How the coffee trade is killing coffee farmers and enriching coffee multinationals, traders & retailers...

As westerners revel in designer lattes and cappuccinos, impoverished Ethiopian coffee growers suffer the bitter taste of injustice. In this eye-opening expose of the multi-billion dollar industry, Black Gold traces one man's fight for a fair price.

Millions of coffee farmers worldwide are literally dying in poverty following a crash in coffee prices on the world market, reaching their lowest level in a century in 2001. Cynically, however, meanwhile coffee traders, multinationals and retailers are generating millions in profits every year from coffee sales worldwide...

This heartbreaking but excellent documentary is a must see for anyone who is concerned and not indifferent to the extreme poverty, misery and suffering of millions of coffee farmers around the world. ( click on the title above for the link to view the entire video )

Inaction stemming from indifference is worse than inaction rooted in ignorance...

The world is now too small for anything but Truth and Justice.

For more info on the video:
www.blackgoldmovie.com

The Impact of the coffee crisis on coffee producers

Please find below a copy of the reports submitted by coffee producing countries to the ICO
on the effects of the crash in coffee prices.

TEXT OF ICO LETTER SENT TO REPRESENTATIVES OF COFFEE PRODUCING COUNTRIES

14 July 2003

In my submission to the G-8 Summit in June 2003 I explained that the current
situation of extremely low levels of coffee prices which has lasted now some three years has
led to great social and economic hardship in coffee producing countries.

In order to provide the greatest possible evidence of the effects of the coffee crisis
I am writing to ask you to send me a brief description of the impact of the crisis in your
country particularly with respect to poverty as well as on the development process.

I am sure you are aware that all United Nations’ Members agreed in September 2000
on a series of millennium development goals setting targets for the reduction of poverty and
the improvement of global living standards.

Sadly the evidence I have indicates that the situation of the world coffee market poses
a real impediment to attaining these goals. In consequence I believe that additional support
for action to deal with the coffee crisis could be mobilized if a clear picture could be
presented on its impact on individual producing countries. If you could provide me with an
approximately two page summary of the effects of the coffee crisis related to poverty in your
country it might be very helpful to secure appropriate support for relevant action.
It would be most helpful if you could reply to this request by 15 August 2003.

Yours sincerely,
(signed) Néstor Osorio
Executive Director
ICO

SUMMARY OF RESPONSES FROM COFFEE PRODUCING COUNTRIES

CAMEROON

Scale

Two million people are dependent on coffee in a population of 15 million.
Income. Low prices have contributed to reducing production from high levels in the 1980s and 1970s of 124,000 tonnes of Robusta and 31,000 tonnes of Arabica to the present totals of
32,000 tonnes and 5,600 tonnes respectively.

Employment

Many agricultural workers have lost their jobs.

Social

In view of the above many young workers have migrated to the cities which are seeing
increased crime rates. In rural areas less money is available for health care and education,
leading to reduced life expectancy and reduction of educational levels.

CENTRAL AFRICAN REPUBLIC

Income

Faced with low income from coffee many small producers have abandoned their farms;
others have turned to food crops, reducing the country’s foreign exchange earning capacity.
Especially as the country is landlocked, coffee is uncompetitive at present prices.

Employment

Many traders have left the sector and many rural workers have lost their jobs.

Social

There has been a widespread migration of young people from the country to the towns.
Farmers are leaving coffee growing and are bereft of cash earnings to pay for education,
health care, clothing and construction. Poverty has increased substantially.

Other effects

Those producers who continue are reducing the care given to their coffee trees, with a
consequent drop in quality.

COLOMBIA

Scale

The coffee industry has been the principal motor of Colombian economic and social
development. For many years coffee was the principal contributor to export earnings and,
though its share in total exports revenue has declined, it contributed almost US$890 million
in 2003, about 7% of export income.

As the world’s second largest producer with 11.6 million bags in 2002, the coffee culture has
assisted in the creation of an economic and social infrastructure within its area of about
800,000 hectares and its area of influence extends to some 3.6 million hectares.

There are 566,000 coffee growers and there are currently some 480,000 families who are
directly dependent on coffee production.

Income

In this sense, coffee, including activities related to its cultivation and processing, is still one
of the major industries and the first agricultural export item in the country. The average share
in the gross domestic product (GDP) and in total agricultural and industrial production during
the last six years accounted for an average of 1% of GDP and 10% percent of the total
production of both the agricultural and industrial sectors.

