The value of coffee

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# 3 Coffee, money and debt

Now that you have a sense of the importance of the income generated through the sale of coffee for some regions in the world, you have the chance to think about the consequences of the prices that coffee farmers receive for their crop. Coffee prices are determined through an international system of exchange. The ‘C’ market price (for commodity coffees) is notoriously unstable (as it is for many commodities) and there have been times when this price has fallen below the cost of production. This makes it hard for coffee farmers to make ends meet. But what can you, as a consumer, do about this? This is a difficult question because there are many factors that determine the price of coffee and these factors are not always visible to or changeable by consumers.

## Activity 3

The first series of films in this course introduces you to the complex relationship between coffee, money and debt. As you watch each extract, take some brief notes to help you address the questions that follow below.

### Question 1

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#### Transcript

[MUSIC PLAYING]
NARRATOR:
Coffee is the most popular drink worldwide, with over 400 billion cups consumed each year, and was once second only to oil in terms of its trading value. The British alone spend over £6 billion a year in coffee shops. This highly valuable commodity supports the livelihoods of millions of people around the world.
The journey of the coffee bean involves the exchange of money between a number of different parties. From farmers to traders, processors, exporters, roasters, coffee shops and consumers, many of whom gathered at the Speciality Coffee Association of Europe's Annual Trade Show in Rimini, Italy. And while these represent the success stories, many of those producing coffee across the globe struggle financially.
DAVID VEAL, SPECIALITY COFFEE ASSOCIATION OF EUROPE:
We're working within economic systems which have been in place for centuries. We are still, to our shame, part of a worldwide economic system which means that people in the southern hemisphere working for minimum wages produce products which we in the northern hemisphere consume. We shouldn't be in the situation where we are enjoying a lifestyle product at the cost and the expense of farmers who need to earn more.
MARIEKE RODENHUIS, PROGRESSO:
Farmers need to take out credits often in the beginning of the harvest, before the harvest season, to pay for inputs for fertilisers, and maybe to hire a little bit of labour to do maintenance on the farms.
Often at that point, they don't have a harvest yet, so they don't have a lot of money yet, so they take out a loan for that, often against very high interest rates. Of course, you calculate that you can get a certain price for your coffee, but then, for example, what happened in Latin America last year, is when the coffee prices dropped. And then you have a big problem, because if you took out a loan calculating on your harvest of last year, if you don't pay on time then the debt accumulates very quickly.
REBECCA SINGER, COFFEE KIDS:
Most smallholder farmers really live on the edge of poverty. So they produce coffee, and they often don't produce enough coffee in order to have enough cash to cover their expenses.
For example, there's a community in Oaxaca, Mexico, in a very rural region, 85 per cent of the community relies exclusively on coffee to meet all of their needs, financial needs for a year. But unfortunately, coffee only brings in enough to cover 30 per cent of those needs.
So there's a huge disparity, right? And what happens is that these people, they have to make very difficult choices. And what they often choose to do is sell their farms to get money, go to the city, so they migrate and leave their coffee farms. Or they just stop investing in those farms, and the quality of the coffee and the level of production goes down, further reducing their income.
End transcript

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What are the consequences for coffee farmers when the coffee prices are low?

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#### Discussion

When coffee prices are low, coffee farmers may get into debt because they have borrowed money to pay for things upfront (such as coffee seeds, fertilisers and labour) which they are now unable to pay back due to lower than forecasted coffee prices. In some communities, such as Oaxaca in Mexico, farmers are abandoning their crops and migrating to the city to make more money.

