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The FNC on coffee’s desperate times

From the April 2019 issue.

Chief Executive Officer of the Federación Nacional de Cafeteros de Colombia Roberto Vélez is deflated but not defeated. He speaks candidly with Global Coffee Report on the global industry’s co-responsibility for a sustainable chain.

According to Roberto Vélez, Chief Executive Officer of the Federación Nacional de Cafeteros de Colombia (FNC), Colombian coffee producers have two options: stick with their profession in hope of change, or leave.

“We are in an absolute state of desperation. When you don’t have enough money to feed yourself or your family, pay your debts, or earn enough to send your kids to school, it’s a really dark outlook. We are struggling,” Vélez says.

“The situation is the same for almost all coffee farmers around the world. We are in a desperate situation where prices paid to the growers do not cover the cost of production.”

Vélez’s comments came at the same time that the World Coffee Producers Forum (WCPF) declared the need for urgent action on coffee prices on 26 March, when organisers released an official declaration calling for serious and immediate action to be taken on the historically low international coffee price of US$0.95 per pound as of 22 March 2019.

Thirteen coffee producers’ groups, including the FNC, Colombia’s largest rural non-profit organisation, were listed on the declaration.

“With Colombia in a leading role, 35 coffee-producing countries from Africa, Asia, and Latin America are calling on all members of the coffee supply chain to act quickly and responsibly to address the current international pricing crisis that is devastating coffee-producing communities around the world,” said Silvia Pavajeau, Director of Communications at the FNC US-based office, in the declaration.

Vélez says the Colombian coffee communities are at a point where the coffee value chain, as a whole, cannot continue without serious outcomes. It’s at risk of becoming a humanitarian crisis.

“It’s necessary that the global industry is informed about this situation. The industry is estimated to be worth between US$250 billion and US$300 billion. Out of that, coffee farmers around the world get less than 10 per cent. Some people are making tonnes of money out of it, while our farmers are starving,” Vélez notes.

“At these price levels, there is no true sustainability in coffee. You cannot talk about coffee being ‘only’ sustainable if it has social or environmental values. Everyone loves talking about birds, trees, clean water, and gender equality, but no-one truly cares about the income of coffee farmers. One of the most important aspects of sustainability is the economic dimension. The farmer must be paid correctly for the job he or she is doing.”

Currently, Vélez says, farmers are earning much less than a minimum wage.

The International Coffee Organization (ICO) estimates that about 25 million families – mostly smallholders – produce coffee in the world. However, Vélez says an approach based on the principle of co-responsibility and total transparency must be implemented to ensure that all the links of the value chain, including the weakest one – the farmers – are profitable and healthy.

“The guys selling coffee in developed countries, from supermarkets to large roasters, are all making money. The only ones who are not are the producers, the ones producing the raw material that is indispensible for the industry for survival,” Vélez says.

“We are very glad the coffee market keeps on growing at 2 per cent a year, which is a marvellous thing, but we need everybody to understand that we are all part of the same chain, and we must all do well if we want to survive in the future. If we can do that, we can be an example of how a whole chain can work together.”

If it doesn’t, the FNC has discussed the possibility that Colombian coffee, together with other washed Arabica coffee producing countries, could stop trading on the New York Stock Exchange.

The “C” futures contract was created as the price reference for a basket of mild Arabica coffees of similar quality known as “Centrals”. Today, with several changes introduced over time, it is widely acknowledged that the C futures contract-based price does not cover production costs for most producers due to “speculation by hedge funds that do not understand or care about the coffee industry”.

“Given that the New York C coffee market is reflecting a much more superlative position of large hedging funds plus we’re seeing large Brazilian crops [of 60 to 65 million bags], we are considering the possibility that we will not take the C market as a price reference for Colombian coffee,” Vélez says.

Rather, Vélez elaborates, there should be a fairer system for farmers to be paid the cost of production. “It’s only 20 cents more from where we are now. We are not asking to double the cost of what people are paying, we’re just saying that instead of paying US$1.20 or US$1.30, pay US$1.50,” he says. “This doesn’t just apply to Colombia but all of those who produced washed Arabica coffee.”

According to the WCPF, in 1982 the price of coffee fluctuated between US$1.18 and US$1.41 in the international market, and a cup of coffee averaged US$1.10 in the United States. In 2018, the price of a pound of Arabica coffee in the international market averaged US$1.01. As of 22 March 2019, the price dropped to US$0.95.

As a result of the price drop, it is estimated that coffee producers have lost more than 80 per cent of their purchase capacity in the last few decades.

On the consumption side, the ICO estimates that the world drinks 1.4 billion cups of coffee every day. According to German statistics database Statista 2018 data, consumers pay anywhere from US$3.12 per cup in the United States to US$4.60 in Shanghai and US$6.24 in Copenhagen.

But that’s not enough, especially with Colombia’s producing industry on the brink of despair. The reason Colombia’s coffee is so unique in many ways, Vélez says, is because of its fertile land, privileged climatic location, quality, and the availability of coffee year-round, each with different cup profiles specific to its region – qualities too valuable to ever see abandoned. 

Until the current economic climate changes, Vélez says there is no reason Colombian youth would be encouraged to uptake the coffee farming profession. Vélez himself owns a farm, his father used to grow coffee, as did his grandfather, but he doesn’t expect his kids to continue the tradition. “They understand perfectly that there’s no future in coffee anymore,” Vélez says. “It’s a very tough and painful situation.”

The current pauperisation process of coffee producers is destroying the social fabric in the rural areas of more than 40 countries in Africa, Asia, and Latin America, leading to increased criminality in producing nations, poverty, and massive migrations.

Vélez says there’s already an increased flow of people travelling illegally from Central America to the US and from Africa to Europe  – a large portion coffee growers who no longer see a source of income in coffee.

In some countries, the current crisis has become an incentive to shift to illegal crops because farmers cannot make a living from coffee alone, including Colombia, where there’s been an increase in the country’s cocaine production.

For the past two to three years, the FNC has been in contact with the Colombian government, including its current President, Iván Duque, asking for support and funding, even subsidies from public taxes.

At the time of print, an FNC delegate had presented at the International Coffee Council in Kenya in March. Vélez himself was preparing for a trip to Japan to discuss the current Colombian situation. He will also present at the WCPF in Brazil in July, followed by a coffee growers summit in New York in September on the sidelines of the United Nations General Assembly with heads of state to address the “unfair” state of the industry’s coffee prices.

“There’s not much more I can do but keep moving and talking,” Vélez says. “We are trying to figure a solution but it is not easy. We have to keep asking governments for support, addressing the topic internationally, and trying to bring consensus among producers.”

When Vélez started working at the FNC more than 30 years ago, his goal was to bring sustainability to the forefront of the coffee industry so that coffee growers could increase their income and be more efficient. That goal is still within reach, but for now, Vélez is proud of Colombia’s resilient coffee producers.

“They keep producing despite the unfavourable international situation of the past two to three years,” Vélez says. “It is my hope that one day we have an industry that really understands the economic situation of our coffee growers, and commits to their sustainabilty, because the industry as a whole pends on it.”

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