Coffee Crisis

Friday 4 July 2003, by Sarah COX

Photo: Eric St-Pierre

It’s being called "the worst coffee crisis of the last 100 years" by Latin American heads of state. With the catastrophic failure of unregulated global markets, the world faces yet another crisis of overproduction and ruined lives.

The immediate cause is a glut of coffee beans on the world market that has driven down prices. Export prices for coffee have dipped to their lowest point in over a century, with adjustment for inflation.

As a result, coffee farmers - the majority of whom are poor shareholders (should probably change to sharecroppers) - now sell their beans for much less than it costs to produce them. Oxfam International estimates that the livelihoods of twenty-five million small coffee producers are in jeopardy. "Families dependent on money generated by coffee are pulling their children (particularly girls) out of schools, can no longer afford basic medicines, and are cutting back on food."
Yet few people sipping lattes or espressos are even aware of the crisis. And how would we know? Little has changed in the consumer world. Prices for Maxwell House, Nescafé, Folgers and French roast have dropped only slightly, or not at all.

"The big transnationals are making a heap of money," says Blanca Rosa Molina, a Nicaraguan coffee farmer brought to Canada by Oxfam. "But we are getting less than ever before." Five years ago Molina’s coffee co-operative sold its organic coffee beans for US$1.80 a pound. Now a pound of beans is worth only about fifty cents.

In northern Nicaragua’s Matagalpa region, where Molina lives, more than forty larger coffee farms have gone bankrupt or lie idle. An estimated 6 000 homeless coffee workers and their families camp in makeshift homes along roads and in municipal parks, begging for food and help from passersby. Almost half the region’s children, pregnant women, and elderly suffer from malnutrition.

Last August alone, twelve unemployed coffee workers and their family members died of hunger in the Matagalpa area, according to Reuters. By the end of September, according to Molina, the death toll had reached 120. "You see children dying of hunger along the side of the highways," Molina says.

In Guatemala, the crisis has thrown 70 000 people out of work and boosted unemployment levels to forty percent. The coffee debacle has plunged the economies of some already-impoverished countries into steep decline. Across Africa, countries pummelled by debt, drought, and disease are teetering towards another disaster.

Developing countries received $10 billion for coffee exports just a few years ago. Now it is little more than half that, says Néstor Osorio, executive director of the International Coffee Organization (ICO). In Burundi, coffee accounts for almost 80 percent of total exports; in Ethiopia, almost 50 percent. Without money from coffee, there are fewer funds for debt repayment, AIDS strategies or schools.

"It’s a crisis with a social dimension that is politically explosive," Osorio explains. On a recent trip to Colombia, for instance, he saw aerial photographs of coffee farms planted with new coca crops.

Deregulation of coffee trad

Since 1962, the world coffee trade has been regulated by the International Coffee Agreement. The trade treaty set export quotas for producing nations and kept the price of coffee fairly stable. Then, a decade ago, the U.S., the world’s largest consumer of coffee, pulled out. The U.S. said the agreement, by keeping prices high, ran contrary to its interests. Canada withdrew at the same time.

Coffee quotas and price controls ended. Smaller producers, like Vietnam, rushed to pick what it called the "dollar tree." In just a decade, Vietnam has become the world’s second-largest coffee producer after Brazil. In the wake of the coffee agreement’s collapse, the World Bank and IMF have pressured African countries to liberalize their coffee industries and eliminate state agencies that bought beans for guaranteed prices. Farmers were assured of comfortable earnings, but globalization and liberalization have had the opposite effect. "The law of supply and demand has operated to the detriment of African producers and to the benefit of worldwide speculation," Togo Prime Minister Messan Agbeyone Kodjo told delegates to an ICO conference last May.

"At present, African coffee farmers are experiencing a sense of frustration and inner revolt," he explained. "They feel helpless… Coffee prices fixed by international groups and the multinationals are completely beyond their control."

One decade ago, developing countries received thirty cents for every $1 spent on a cup of coffee; now Oxfam calculates they get less than ten cents a cup. The unknown farmer who grew the beans for our espresso gets only two cents out of the $1.71 we pay.

A lucrative business

Yet coffee remains a lucrative business for those at the industry’s apex. Five multinationals purchase almost half of the world’s coffee beans each year. Among them are Sara Lee Corporation (makers of Hills Bros. and Chock Full o’ Nuts), Nestlé (makers of Nescafé) and tobacco giant Altria, which owns Kraft Foods (Maxwell House and Nabob brands). Nestlé makes an estimated 25 percent profit margin on instant coffee, according to Oxfam; Sara Lee’s margin is around 17 percent.

The graph of corporate coffee profits shows a steady increase while the graph of coffee prices, according to Uruguayan author Eduardo Galeano, "has always resembled a clinical epilepsy chart." Globalization and deregulation have only exacerbated that discrepancy. As Galeano grimly concluded, "it is much more profitable to consume coffee than to produce it."

Sarah Cox, special collaboration

This article has been previously published on

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