Crisis in a Coffee Cup

Who's Paying for That Latte?

Indonesians Vendi Arelia (top) and Supriyati help launch an Oxfam campaign to expose the unequal status of Third World coffee growers and multi-national food companies
Hong Kong, Oct. 30, 2002: Vendi Arelia (top), an Indonesian, helps launch an Oxfam campaign to highlight disparities in growers' prices for coffee and the price consumers pay (Photo: Antony Dickson/AFP).

Are coffee drinkers being ripped off, or is their habit ripping off others? The answer is a bit of both. When Lyn Savill sits down for a latte at her favorite café, Roasted Addiction, a short hop from her work in Mount Roskill, Auckland, she resists a pang, not of thirst but of conscience. She’s aware of the issue of coffee and price and fairness—an issue paraded by Oxfam protesters leading donkeys laden with sacks of coffee to the London Stock Exchange on Wednesday—but as a mere drinker, well, what can she or anyone do?

“There’s no option. If you enjoy coffee you just have to go with it,” says Savill, 32, who goes three times a week to cafés. “You can’t say, ‘Can I have a fair-trade coffee?’ They don’t have it.”

Oxfam’s broadside against the perks of big business in a report titled “Mugged: Poverty in Your Coffee Cup” is the latest push in its long campaign to get the world’s four huge buyers of coffee beans—all multinationals, the biggest of which is Swiss food giant Nestlé—to pay more. Otherwise the prospect looms of 25 million growers starving and many leaving their land, and so making a shaky industry shakier.

New Zealand’s burgeoning number of café owners and coffee bean importers will insist that they’re not part of the global squeeze on poor farmers, that they’re paying a high price for top-grade coffee. Trade Aid campaign manager Simon Gerathy insists they are a part of the problem—then again he has reason to, since his organization is in the coffee trade. It has enlisted Kiwi celebrities, including actor Sam Neill and broadcaster Chris Laidlaw, to push its certified “fair trade” coffee.

It’s in the supermarket, though, that the issue really brews down to. Here, the shopper not only has little real choice but, according to the Consumers’ Institute, is paying too much even for instant coffee. But Consumers’ Institute chief executive, David Russell, like Lyn Savill, can only shrug about what to do. “We’re paying far too much for our coffee in relation to what the grower gets,” says Russell.

“It’s well stitched-up internationally. The only realistic thing that the New Zealand consumer can do is stop drinking coffee.”

Fat chance of that. New Zealanders are the new Italians of the south. We love coffee, plowing through 150,000 big bags of green beans a year in cups of the “real stuff,” not to mention piles of instant coffee powder (a lot of which is brought in ready-made from overseas). But Oxfam’s research suggests we’re drinking deep from the cup of inequity.

“Developing-country coffee farmers, mostly poor smallholders, now sell their coffee beans for much less than they cost to produce,” says the report from the British-based aid agency. “Farmers sell at a heavy loss while branded coffee sells at a hefty profit. The coffee crisis has become a development disaster.”

It says the big four coffee roasters, Nestlé, Kraft, Procter & Gamble, and Sara Lee—which with German giant Tchibo buy almost half the world’s coffee beans each year—are making big profits on coffee brands, each worth US$1 billion or more in annual sales. It estimates Nestlé’s instant-coffee profit margin at 26 percent and Sara Lee’s at 17 percent—high in the food and drink field.

Oxfam blames primarily a free-market system and poor countries being encouraged by the World Bank and International Monetary Fund into cash crops like coffee, and away from traditional agriculture. It is advocating a Coffee Rescue Plan and an international rescue meeting in late Sept-ember. Its plan is that roaster companies pay farmers a decent price and that stocks of coffee are cut partly by destroying at least 5 million bags. And it wants roasters to promise to buy 2 percent of their beans under certified “fair trade” conditions. Nestlé is suggesting the United States and Europe get rid of massive farm subsidies to make it worthwhile for poor farmers to switch to other crops.

All in all, it’s enough to make that short black stick in your throat. But wait. As Oxfam notes, and this country’s biggest supplier of beans to gourmet roasters, John Burton, is quick to reinforce, it’s instant coffee that’s the real problem, not café coffee. “You see, a farmer producing good-quality coffee is getting a much, much better return,” says Burton, whose company, John Burton Ltd., imports 30,000 bags of green beans a year and supplies 70 mostly tiny coffee roasters nationwide. “But it’s the farmer producing just the average, low-quality grounds that these people (the huge roasters) buy—that’s where it should be addressed.”

Burton’s arabica beans end up in many cafés’ coffees. He buys from exporters and sometimes direct from farmers, paying US$1.58 a pound for beans in Kenya, and $1.49 for organic beans from East Timor. Beans from elsewhere fetch more or less, depending on quality.

By comparison, robusta instant-coffee beans are fetching around 50-60 cents a pound for New York C Grade, though in the last fortnight prices have risen 25-30 percent, coming off 30-year lows. Burton says the average price in the last 30 years is just over $1.00 a pound, but that it’s gone as high as $3.00—and it will get that high again, a claim borne out by the cyclical nature of prices within global commodity chains. When that happens, Burton says, wholesalers will wear it—but while prices are low, the worry is that good farmers will pull out, undermining the quality market.

Trade Aid, meanwhile, guarantees farmers in five developing countries $1.26 a pound for arabica beans, certified as “fair trade.” Gerathy is scathing of others in the coffee industry whom he says should cut their margins since farmers are suffering. Kiwi drinkers, Gerathy says, want choice, noting that Trade Aid’s sales of all types of coffee have risen 50 percent in the 12 months since its coffee pledge campaign began.

The confusion over coffee, cafés, and justice extends high and low. In May, Colombia’s finance minister, Juan Manuel Santos, told an International Coffee Organization meeting in London he’d just paid $3.00 for a cup in Covent Garden and barely 1 cent of that would go to producers. As for Lynn Savill, she says she’d pay $4.00 for a “fair trade” coffee if a café offered it—and she’s better informed than most, since her employer, aid agency TEAR Fund, is looking for coffee roasters to import beans from East Timor to help development partners there. So far it’s pushing uphill against commercial realities in a very competitive market.

Bean importer John Burton says he could easily take on board a roaster wanting to go down the “fair trade” line—though he himself is skeptical about what “fair trade” certification means in practice. But no one has: [Burton explained that] cafés have enough on their plate in a tight, fierce industry, “and also I don’t think it would last very long (once bean prices rose). And we have tended to go down the certified organic route (instead).”

“Roasters will say to me, why should I necessarily be the one to operate the fair-trade banner when the global position I can’t influence at all.” New Zealand’s 150,000-bag intake is a drop in the percolator of the 104 million bags consumed globally each year.

And why not a “fair trade” choice in supermarkets? “Probably because there isn’t one around,” says Burton, but also because of the dominance of Nestlé in instant coffee. Japanese-owned Robert Harris has almost half the supermarket ground-coffee market. David Russell of the Consumers’ Institute says supermarkets are super-sensitive to shoppers’ demands. “If there was sufficient New Zealand demand, I’m sure they would do their best to source it (fair-trade coffee). It may be there is a role there to make consumers more aware of what’s going on to bring pressure to bear on the supermarkets.”