Low Prices and Exploitation: Recurring Themes in Coffee

It’s International Coffee Day^*, which seems like a good time to reflect on the state of the coffee industry. This summer’s headlines could easily have been stories from 15 years ago when I first entered the worlds of coffee and fair trade: Coffee prices have been falling lower and lower, below $1/pound on the global commodity markets. That’s a low that hasn’t been seen since 2006, and half the price in 2014.  Starbucks has been making news as evidence of forced labor emerges on one of the plantations that they buy from in Brazil. Low prices and exploitation—some things have not changed.

Another thing that hasn’t changed: 70-80% of the world’s coffee is grown by small-scale farmers, a statistic that hasn’t really changed over time. My old back-of-a-napkin calculations used to estimate that one farm family might grow enough coffee in a harvest season to yield 40-pounds of roasted, export grade coffee. That’s probably less coffee than you drink in a year.^**

Consolidation in the Coffee Industry

While coffee cultivation is still mostly a small -scale production, the coffee industry is not. Instead, consolidation in the coffee industry continues to grow. In our recent report, Fairness for Farmers, we note that “Just three companies roast 40% of the world’s coffee and five companies control over half of the trade in coffee,” citing data from 2014.

And in the past four years that trend has only continued. The massive JAB Holding Company now owns not just Keurig Green Mountain, Caribou and Peet’s Coffees but specialty coffee companies like Intelligentsia and Stumptown Coffee Roasters, as well as Krispy Kreme, Snapple, Dr. Pepper, and several coffee-intensive bagel chains like Einstein Bros.’ and Bruggers’ Bagels.  Nestlé continues to be one of the biggest in the coffee market with classic names like Nescafe and Taster’s Choice. Reach for a fancy Blue Bottle coffee or stop in at any natural food store and pick up some Chameleon Cold Brew—those too are now Nestlé products. And a deal to distribute Starbucks’ coffee outside their stores further cements Nestlé’s grip on the coffee market. What appears on the shelf as diversity is, in reality, ever more consolidation.

Unfair Trade

This consolidation hasn’t directly translated into lower prices for farmers directly—yet. Instead, industry watchers are pointing to a consequence that is perhaps even more troubling: the extension of payment terms that these coffee giants are demanding from their supply chain partners. Instead of the standard “net 30” that you might see on a bill, indicating that you have 30 days to pay in full, these behemoths are asking for 180 days or more—time that someone else has to foot the bill for their profits.

Access to cash is a key issue when talking about coffee. One of the key fair trade principles (and a standard in fair trade certifications) is for roasters to provide pre-harvest financing to coffee farmers on request. Committed fair trade companies like Equal Exchange have made this a cornerstone of their sourcing, meaning that they are paying for part of their coffee months in advance of receiving it. This sort of arrangement is key in supporting producers and sharing a bit of the risk—and the cost of financing.

You can see where this is going: bags of coffee from these two companies end up side by side on the shelf. One of them has paid for that coffee months ago (and possibly borrowed money from the bank to do it), one of them may not have even paid for the coffee yet. One of them has access to massive distribution networks and economies of scale. The other does not. Yet, on the shelf, the expectation is that the price is the same. It’s an unequal playing field that only stands to increase the power of a few mega-corporations.

Exploitation and Low Coffee Prices

Inequality isn’t a new thing in the long, dark history of coffee. Colonial plantations, labor extracted from small-scale farmers via harsh quotas—every coffee-growing community I’ve visited to has their own story of what this crop has meant to them in the long history of European conquest.  Fair trade grew up in response to these great historic inequities.

Small-scale farmers built cooperatives, organized to gain economies of scale and a little bit of leverage. We talk often about the importance of the commercial relationships and the solidarity formed with mission-driven businesses, and how they’ve grown a fair trade movement. Yet as this so-called market niche has grown, so too have the many who would cash in on consumer’s goodwill.

The Starbucks plantation where workers endured deplorable conditions carried more than one ethical certification (their own C.A.F.E Practices label and UTZ Certified).*** Yet too often these top-down, corporate-led attempts to cleanup supply chains fail. They fail to protect workers, fail to make lasting change, and fail to live up to the trust that consumers put in their ethical claims. Unfortunately, it’s not that surprising. Low prices and huge inequities lead to exploitation. Fail to address the root causes, and once again the symptoms recur.

Tackling the Root Causes

What does it take to tackle the root causes of these inequities in coffee? What do we need to do so these headlines are not still cropping up 15 years from now? Plenty of people who are far wiser than I am continue to be confounded by the questions. There are no easy answers.

Yet, despite the bleak landscape outlined above, there are some inspiring projects aimed at tackling the root causes of the issues.  In Nicaragua, coffee farmers are exchanging knowledge with partners in Mexico to diversify their farms and their sources of income, making them less dependent on just one crop.  Coffee farmers from Peru and throughout Latin America are engaging in farmer-to-farmer trainings to develop new climate resiliency strategies—and new options for economic development. Coffee importer Cooperative Coffees has ditched the notoriously volatile commodity market as the basis for any of their buying contracts.

There are a few things that you can do, even as you drink your morning coffee:

• Support small-scale farmer led projects. Grow Ahead is a crowdfunding platform that specifically targets projects that may be difficult to fund through conventional lenders. A big bank is much more willing to lend money to one of those tried-and-true mega-corporations above. Meanwhile, projects that may make real change in communities struggle to get funding. Grow Ahead’s current campaign supports a reforestation project at Norandino Cooperative, a fair trade coffee and cacao co-op in Peru.
• Support independent, fair trade roasters. These are the ones struggling against the massive market consolidation. They’re also the ones partnering with coffee farmers in many of the inspiring projects above. There are plenty to choose from, look for one near you here.
• Organize against corporate control of the food system. A broad coalition of organizations has come together as the Campaign for Real Meals. Their goal: to get some of the biggest food service companies in the country to commit to measurable, actionable standards for real food. Sign onto the petition and join the movement!

^*In the U.S. it’s celebrated September 29^th, in the rest of the world, October 1^st. Pick a day, or just celebrate the whole weekend!

^**The math here: In the U.S., average coffee consumption is three 8oz. cups of coffee per day, or about 136 gallons per year. While brewing methods vary, a really rough rule of thumb calculation would be that you could get 1 gallon of coffee per pound. Calculate how many family farms it takes to fuel your life!

^***Note that the Starbucks plantation in question was certified by their own C.A.F.E. Practices certification as well as UTZ (recently merged with Rainforest Alliance), not fair trade. Traditionally, coffee plantations have not been eligible for fair trade certification although some other crops (notably, tea and bananas) allow them. Four years ago, Fair Trade USA split from the global consensus and started certifying plantations, a controversial move.