However, at a national level, low international prices have reduced coffee contribution to the
total economic activity, from 5.3% to 1.3% of GDP during the period 1990 to 2002. Exports
earnings have decrease by US$1.5 billion between 1999 to 2002 due to fall in international
prices.

Additionally, as measured by the real value of the coffee crop, the coffee sector’s income has
fallen by 50% during the last decade, from US$ 1.5 billion to US$737 million last year.

Employment

The coffee industry provides direct employment for some 530,000 people, accounting for
30% of total rural employment. An additional 2 million people are directly and indirectly
dependent on the coffee industry.

Notwithstanding, if the crisis continues the National Federation of Coffee Growers
estimates that approximately 100,000 more people may lose their jobs in the sector.

Social

Given its role as a major source of employment in the rural sector, coffee continues to be
indispensable. Coffee has been a major influence in regional development. It has assisted in
the creation of an economic infrastructure and a social safety net.

As a result of the international crisis in the coffee sector, coffee producers’ welfare has been
severely affected, and there has been a high human cost. According to the research centre
Crece (2003), due to the reduced profitability of the coffee sector it is estimated that the
number of households in coffee growing areas living under the poverty line rose from 54.2%
to 61% between 1997 and 2000.

Coffee growers have become poorer with an increase in sub-standard living conditions and
some have been unable to pay for their children’s education. There has been an increase in
levels of malnutrition.

Other effects

There has been increased migration to urban centres, especially young people. Some farmers
in marginal regions are also replacing coffee by illicit crops, grassland or abandoning
plantations

COSTA RICA

Scale

In a population of 3.9 million in 1999/2000 there were some 73,700 registered coffee
producers, a figure which dropped to 70,500 by 2001/2002, as a result of the crisis.

Income

Since costs of production are not currently covered by prices received farmers have reduced
plantation care or abandoned coffee.

Employment

Job losses in the coffee sector are estimated at 10,000.

Social

In the Brunca region, one of the main coffee areas, homes classified as in extreme poverty
(per capita income below the cost of the basic food basket) represented 11.8% of the total
in 1998. In 2002 this had risen to 13.1%. The national figures were 7.1% and 8.8%
respectively.

Other effects

The crisis has had a negative impact on trade, transport, warehousing and the financial
system.

CÔTE D’IVOIRE

Scale

Coffee with cocoa forms the basis of the economy for around 7.5 million people out of a
population of 17 million. At least 2.5 million people are directly employed in coffee and
cocoa.

Income

Reduced fiscal revenues from coffee have severely affected the national investment budget
constituting a break on development. Producer prices have fallen from US 41 cents per lb in
1997 to 15 cents in 2002.

Social

The drop in income from coffee has been somewhat compensated by earnings from cocoa.
Nevertheless rural living standards have dropped, and many families are finding problems to
pay for education.

Other effects

Levels of care for coffee trees have been reduced, with a consequent drop in quality.

ECUADOR

Scale

There are 105,000 coffee families in Ecuador, with an estimated 800,000 people involved in
coffee out of a population of 12 million.

Income

Prices received in the 2003 harvest do not even cover harvesting costs, so many farmers are
neglecting or abandoning plantations, or replacing coffee by annual crops or grassland.

Employment

The coffee processing industry is working at one third capacity and has dismissed staff.

Social

Many producers are migrating to cities or abroad, leaving their families behind.

Environmental

Replacement of coffee by annual crops or grass is causing an adverse environmental impact
since coffee is normally grown under shade.

Other effects

Research and extension institutions have needed to lay off staff.

EL SALVADOR

Scale

There are around 20,000 coffee growing families in a population of 6.4 million.

Income

Producers have incurred losses since 2000. Current debts of coffee growers are
US$334 million, equivalent to US$257 per quintal produced in 2002/03, four times the
current export price of US$60 per quintal. Reductions in coffee earnings have had a
depressing effect on many other economic areas.

Employment

With respect to salaried employment the crisis has led to permanent job losses of some
113,000.

Social

The World Food Programme has needed to distribute emergency rations to 10,000 coffee-growing families. In many coffee-growing areas malnutrition is affecting 45% of children.
In 2003, 52 children in coffee areas have died from malnutrition. 25% of farmers are seeking
to sell their land or change their activities and 8% intend to emigrate to the USA.