### Question 2

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#### Transcript

NARRATOR:
Coffee prices have a huge impact on farmers' abilities to meet their daily needs and repay the debts taken on to finance their farms.
EDMUND KANANURA, UGANDA COFFEE DEVELOPMENT AUTHORITY:
The commodity that is exported the most in Uganda is coffee. It contributes up to about 20 per cent of the foreign income. At one point in time, it was, like, 90 per cent. The benefits are much because the earnings are high.
Compared to all other commodities, the areas where coffee is grown, they don't have problems. There's a better income per household, and the poverty is less in the areas where there's coffee.
NARRATOR:
Coffee prices are never stable because they are set by international exchange markets, where a number of factors interact to determine the price. Although farmers always hope that prices will be high, they have very limited control over how much their coffee sells for.
Farmers in Jamaica have worked hard to market their coffee as distinctive, meaning they are able to sell this for more than ten times the price of other speciality coffees on the market, and yet they still struggle to make ends meet, owing to factors that are beyond their control.
PETER DE BRUYNE, BLUE MOUNTAIN COFFEE (EUROPE) LTD:
The coffee production in Jamaica has gone down, oh from traditionally 1200 tonnes four years ago, to around 400 tonnes, partly due to leaf rust and to berry borer. The other problem we have in Jamaica is that it's a very small area. It's only 6000 hectares actually dedicated in the Jamaican Blue Mountain to the production of coffee. And within that 6000 hectares, there are 7000 farmers.
Now, that means that the smallholdings are very, very small. And a lot of people say, my goodness, Jamaican Blue Mountain is an expensive coffee, and yet, it's very hard for them to make ends meet with the prices they receive. And they receive a very good slice of the cake, the prize cake. Nevertheless, they need those prices to remain with this cash crop.
NARRATOR:
Whilst coffee diseases and weather conditions can reduce farmers' yields, many take the decision to continue farming coffee because of the investment already made in coffee trees.
EDMUND KANANURA:
The process is long. Because after germination, you put it in the soil, pot it, water it, which takes, like, a whole year to have it ready as a seedling for planting. And after planting it, it takes 18 months for the first harvest. So, coffee takes a very long time to grow, but the benefits are really too much that you cannot avoid growing coffee.
NARRATOR:
For many, coffee is a traditional way of life that has been passed down through generations of the same family. Shows like the one in Rimini bring farmers and coffee importers from across the world together, offering farmers opportunities to find new ways to add value to their coffee.
FERNANDO AGUILAR, AMA COFFEE:
We've never thought about not growing coffee, but we've had to look how to reinvent ourselves throughout the years, throughout the generations. Before, you know, when my great-great-grandfather was growing coffee, the world was smaller, and now that I'm looking after the coffee estate, you have a more flat world, you know, where we can do business directly with people in London, with people in Australia, with people in Asia. It's just a small world now.
DONALDO GONZALEZ, CAFÉ ARUCO [SPEAKING SPANISH]:
In Honduras coffee has a long tradition that has come from our grandparents and parents, and now the responsibility falls on our generation to look for new opportunities for business because more than being a coffee culture, it is a way of life in Honduras. A lot of people depend on us for their business and to help a lot of people in our community.
Each year is different with coffee, and coffee offers a lot of positive opportunities. As the harvest only happens once a year for a few months, you have to plan a lot and use the rest of the year to gradually improve production.
End transcript

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You saw a number of people describing why they (or the coffee farmers they work with) continue to grow coffee. Match the three statements below with the speaker pictured.

Using the following two lists, match each numbered item with the correct letter.

1. EDMUND KANANURA, UGANDA COFFEE DEVELOPMENT AUTHORITY

2. FERNANDO AGUILAR, AMA COFFEE

3. DONALDO GONZALEZ, CAFÉ ARUCO

• a.In areas where coffee is grown, there’s a better income per household, and less poverty.

• b.Coffee culture is a way of life in Honduras. People depend on us for their business and we help a lot of people in our community by harvesting coffee.

• c.My family has always grown coffee and now I have the opportunity to re-invent our business and directly trade our specialty coffee with buyers in London.

