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Producers declare time for action on coffee price crisis

From the August 2019 issue.

Transparency, consumption, and sustainability were the key talking points of how to address the coffee price crisis at the second World Coffee Producers Forum.

Social and environmental sustainability cannot be achieved without guaranteeing economic sustainability.

This was a sentiment widely expressed at the second World Coffee Producers Forum (WCPF) held in Campinas, Brazil, from 10 to 11 July. More than 1500 producers and other members of the coffee value chain gathered at the event to discuss issues affecting coffee production – primarily the ongoing coffee price crisis.

Chris Allen, Business Intelligence and Communication at the Brazil Specialty Coffee Association (BSCA), says the goal of the WCPF was to find a consensus on how to address this issue.

“We thought Brazil was the logical place to hold the WCPF after Colombia in 2017. They’re the two largest producers of Arabica coffee in the world, which the current price crisis mainly affects,” Allen says.

“A few countries – Brazil and Vietnam for example – are producing a lot of coffee at relatively low costs of production, which tends to drive the price down. Because of this, Brazil is partly blamed for the situation, which isn’t entirely fair. We have some extremely large producers, but around 85 per cent of coffee farmers in Brazil are smallholders. They’re as negatively affected by the price crisis as farmers in other countries.”

BSCA Executive Director Vanusia Nogueira was one of the main speakers at the WCPF. She tells Global Coffee Report there is no easy fix to such a complex issue.

“Many producers were anxious for short-term price solutions, but we know this is not possible unfortunately,” Nogueira says. “The problem is very complex, and we don’t think there is just one solution. It is better for producers to work on many different activities in parallel.”

She says overall, the WCPF was successful in promoting a healthy dialogue between those in attendance.

“We hosted many rational discussions during the second day, after opening our minds with the ideas and discussions of our panellists, and together came up with many ideas on how to promote economic sustainability,” Nogueira says.

“I hope [in the next edition] we don’t need to keep talking about prices and margins of profitability. Instead, we can discuss technology, climate change, workers’ rights, child labour, and modern-day slavery, the other issues affecting the coffee industry.”

Funding sustainability
Following the first edition of the WCPF, affiliated organisations commissioned Professor Jeffrey Sachs of Columbia University to carry out a study on the sustainability of the coffee producing industry.

He presented the results of this study, “Economic and Policy Analysis for Improving Smallholder Coffee Producers’ Incomes”, in his keynote address at the forum.

“Coffee is a wonderful beverage, beloved worldwide, but producers are being squeezed, in many cases past their breaking point. There is continued extreme poverty among coffee producers, which has been exacerbated by the price crisis,” Sachs tells GCR.

“At the same time, there is high profitability and increasing concentration and market power at the other end of the value chain, among the roasters and retailers. The estimated total spend on sustainability is still very low in relation to need and the earned income of the industry.”

Sachs identifies large margins for branded coffee, a weak Brazilian real, and strong US dollar as contributing factors, alongside oversupply to the price crisis. He proposes the creation of a Global Coffee Fund to increase private and leverage public sector investment to support sustainability within coffee-growing regions.

“Our research has pointed to the need for massively increased investments in coffee sustainability, to support higher productivity and profitability, and greater resilience among producers,” Sachs says.

“All actors have a role to support sustainability within the coffee sector. Our proposal for a Global Coffee Fund has many multi-stakeholder dimensions, including – importantly – the development of national coffee sustainability plans that draw on various stakeholders’ needs and visions.”

The Global Coffee Fund would amount to US$2.5 billion, received pre-competitively from roasters, retailers, and traders. Public sector funding, private investments, and increased donor support – at US$2.5 billion each – would complement the fund to help the coffee industry achieve the United Nations’ 17 Sustainable Development Goals.

“The Global Coffee Fund – along with complementary funds from official sources – would provide a mechanism for channelling the investment needed to make coffee sustainable. These combined funds could be prioritised for, among other things, social protection of the poorest farmers, support to increase productivity and profitability, insurance options to help farmers deal with climate change impacts, and improved access to basic services in coffee-growing regions,” Sachs says.

“Without significant investments in sustainability, and with general business-as-usual approaches, farmers will continue to bear disproportionate risks related to price and climate. And under continued low prices and with climate change, a loss in coffee varieties and origins would be expected. Consolidation of origin countries will also create growing risks to supply chains.”

Sachs believes with profits consolidated among roasters and retailers, this end of the value chain needs to take greater responsibility for the sustainability of the coffee sector.