Environmental

Shaded coffee is practically the only still-forested area in the country. The threat to coffee is
thus likely to cause further deforestation.

Other effects

Incidence of coffee berry borer infestation has increased with potential losses of 40,000 bags.

ETHIOPIA

Scale

About 25% of the population of 65 million depends on the production, distribution or export
of coffee. There are some 1.2 million coffee farming families.

Income

Many people in the coffee sector are now living on less than US$1 per day. Farmers are now
selling coffee at prices well below the cost of production. Since coffee on average constitutes
over 50% of export earnings the government is suffering severe fiscal constraints.

Employment

It is stated that there has been a considerable reduction in employment.

Social

Coffee farmers are now unable to pay for their children’s education and for basic medicines.
They have also had to cut back on food consumption, living on one meagre meal a day, with
frequent cases of malnutrition. There has been increased migration to urban centres, swelling
urban unemployment.

Environmental

The environmental impact has been negative with abandonment of coffee farms.

GHANA

Scale

Ghana is a small producer; several hundreds of farmers have coffee as a main source of
income.

Income

Prices received by farmers are more volatile as well as lower since marketing system
liberalization. The producer price share of the fob price has moved from 56.93% in 2000 to
55.70% in 2002. Current prices do not cover production costs.

Social

Coffee represents a cash crop element in subsistence farms; cash shortfalls mean less money
for health and education. Some farms have been abandoned.

Other effects

Several local traders (licensed buying companies) have closed or been rendered ineffective.
There are now 5 active companies out of 50 which are eligible to trade.

INDIA

Scale

There are some 500,000 coffee workers.

Income

Growers find it difficult to cover production costs at present price levels and are reducing
inputs and their work force. The sector is facing a credit burden of loan service said to be
unmanageable, with a consequent unavailability of further loans from the banking sector.

Production is decreasing.

Employment

There have been widespread lay-offs.

Social

Poverty levels have increased significantly in the Western and Eastern Ghats areas.

Environmental

Coffee is mainly grown under shade but growers are now tempted to remove trees and sell
them as timber, leading to deforestation and loss of ecological balance. The Western Ghats
are rated as one of the 14 most sensitive ecological areas in the world.

NICARAGUA

Scale

Agriculture, in which coffee is the main activity, is the principal source of employment.
270,800 jobs exist in the coffee sector. Total population is 5.2 million.

Income

At a national level shortfalls in foreign exchange earnings caused by the coffee crisis are
estimated for 2000/01 – 2002/03 at US$142 million through falls in volume and
US$165 million through falls in price. Losses in income tax collected are estimated at
US$13.2 million.

Employment

Job losses caused by the crisis are estimated at 122,000.

Social

There has been a substantial increase in rural to urban migration, although there is no demand
in the cities for this type of labour. There have been several demonstrations demanding work
in coffee areas.

Other effects

Low prices have discouraged care of coffee trees and limited access to credit.

PAPUA NEW GUINEA

Scale

Papua New Guinea has a population of 4.9 million. It is estimated that just over 50% of
households depend on coffee for all or part of their income.

Income

During the period of the crisis, from 1998 to 2002 PNG’s GDP fell 3.5% in real terms. In the
main smallholder coffee sector the average return per man-day is estimated at US$1.

Employment

There has been a 40% decline in formal employment in the estates sector, which accounts for
some 15% of production, between 1998 and 2002. There have also been substantial layoffs
in the research and extension services dealing with coffee.

Social

Many smallholders are experiencing difficulties in paying for medicine, bride price, school
fees, meat and fish, etc. In the Eastern Highlands 50% of parents have not paid their
children’s school fees this year.

Other effects

The Government of PNG has conveyed that the coffee crisis has increased poverty, slowed
down economic growth, curtailed employment prospects and has had a negative impact on
the balance of payments.

PHILIPPINES

Income

With production costs at roughly US$300 per ha. and revenue from coffee per ha. at
US$256 at current prices coffee production is not economic.

Employment

There is stated to be a widespread unemployment problem in coffee areas.

Social

Coffee farmers have become poorer with substandard living conditions. Land owners are
unable to pay taxes and many farms have been abandoned.

