Coffee grows only in the tropics. Mostly small farmers grow it as a cash crop, a crop that they can sell to try to make a living.
These farmers are poor, and they do not have any reserves of money to support them when their crops fail or when coffee prices are low. The small farmers have to sell their coffee beans when they are ready to be harvested, and take whatever price the coffee buyers offer.
The governments of many coffee-growing countries have very large external debts. Therefore the governments need to export in order to get the hard currency with which to repay the debts.
The coffee-growing countries are forced into competition with each other, each trying to get a bigger share of the market. This means that they all produce more and more coffee. As a result, there is too much coffee on the world market and the price falls, so each country has to try to sell more coffee to make the same amount of money
Most of the world's coffee is bought by just a few countries, and most of the world's coffer market is controlled by a very few companies.
Just nine countries in the North import over 70% of the coffee on the world market.
The weather can destroy coffee crops. The chart shows how world coffee prices suddenly rose as a result of serious damage to the Brazilian coffee crops (20% of the world's coffee) in 1975 (frost), 1984 (drought), and 1994 (frost).
When prices are high, small farmers often plant more coffee bushes, in the hope of making a little more money. However, if a lot of farmers plant more coffee, there is a problem when the plants start to produce coffee beans about three year later.
Suddenly, there is far too much coffee on the world market, and so the price falls sharply again. Some coffee farmers have to leave their farms and try to find other work, so that in the following years there is a shortage of coffee again.
The small farmers are powerless in the face of disasters and low prices, but the retailers and manufacturers are protected because they are big enough and rich enough to get through the 'bad' times.
How is today's coffee trade unfair?
Of the 25 million coffee producers in 70 countries, over one third are small farmers. Typically, each has only two to five acres of land. Since each coffee bush provides only a pound of coffee per year, the farmers must tend thousands. They are at the bottom of a long food chain from farm to supermarket and local cafe. Usually they get no more than 10% of the retail price. This means earning as little as $5 a day. Unable to export directly, they turn to dealing with mid-level traders or "coyotes," as they're called in Latin America. With their monopoly coyotes force farmers to sell low and as lenders, coyotes charge extremely high interest.
Since the late 1990s, the prices paid to coffee producers have fallen dramatically, reaching a thirty year low in 2002. Taking inflation into account, the ‘real’ price of coffee has fallen even lower - real prices in 1960 were four times higher than 2002 price levels. This has left many farmers unable even to cover their production costs and provide for their families
The crisis extends far beyond the coffee growing communities – the falling levels of coffee earnings threaten entire economies dependent on export earnings to cover the cost of imports and debt servicing. But at the other end of the supply chain, the large multinational coffee roasters, who typically use their market power to low prices and unfair terms on coffee farmers, have been attaining record profits
Fair Trade Farmers in Ethiopia
Today coffee remains one of the most important sources of export income for the East African nations of Uganda, Ethiopia, Kenya, and Tanzania. Ethiopia, Africa’s largest coffee exporter and the birthplace of coffee, has been hard hit by the recent price slump. Coffee accounts for more than 60 percent of Ethiopia’s exports, generating vital income for its population of 65 million, more than half of whom live on less than a dollar a day. Ethiopia’s coffee income has dropped by US$110 million, severely affecting the one million families who depend on coffee for their income. While still selling to consumers in Western countries for around US$10 per pound, the world market price for coffee is less than US$0.50 per pound, of which farmers only receive half. Just five years ago, the farmers would receive at least five times that amount. As a result of this massive slump in coffee price, the Ethiopian coffee farmers are facing a sharp increase in poverty and hunger.