“This is clearly in their interest, to ensure a sustainable coffee supply in the future,” Sachs says. “The current structure of the coffee industry is clearly not working well for most producers, and many are unable to cover their costs of production.”

Seal of approval
How farmers and producer organisations could directly affect international coffee prices remains a key talking point among industry members.

Roberto Vélez Vallejo, CEO of the Colombian Coffee Growers Federation (FNC), has been outspoken about the impacts of the price crisis of the Colombian coffee industry. At a Fairtrade International conference on 2 July, he called for a base price to be implemented of US$2 per pound and repeated this concept at the WCPF.

“This figure is based on what the UN calls a living income of US$2 per person per hour. When you make the calculations, that translates to US$2 per pound being the price needed to secure economic sustainability in the coffee industry,” Vélez tells GCR.

“The FNC brought forward the initiative of a seal producing countries can give to roasters and buyers in the industry that are committed to providing economic sustainability to growers by paying this fair price for the product.”

A second seal or certification could be given to coffees roasted in origin countries. Vélez says this would allow producers to capture as much of their product’s value as possible.

“A pound of green coffee that is sold by producers for US$1 or US$1.20, once converted into roasted or ground coffee, becomes worth US$4,” he says.

“Producing countries have greater capability, knowledge, and expertise to roast and package coffee than they had in the past. There also used to be barriers to sell our products directly to supermarkets in consuming countries, which we can overcome by trading over the internet.”

Online trading has also opened the door for greater transparency within the coffee industry, with technologies like Blockchain promoting greater traceability and accountability.

“Roasters around the world will be able to tell their customers where their coffee comes from down to the farm name, how it was processed, and who the producer was, because there’s this wide degree of traceability. But there’s no guarantee that the roaster has paid a good price for that cup of coffee, and you don’t know if that money really reaches the grower,” Vélez says.

“We propose a chain of custody that guarantees the industry pays a fair price for the coffee, it reaches producers, and doesn’t disappear among the intermediaries along the chain.”

Vélez reiterates that members of the wider community cannot expect producers to implement social programs and environmentally-friendly practices when they’re struggling to feed their families.

“Poverty is the main threat to the social and environmental fabric of the coffee world. When prices went below 90 US cents [in May 2019], we passed the economic crisis and were on the verge of a social crisis,” he says.

“You see this in immigration from Central America to the US. A lot of people traveling there in caravans are coffee growers that abandoned their farms. The same is happening in Europe with immigration from Africa. You can be sure there are people from the coffee community moving there because they see no future in the business.”

Demand meets supply
While much of the conversation at the WCPF was focused on how to support and improve conditions for producers, many felt an answer could lie at the other end of the chain. The BSCA’s Allen calls increasing consumption around the world the best possible solution to the coffee price crisis.

“In producing countries, people generally don’t drink much coffee, except Brazil and Ethiopia, which only exports half of what it produces,” Allen says.

“In Latin America, consumption is around 32 or 33 million bags. Twenty-three million of that’s in Brazil. A lot of producing countries could be consuming a lot more coffee.”

Allen adds that India has implemented a plan to increase domestic coffee consumption, which, with a population of more than one billion, could have a huge impact on the global coffee price. Promoting coffee in other large tea-oriented countries like China could also help balance supply and demand.

“That’s where we need to work on increasing consumption. It’s not going to come from Europe or North America because those markets are already drinking a lot of coffee,” Allen says.

The WCPF released a series of resolutions from the forum, including to promote technologies that enable transparent and traceable business, develop campaigns to increase coffee consumption in producing countries and emerging markets, and implement “economic sustainability” and “roasted by origin” seals that guarantee remunerative prices for producers. The forum also resolved to promote the training of producers in property management, market activity, and risk assessment.

“Training is very important. One of the largest problems we have nowadays is a lack of knowledge on the part of producers. They may not know the best varieties for their situation and location, or the best processing,” Allen says.

“This is very important, especially in the case of small producers, who’d benefit greatly from more information and training about how the coffee market functions.”

Allen says the BSCA will continue to promote Brazilian coffee at home and abroad, while Vélez and the FNC do the same for Colombia. Sachs says many great words were shared at the WCPF, but now is the time for action.

“We need to see real industry leadership and willingness to invest in sustainability,” Sachs says. “Concerted steps need to be taken to improve the situation of producers. Ideas without action won’t lead to results.”

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