Other effects

Quality has suffered from lack of fertilization, improper harvesting and other factors linked to
price levels.

VIETNAM

Scale

Coffee is one of the main economic activities in the Central Highlands, particularly in the
province of Dak Lak, whose population is around 2 million.

Income

When coffee prices were high, as in the mid-1990s, 1kg of coffee could be exchanged for
5kg of rice. This had dropped to 1 for 1 in 2002.

Social

A March 2002 survey showed that 45% of coffee-growing families lack adequate nourishing
food, and 66% have bank debts. Many children from medium to poor households have left
school in view of the costs involved.

Nestor Osorio speeches on the coffee crisis (excerpts)

Excerpts from public speeches made by Nestor Osorio, Executive Director of the International Coffee Organization on the coffee crisis.

source: ICO

The world coffee economy has evolved over the last few years in a manner which may be
qualified as erratic, disorderly and even contradictory. The relative supply scarcity of the mid
1990s, caused largely by climatic conditions, was followed by a short period of moderately
high prices that compensated for the losses incurred by the dismantling in 1989 of the
International Coffee Agreement’s quota system. However this situation prompted a surge in
production that altered substantially the global supply structure and was the cause of the
worst coffee crisis ever seen in terms of growers’ incomes.

In contrast, the evolution of the coffee economy in importing countries has shown a
completely different and in fact very positive pattern. The industry has flourished, new
products have been developed, the value of the retail market has more than doubled, and
profits have risen. This is something to celebrate, but the question must nevertheless be
asked as to how long such a state of affairs can be sustained.

Coffee farmers have shown enormous resilience and one way or another most have managed to survive and continue to produce. But not all and not at any cost. It now seems likely that, if ways are not found to improve trading conditions in producer countries, this precious commodity, and what is worse, the human beings who grow it, will progressively decline to the point that, in a not too distant future, there may be insufficient coffee and certainly an insufficient quality range of coffee, to trade and to drink.

The extent of the drop in prices and earnings in the crisis years 2000 - 2004 is very clear.
In the ten years 1980 – 1989 the ICO Composite Indicator Price for coffee averaged
127.92 US cents per lb. and coffee-producing countries earned an average of US$10.2 billion in annual export revenues from coffee. In the five years 2000 – 2004 the average price had dropped to 54.33 cents - the lowest in real terms for 100 years - and annual export earnings to US$6.2 billion.

Certainly the figures for coffee are clear : In the late 1980s and part of the 1990s earnings by coffee producing countries in terms of exports f.o.b. were around US$10-12 billion per year but they have now dropped to around US$5.5 billion. This contrasts with the continued growth in the value of retail sales in consuming countries from around US$30 billion in the 1980s to around US$80 billion at present.

At such levels coffee farmers face immense problems, which are giving rise to a series of negative consequences. The decline over the last few years in prices for commodities such as coffee contributes to increased poverty and makes it more difficult to reach the Millennium Development Goals

The situation revealed here, taken from the perspective of poverty reduction, is
clearly a matter of concern. Not only have prices dropped but with them the earnings of the countries themselves and their farmers. The impact on poverty of the coffee price crisis, which lasted nearly 5 years from 2000 to 2004 and has only to a modest degree been reversed, has been well documented. *Evidence provided by coffee producing countries to the ICO is compelling ( *see copy on this blog)

The economic impact of coffee on many producing Least Developed Countries
(LDCs) can scarcely be exaggerated. In 1999, before the crisis years, coffee exports
accounted for over 50 per cent of the export earnings of four African LDCs, Burundi,
Ethiopia, Rwanda and Uganda. It has been estimated that some 125 million people
worldwide are dependent on coffee. For several countries in Africa, Asia and Latin America where coffee accounts for a large percentage of exports it has been estimated that losses in earnings from coffee have more than nullified total aid inflows in terms of value.

The adversity endured by coffee growers in Africa, Asia and Latin America has also been
encountered in other agricultural commodities originating in developing countries. In fact the
drop in earnings from these commodities constitutes one of the most important causes of
world poverty. Several studies coincide in assessing the fall in prices of the major agricultural commodities as between 50 and 86 per cent in the last 20 years, with coffee showing the greatest fall. This loss in income has had a significant impact on the economic and social life of many developing countries.