• 1 = a
• 2 = c
• 3 = b

### Question 3

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#### Transcript

NARRATOR:
Certification and speciality coffee roasters aim to guarantee a better, or at least stable, income for farmers. The UK is the leading market for Fairtrade products, with consumers spending £1.57 billion on Fairtrade label products in 2012, showing how popular the concept has become.
But how much influence does the consumer really have?
MICK WHEELER, PNG COFFEES:
Consumer choice will have some effect on the lives of the growers. That is true. It will have in the specialty sector. Primarily because in the specialty sector, there are relationship coffees, i.e. where roasters are forming relationships directly with the growers that they say they are.
So, you do get this validation of the, of the supply chain. I won't call it the value chain. I'll call it the supply chain. From the grower to the roaster, where the roaster can say, 'Yes. I buy this coffee from this particular farm, and these are the people who supply me the coffee. And if you buy this coffee, then those growers will get a better price.'
FERNANDO AGUILAR:
The coffee industry has quite a little bit of a parallel relationship to the wine industry. That now consumers are trying to look for specific estates, specific coffee varieties, like Bourbon or Pacamara. Finally consumers are getting more educated on what they're drinking, so they're paying a little bit better the price for what they're drinking or what they consume.
DAVID VEAL:
Speciality coffee should provide a better price for producers. And this is one of the challenges that we have. I personally have a dream, which is that we can help farmers to do that by getting our coffee shops around the world to just charge a little bit more to the consumer. Maybe $0.05, made only$0.01 per cup.
And that cent goes all the way back to the farmer. That would make just such a tremendous difference to their well-being and their living standards, and also to their ability to continue to grow good-quality coffee.
NARRATOR:
With the rise of awareness and consumers looking for products such as Fairtrade coffee, would they embrace a suggestion to pay even more for their morning cup?
WOMAN:
I think if customers knew the percentage of what they were paying for in their coffee was going directly to the farmers, they'd pay a lot more. Because that way, they'd know that they're doing a good cause. And I think ultimately when we live in a society like the UK, everybody wants to feel like they're giving back to charity, giving back to, being generous, and do something sustainable.
MAN:
As to how much of a market you can give to a product because you associate it with a philanthropic cause is debatable, because that's sort of a dubious claim, and ultimately I think five years ago when people started doing that, it was much easier for people to, it was original, so people believed it. Whereas now it's become like Live Aid, like a lot of forms of charity. And we're not really sure what we think of it. And so I think it would go from being a substantive claim to being maybe gimmicky, and it would actually potentially risk hurting us, even. But that's not to say we wouldn't be interested in it.
REBECCA SINGER:
When we talk about paying a fair price for coffee, coming from the United States where we all want a bargain, like, we're a country based in many ways on getting the best deal possible. And so, we have lost the ability to understand what is the real value of a product. And so, we're unwilling to pay what the real value of the product is.
[MUSIC PLAYING]
End transcript

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What can consumers do to increase the amount of money that coffee farmers receive?

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#### Discussion

Schemes such as Fairtrade (where the farmers are guaranteed a set price for their coffee) and direct trade are ways that consumers can help ensure that more money returns to coffee farmers. However, convincing consumers about the effectiveness of these schemes can sometimes be difficult. In addition, some farmers, such as Fernando Aguilar from El Salvador, are able to sell their single-origin speciality coffees for a much higher price because consumers are willing to pay more for these distinctive flavours.

### Question 4

Do you agree with Rebecca Singer that ‘we have lost the ability to understand … the real value of a product’?

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#### Discussion

This question has no right or wrong answer and this will be something for you to continue to think about. There is one school of thought that believes that the value of a product ought to be determined by the amount of human labour that has gone into its production. One problem with this approach is that it does not take into account interactions between supply and demand. Just because someone has supplied coffee using labour-intensive production methods does not mean that the demand for this coffee will be any higher than a similar coffee that has been supplied using mechanised-production methods. The value of coffee on exchange markets is shaped by the global supply and demand of coffee, and those most able to supply high yields of coffee do so because they do not rely on human labour alone.

Whether people ought to support small-scale farmers producing coffee is hotly debated because, for those small-scale farmers, coffee is their main source of income and they have few opportunities to improve their productivity. Large-scale coffee farmers, such as those in Brazil and Vietnam, pull down the global price of coffee because they supply so much, which in turn creates global inequalities between coffee producers and between countries.

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