The Economy of Coffee Supply Glut, Crashing Prices, Desperate Farmers: What's the solution?(Statistical Data Included)
Schoenholt, Donald N., Whole Earth
The coffee crisis, which has seen prices of green coffee plummet 40 percent in a one-year period, to below $.50/lb., is scary, and it is real. It threatens to have devastating effects on coffee farmers, the environment, and whole countries dependent on the coffee trade. (See "Coffee, Certification, and Consumers," page 25.)
Several voices have blamed Vietnam's rise as a major producer of cheap robusta coffee as contributing to the world robusta glut and subsequent low green coffee prices for all species, and most varieties and origins. Vietnam's entry into the export coffee market with such sustained ferocity has put pressure on world coffee prices. But Vietnam has as much a right as any other nation to grow and offer coffee to world markets.
The World Bank has actively promoted the development of Vietnam's coffee exports, as has the Asian Development Bank. These world agencies that encouraged and backed Vietnam's development have themselves played into the hands of a monumental oversupply disaster.
There is more. The United Nations has sponsored programs in Bolivia and Colombia encouraging farmers to switch from cocoa to coffee farming. The International Coffee Organization provided funds to Angola for the revival of its coffee production after a long civil war decimated production.
Not surprisingly, the World Bank looks upon Vietnam's coffee victory with pride. "Vietnam has become a successful producer," the San Francisco Chronicle quoted Don Mitchell, principal economist at the World Bank. "In general we consider it to be a huge success." He added that nations (such as Guatemala, with a three-dollar-per-day minimum wage) that cannot compete with Vietnam's one-dollar-per-day labor costs or Brazil's mechanized plantations need to shift to farming other crops.
The world price for robusta coffees has sunk under the weight of oversupply, and has dragged the better arabica grades down with it.
We see specialty green coffee prices fighting the downtrend, but they are not worth what they were eighteen months ago. There are notable specialty coffee retail success stories, but these are, in global terms, on a very small scale. Specialty coffee continues to be a high-profile business populated by small independent operators. While closely held companies do not report earnings publicly, few publicly traded companies are showing profits at all.
If specialty coffee cannot keep money in the pockets of the farmer, our failure will result in a growing scarcity of the best grades. It is feared that, as a practical matter, some varieties of arabica coffees could actually cease to exist in world commerce.
The current coffee crisis will run its course, just as those of the past did. Producers will sustain real pain, and some farmers will stop farming. Coffee farm workers and their families, perhaps in large numbers, will be displaced. Consumption will continue to grow in new markets in Eastern Europe and Asia. The out-of-home market will continue to grow in North America, and Western Europe, even in some producer nations such as Brazil.
The market dynamic will reverse as supply of stocks and demand equalizes. The rebound will be hurtful to the consumer, and may be severe enough to curtail consumption due to high prices. In time again there will be oversupply because high prices will bring a new wave of planting in an effort to cash in on the high price levels, which will in turn begin the round again. The economic cycles of coffee are as old as the coffee trade.
The question remains whether this generation of coffee leaders, who have accomplished so much for the consumer in the way of product and price point choices, can do as much for their farmer partners. Whether we can find the answers to prevent the repetition of this unhealthy business environment once and for all is a healthy challenge. …