For many months now the ICO has attempted to alert the international community of the
consequences of a problem caused in essence by the continued excess of supply over
demand. The problem was analysed in depth at the World Coffee Conference in 2001, more
recently at a Round Table held jointly by the ICO with the World Bank in May 2003 and at
regular sessions of the International Coffee Council. The issue has been raised at the
Johannesburg World Summit on Sustainable Development in 2002, with the governments of
developed countries and with international bodies such as the WTO. Although a number of
interesting ideas have emerged, it is vital not to lose sight of the pressing need to take
substantive measures to maintain greater market equilibrium. Basically the process of analysis has been completed and must now give way to implementing solutions.

This issue highlights the role of international commodity bodies such as the ICO in the
context of genuine partnership between developed and developing countries since these
bodies represent a unique forum where all stakeholders are represented on an equitable basis
and where the needs and priorities of the major players can be fully represented.

Nestor Osorio, Executive Director of the ICO

Open letter to Mr. Nestor Osorio - Executive Director of the ICO - on the coffee "crisis"...

Millions of coffee farmers around the world are literally dying of mass poverty following a crash in coffee prices which started in 1997 and lasted up to 2004/05; in fact, coffee prices reached their lowest levels in over a century in 2001/02, throwing millions of coffee farmers and their families deeper into poverty and untold misery.

Cynically, however, meanwhile coffee multinationals, traders and retailers are making millions in profits each year from coffee sales worldwide...

"The extent of the drop in prices and earnings in the crisis years 2000 - 2004  is very clear In the ten years 1980 – 1989 the ICO Composite Indicator Price for coffee averaged
127.92 US cents per lb. and coffee-producing countries earned an average of US$10.2 billion in annual export revenues from coffee. In the five years 2000 – 2004 the average price had dropped to 54.33 cents - the lowest in real terms for 100 years - and annual export earnings to US$6.2 billion.

Certainly the figures for coffee are clear : In the late 1980s and part of the 1990s earnings by coffee producing countries in terms of exports f.o.b. were around US$10-12 billion per year but they have now dropped to around US$5.5 billion. This contrasts with the continued growth in the value of retail sales in consuming countries from around US$30 billion in the 1980s to around US$80 billion at present." Nestor Osorio, Executive Director of the ICO

Please find below a copy of correspondence exchanged between myself and the International Coffee Organization (ICO) on the severe "crisis" prevailing throughout coffee producing & exporting countries around the world.

I welcome your comments and feedback. Thank you

Excerpts from Mahatma Gandhi's thoughts on the cocoa and coffee trade:

The condition of plantation workers in Africa continued to receive Gandhi's attention. He wrote: "In cocoa plantations, Negro workers are subjected to such inhuman treatment that if we witnessed it with our own eyes we would have no desire to drink cocoa. Volumes have been written on the tortures inflicted in these plantations." (Indian Opinion, March 8, 1913, CW, Vol 11, p. 483). A couple of years earlier he had complained to his associate, H S L Polak, about "the abominable chocolate", calling it "that cursed product of devilish slave labour." [August 26, 1911, CW, Vol 96 (Supplementary Vol VI), p. 71].

At another place he had written during a voyage to England: " I also avoid tea and coffee as far as possible, since they are the produce of slave labour." (Indian Opinion, August 7, 1909, CW, Vol 9, pp. 277-8)

Tragically and sadly, a century later, cocoa and coffee producers continue to work under slavery conditions and chocolate and coffee are still very much " the produce of slave labor."

Copy of email sent to the ICO with regards to the coffee "crisis"

From: Yajna Centre [mailto:arya@yajnacentre.com]
Sent: 01 June 2008 23:30
To: Nestor Osorio
Cc: Hamida Ebrahim
Subject: coffee crisis...

Mr. Nestor Osorio
Executive Director
International Coffee Organization
London, England

Re: Coffee crisis

Dear sir,

I am writing to you with reference to my email of inquiry dated 26 May 2008 with regards to the severe crisis prevailing within the coffee sector throughout coffee producing & exporting countries.

In response to my email, Mr. Jose Sette recommended that I read the information published by the ICO on its website. The exercice has indeed proven to be very informative but has failed to provide answers to the specific questions raised in my email of inquiry and has raised further interrogations.

