Wednesday, June 18, 2008

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

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