmers to sell their coffee through them.

But the committee can decide to give the extra cash to the farmers or

to use it for community improvements - schools, health care clinics,

etc. It does sound good, but not ideal.

The only real boost for the fair trade thing is that while the regular

coffee may not be bought (because remember there is a surplus) being

fair trade should guarantee that it is; so it should have a higher

market value. I don't know how much of this goes to the farmers.

Which means that while the conventional coffee farms may go under after

awhile, the new ones (cleared from tropical rainforests?) may not.

Then for coffee afficionados, there is another slight problem - these

new coffee farms are in places that don't have the right climate for

coffee growing, so they get an inferior product. So the flavor and

quality of coffee will be going downhill.

As for your view that the market will straighten it out, I can't see

where that has happened with sugar. When industry has an overabundance

they just seek to expand their market, like with soy, corn, dairy,

etc. They don't go back to less production for higher quality.

This conversation strikes me as fairly anti-WAP. Price was thrilled at

the amazing health of the subsistance farmers; all this free market

stuff is what is threatening them as salesmen come in and try to

convince them to stop growing their food to grow export crops instead.

>

> Sounds like fair trade coffee would help -- the farmers get more of

> the share, is my understanding.

>

> Chris

>

[Guest guest]

Renate,

> This conversation strikes me as fairly anti-WAP. Price was thrilled at

> the amazing health of the subsistance farmers; all this free market

> stuff is what is threatening them as salesmen come in and try to

> convince them to stop growing their food to grow export crops instead.

Well I think Price encountered quite a bit of modernization, though it

was due to importing rather than exporting, so we can't say whether

Price would have thought boycotting exported goods would be a solution

to the problem. He did talk about one native population who was

involved in export crops, I think it was coconut and I think they were

one of the healthy groups, but I can't recall the details.

Chris

[Guest guest]

Haecklers,

> As for your view that the market will straighten it out, I can't see

> where that has happened with sugar.

That is because the sugar market is hardly " free "

> When industry has an overabundance

> they just seek to expand their market, like with soy, corn, dairy,

> etc. They don't go back to less production for higher quality.

They do if they can't find a demand for their product, unless of

course they can get a subsidy from the gov't or find a way to use what

was heretofore a previously unusable product.

> This conversation strikes me as fairly anti-WAP. Price was thrilled at

> the amazing health of the subsistance farmers; all this free market

> stuff is what is threatening them as salesmen come in and try to

> convince them to stop growing their food to grow export crops instead.

Out of curiosity, what would be your solution to protecting

subsistence farmers from " unscrupulous " sales folk?

--

" And true manhood is shown not in the choice of a celibate life. On

the contrary, the prize in the contest of men is won by him who has

trained himself by the discharge of the duties of husband and father

and by the supervision of a household, regardless of pleasure and

pain. It is won by him, I say, who in the midst of his solicitude for

his family, shows himself inseparable from the love of God. "

- Clement of andria

[Guest guest]

I haven't got a clue. Maybe I'm hoping some of you smarter and better

educated people here will come up with something. Or someone somewhere

will if we keep talking about the problem and trying to clearly define

it. I learned in social work school that defining a problem correctly

gets you 75% toward the solution. (One of the few useful things I

learned there!)

--- In , <slethnobotanist@...>

wrote:>

> Out of curiosity, what would be your solution to protecting

> subsistence farmers from " unscrupulous " sales folk?

>

>