Please find below my observations and further interrogations:

Root (economic) causes behind the crisis:

Long-term market imbalance between supply & demand resulting in structural over-supply of coffee which in turn translates into constantly declining, low and unremunerative real coffee prices which do not reflect or take into account real production costs.

As you clearly stated:

“The coffee price situation arises from an imbalance between supply and demand that has now lasted for four years, exacerbated particularly by substantial increases in production (compared with the early 90s) and slow rates of increase in consumption.” ( G8 Summit , June 2003) source: ICO

In fact, statistical data collected and published by the ICO clearly reveals a structural long-term market disequilibrium between supply and demand – worsened by exponential increases in production by both Brazil & Vietnam from 1997-1999 within a background of stagnant demand/consumption - resulting in a structural over-supply of coffee on the world market ( + 30 million bags) which has directly caused and led to the crash in coffee prices observed from 1999-2004/05.

Excess stocks 2006/07

51.6 million bags = 62 % of 2006/07 imports/consumption = +6 months stock

Source: ICO 2006/07 annual report

Vicious trap cycle

To make up for the loss in revenue resulting from low and constantly declining real prices of coffee, farmers produce and export more coffee, which in turn results in creating a further excess supply of coffee on the world market, further reducing both world coffee prices and farm gate prices, thus further marginalizing and impoverishing both coffee farmers and coffee producing & exporting nations.

This is a vicious trap cycle which MUST be broken.

“Structural over supply in the commodities market lies at the heart of global poverty and instability.” (Brandt Report)

Example: Vietnam

Vietnam exponentially increased its coffee exports from 387,000 metric tons to 700,000 metric tons between 1998 and 2002 respectively, significantly increasing world supplies and – along with Brazil - directly contributed to an excess supply of coffee during this period ( + 25 million bags) which led to the plunge/crash in coffee prices which followed and lasted from 1999/2000 to 2003/04.

As a direct result, both world coffee prices and FOB coffee prices in Vietnam plunged from an annual average of $1500 per metric ton in 1998 to $428/mt in 2002; consequently, Vietnam’s export revenue declined by 50% from $600 million in 1998 to 300 million in 2002, despite Vietnam’s 80% increase of coffee exports during this period– or rather because of Vietnam’s significant increase in supply – which led to an excess supply of coffee during this period and resulted in a plunge/crash in coffee prices on the world market from $2500 metric ton in 1998 to an average of $1000 metric ton from 2000-2004/05, in conformity with King’s Law of Demand.

King’s Law of Demand

King’s Law of Demand clearly states that a surplus/deficit in a commodity will lead to a proportionally greater decline/increase respectively in the price of the said commodity relative to the surplus or deficit. (i.e. a surplus of 10% in the supply of coffee will lead to a decline of more than 10% in the price of coffee, and vice versa.)

Tragically, statistical data and historical evidence clearly demonstrates that coffee producing & exporting countries have been unaware of and/or ignoring this crucial economic law, digging their own mass graves in the process…

INTERNATIONAL COFFEE AGREEMENTS ( ICA )

Market imbalance & structural over-supply

I have gone through the 2007 International Coffee Agreement ( ICA). Surprisingly, (and tragically) there are no provisions in the 2007 ICA to address, prevent and resolve the crucial issue of market imbalance, as has been the case with the previous 1994 and 2001 ICA since the suppression of production quotas, stock control provisions as well as of the Promotion Fund from the ICA in 1989, which inevitably and directly cumulated into the present coffee crisis.

Question:

How can the ICO expect to achieve its stated mission of “achieving a sustainable coffee sector…, particularly with respect to poverty eradication” if the 2007 ICA does not even address (and resolve) the root causes of the crisis?

As you have yourself publicly stated:

“ I believe that the real challenge is to develop policies and actions to avoid a recurrence of the type of imbalance between supply and demand that gave rise to the crisis… There is no doubt that the overriding need at present remains to guarantee the future of coffee through addressing the problem of economic sustainability, i.e. to ensure that coffee

production does not continue to entail a loss to growers…It follows that the strongest priority is to implement measures which encourage balance in the market

For many months now the ICO has attempted to alert the international community of the
consequences of a problem caused in essence by the continued excess of supply over
demand….it is vital not to lose sight of the pressing need to take substantive measures to maintain greater market equilibrium… However I must reiterate that the main priority must be measures which can actually restore some market balance…

Basically the process of analysis has been completed and must now give way to implementing solutions…”

Source: Speech made at the 2nd World Coffee Conference, 2003

In view of the above, can you therefore please indicate:

1) what policies and mechanisms the ICO has put in place to address, prevent and resolve the short, medium and long-term structural market imbalance and to stabilize coffee prices at remunerative levels based on actual cost of production and in equilibrium with the market forces of supply and demand?

2) what policies and mechanisms the ICO has put in place to reduce/eliminate the excess stock of coffee on the world market which continuously and significantly depress real prices of coffee over the long run?

Speculation

“The problem of the deterioration in real export prices has become even more complicated by the increase in price volatility levels. International coffee prices have shown a fluctuation of more 50 percent annually in recent years whereas during periods when the market was regulated prices fluctuated between 10-15 percent around their medium-term trend. These high levels of price instability have a very negative effect on the development process, as has been confirmed by a number of studies carried out by the World Bank.” (Jorge Cardenas, Chairman of the 1st World Coffee Conference, 2001, London )

Coffee prices are characterized by extreme volatility and instability due to speculative trading of coffee on the futures commodities exchange markets of London and New York, which in turn sets and determines coffee prices based on previsions of future market fundamentals, using various speculative parameters such as future supply & demand, world stocks, climate and geopolitical situation in coffee producing countries, currency fluctuations, etc., and thus do not reflect or take into account real production costs.

As David Ricardo clearly stated:

“It is production costs, not the interaction between supply and demand that sets and determines prices of commodities.” ( David Ricardo, Principles of political economy and taxation).

Again, surprisingly, there are no provisions in the 2007 ICA to address and regulate speculative trading of coffee on the futures exchange markets which result in extremely volatile, unstable and unremunerative prices of cocoa which do not reflect or take into account real production costs.

Question:

3) what policies and mechanisms has the ICO put in place to regulate speculative trading of coffee on the futures commodities exchange markets which results in highly unstable and volatile coffee prices which do not reflect or take into account real production costs?

Exchange rate fluctuations

Currency exchange rates fluctuations have a direct impact on both the cost and the real price of coffee and thus on the revenue of both coffee farmers and coffee producing & exporting countries. A devaluation of the US dollar translates into a decrease in real revenue for producing countries & offsets any marginal increase in coffee prices on the world market.

In fact, over the last five years, the value of the US dollar has fallen by over 30% vis-à-vis the Euro. Since coffee prices are quoted and sold in US dollars, this obviously translates into substantial financial loses for coffee producers. However, surprisingly ( and tragically), past and present ICAs have never contained provisions to address this crucial parameter…!

Increase in the price of oil

The price of crude oil is a determinant factor in the costing and profitability of coffee farmers. As you know, oil prices have exponentially increased over the last 6 years – from $US 20$ in 2002 to over $ US 120/barel currently– significantly increasing the cost of production, as prices of inputs have skyrocketed.

The deadly combination of the loss in value of the US dollar and the exponential increase of the price of oil over the last 5-6 years directly and exponentially increases the cost of production of coffee producers on the one hand while significantly decreasing both the real price of coffee and the revenue and profitability of coffee producers on the other.

Tragically, however, none of the previous three ICA ’s ( 1994, 2001, 2007) contained any provisions to address this crucial issue…!

As you said yourself:

Although current prices are now more in line with historical levels and the remuneration of coffee-growers has become more compatible with their costs, these gains have been significantly eroded by factors exogenous to the coffee market. The ascent of oil prices to record levels has had a direct impact on the costs of farmers’ inputs. In addition, the continued weakness of the US dollar, which is used as a reference in the international coffee trade, has meant that prices of coffee in many local currencies did not fully reflect the improvement noted above. The weakness of the US dollar continues to affect the real income of coffee producers. (ICO 2006/07 annual report)

In view of the above observations, the following additional questions arise:

4) How does the ICO explain the fact that none of the past ICAs ( 1994, 2001 ) as well as the current 2007 ICA do not contain any provisions to address the above briefly-outlined crucial economic issues ( i.e market imbalance, structural over-supply, excess stocks, speculative trading, currency exchange rates fluctuations, oil prices, etc.) which have a direct and significant impact on coffee prices and on the cost, revenue and profitability of coffee producers?

5) How does the ICO expect to “promote a sustainable coffee economy for the benefit of all stakeholders and particularly of small-scale farmers in coffee producing countries, particularly with respect to poverty eradication,” without even addressing – let alone resolving - the above outlined crucial economic issues within the coffee sector?

I thank you for shedding some light into these interrogations and I look forward to hearing back from you in the near future.

Best regards,

Arya Tajdin.
Executive Director
Yajna Centre
Dar es salaam, Tanzania

ICO's response

Dear Mr. Tajdin,
 
Many thanks for your interest in the activities of 
our Organization.
 
 With regard to your request for specific examples of
 polices and mechanisms put in place by the ICO, it
 is important to note that the International Coffee
 Agreement of 2007, in common with all international
 commodity agreements currently in force, does not
 provide for the types of market regulatory
 instruments (such as export quotas) that existed in
 the past. Instead, the ICO works by bringing
 together producing and consuming countries to tackle
 the challenges facing the world coffee sector
 through international cooperation. It makes a
 practical contribution to the world coffee economy
 and to the improvement of standards of living in
 developing countries by:
 
 * enabling government representatives to
 exchange views and coordinate coffee policies and
 priorities at regular high-level meetings;
 
 * improving coffee quality through the Coffee
 Quality-Improvement Programme and specific projects;
 
 * increasing world coffee consumption through
 innovative market development activities;
 
 * initiating coffee development projects to
 improve quality and marketing
 
 * encouraging a sustainable world coffee
 economy;
 
 * working closely with the private sector
 through a 16 strong Private Sector Consultative
 Board which tackles issues such as food safety;
 
 * providing objective and comprehensive
 information on the world coffee market; and
 
 * ensuring transparency in the coffee market
 through statistics.
 
 Details of specific actions taken to address these
 issues may be found in our Annual Review and in
 various sections of our website (www.ico.org)
 
With kind regards,
 
José Dauster Sette
Head of Operations
International Coffee Organization
22 Berners Street
London W1T 3DD
Tel: +44 (0) 20 7612 0602
Fax: +44 (0) 20 7612 0630
 
Thu, 12 Jun 2008 12:07:25 -0700 (PDT)

From: "Yajna Centre" Add to Address Book Add Mobile Alert
Subject: RE: coffee crisis...
To: "Hamida Ebrahim"
CC: sette@ico.org, osorio@ico.org

Dear Sir,

Thank you for your email; unfortunately, but not
surprisingly, you have brilliantly failed to provide
answers to the specific questions raised in my email
of inquiry dated 01 June 2008, addressed to Mr. Nestor
Osorio.

Nevertheless, beyond the deceitful "poverty
eradication" rhetoric quoted and preached in the ICO
literarure, both historical evidence and statistical
data published by the ICO on the coffee sector clearly
reveals a different picture altogether...

In fact, I believe that it is fair to say - based on
historical evidence and statistical data of the coffee
sector - that the ICO and its members have in fact
done nothing over the course of the last 17 years -
since the collapse of the supply-management mechanism
in 1989 - to achieve market equilibrium between demand
and supply and to secure stable and remunerative
coffee prices for millions of coffee farmers around
the world.

I beg you to differ with this claim with historical
facts and figures and not with deceitful rhetoric
because you are failing to make your case and
insulting my intelligence in the process.

As a direct result, over this period, millions of
coffee farmers around the world have been thrown
deeper into mass poverty and untold misery, which
unfortunately your statistics do not reveal...; does
the ICO and its members have any statistical data that
reveal the untold numbers of destroyed lives, human
poverty, misery, suffering, hunger and death that
occur as a direct result of extremely unstable,
volatile and constantly declining unremunerative
prices of coffee on the world market...?

And cynically, while millions of coffee farmers are
literally dying as a direct result of policies
developed, pursued and implemented by the ICO, coffee
multinationals, traders and retailers are generating
millions in profits from coffee sales worldwide...!

Is that the "sustainable coffee economy the ICO is
encouraging" and aiming to achieve...?

Please note that I shall look into every possible
legal means available to put an end to this endless
and ongoing mass economic genocide and to bring all
those who are actively involved in this "crime against
humanity" to justice.
Truthfully,

Arya Tajdin
Executive Director
Yajna Centre
Dar es Salaam, Tanzania