A Look at the Global Coffee Market and the Challenges to Creating an Equal Exchange
by Ben Becker, Newsletter Writer
Macchiato. Cafe con leche. Short black. Flat white. Espresso. Joe. These are just a few of the names and styles by which aficionados throughout the world order their favorite brain fuel. For most of us, the daily cup of coffee is a necessity in order to jump-start the workday or just to enjoy a leisurely breakfast. Despite how essential this robust beverage is to our lifestyle, it is so commonplace that we take it for granted, overlooking the culmination of efforts, logistics, and conditions required to produce that perfect cup.
While we enjoy coffee in a variety of brands and varieties, it is tempting to think of bulk coffee beans or a package of grounds as the product of infinite supply, requiring little in the way of input or processing. The reality is that even though we may think of coffee as having natural shelf stability similar to legumes or grains, the product we buy in the stores is the end result of a sophisticated transformation.
To say that coffee is a bean is itself a misnomer, as this caffeine-rich delicacy is in fact born as a fruit. The coffee cherry requires an immense amount of processing in order to shelf-stabilize it for its long overseas journey and the time it sits on a retail shelf. Once berries are harvested, they must be pulped, fermented, dried, and sometimes redried, requiring many hours of labor before they even make their way off of the farm. From there they are transported to warehouses, and then across oceans before arriving at roasting facilities in North America or elsewhere in the world. For most of us, it is probably the roasting house from whom we envision coffee coming from, as indeed that step in the supply chain will shape the brand and make the packaging we see and hold in our hands before we process it through our coffee pots and French presses.
A More Fair and Just Economy
Local roasters have become fairly commonplace throughout metropolitan areas of the United States, allowing coffee drinkers to enjoy unique artisan brews while knowing that their caffeine expenditures can stay in the community. Here in Wisconsin, local roasters such as Kickapoo Coffee and the cooperatives Just Coffee and Equal Exchange are looking to do more than just create an invigorating beverage, but to also bring about a more fair and just economy.
Reshaping a supply chain with globally sourced products is no small feat. In order to create economies that enfranchise coffee growers from rural areas in South and Central America while providing a sustainable product to the other corners of the world requires overcoming a systemic tangle of challenges Herculean in size and complexity. Here at home, small and local food producers are overshadowed by the power large corporations have over our food system. Not only does corporate control concentrate the coffee market into the hands of just a few conglomerates, but it also places small roasters focused on paying farmers fairly at a severe disadvantage. It isn’t just the buying power of the big players that can create a deficit of alternatives that are fair to the grower, but also the level of access to reserves of capital that corporations enjoy, allowing them to be inflexible in their pricing regardless of market changes.
Market Consolidation
Coffee processors are not alone in their struggle with market consolidation. Just as roasters and manufacturers consolidate on the retail end, small coffee farmers must contend with the economies of scale that give the advantage to the big plantations. Unable to access the international market without traders, small independent farmers are forced to accept terms that only the larger plantations can afford. For example, coffee buyers may set contracts which will not provide payment for 360 days, forcing the sellers to do without much-needed funds. This is a severe burden to a farmer who must invest heavily in their coffee crop many months before they will ever be paid. Considering that there is no guarantee that their crops will thrive, this is especially difficult. Such challenges often make coffee-growing a part-time endeavor, as planters must rely on other means to supplement their income just to make ends meet.
If it is difficult to fathom how the control of the coffee industry by big money can make it harder for small producers to get by, consider the fact that consolidation of the food system is by no means unique to the coffee belt. At home in Wisconsin, small family farms are struggling to compete with larger, more industrialized dairy operations. In 2018, the state lost 638 dairy farms, in part because the falling price of milk makes it unprofitable to produce it on a small scale. This challenge is analogous to that of coffee producers, as coffee commodity prices currently hover around a dollar per pound, a price that fails to represent the full cost of its production.
Other Threats
While both coffee growers and Wisconsin dairy farmers must contend with markets that do not allow for fair compensation, producers in rural South America are often faced with the threat of violence as well. Growers in countries such as Peru, El Salvador, Guatemala, Honduras, and Nicaragua are threatened with the instability resulting from historical or recent internal conflict between their government and non-state actors. These non-state actors may include those trafficking narcotics, with narco-trafficking through coffee lands creating a perpetual environment of low-level violence. If all that wasn’t enough, the potential of physical harm from violent conflict is combined with the existential threat to coffee growing posed by climate change.
A Very Particular Ecosystem
To grow coffee, a very particular ecosystem is necessary. This plant does well in tropical climates where the soils are rich and pests and diseases are rare. This reliance on tropical climate limits the planet’s coffee locales to close proximity with the equator. Even more restrictive are the conditions needed for the type of coffee we love to drink. The Arabica variety constitutes about 70% of all the coffee consumed on Earth. This species requires moderate temperatures between 64ºF and 70ºF for optimal cultivation. At higher temperatures, coffee fruits ripen too quickly, leading to poorer quality product. As temperatures approach 86ºF, the coffee plant begins to suffer damage as leaves yellow, its growth is stunted, and tumors begin spawning across its stem.
The heat sensitivity of Coffea arabica makes it particularly vulnerable to climate change. As the earth warms, there are fewer places where coffee can grow. Brazil, the world’s largest coffee-producing country, could see its main coffee-growing areas reduced by up to two-thirds in the years to come. Brazil is not the only coffee-growing nation where rural residents dependent on the coffee trade will be impacted. In Central America, rising sea levels, rainfall, and temperature are projected to push the minimum altitude required from 2,000 to 3,000 feet above sea level, making coffee plantations less accessible and in need of greater infrastructure investment to bring a product to market.
Beyond Fair Trade
In a well-functioning free market, the decline of viable coffee-growing territory should ensure that growers would enjoy more competitive prices as the difficulty to produce the product increases. Regrettably, this is not the case, as the price of coffee reflects commodity trading rather than actual supply and demand, meaning that when these prices are set, it is not done by those whose coffee is actually trading hands. This failure of the economic mechanism prevents growers from getting a price that accurately represents the value of the coffee and what was required to produce it. In order to sell their coffee and recoup their costs, growers may choose to seek alternative markets that can offer them a better price.
One way better prices are ensured is through Fair Trade organizations. When coffee or other agricultural commodities are packaged with a Fair Trade label, it indicates that the producers and buyers of that product voluntarily chose to adhere to a set of business standards intended to achieve economic, social, and environmental goals. These goals often include better, more stable incomes for small-scale farmers, better labor rights, better connections between consumers and producers, as well as greater consumer awareness of issues confronting the producers.
The Fair Trade model originated with Alternative Trade Organizations who worked to cut out the middleman in order to facilitate more direct marketing of products. When coffee passes through fewer hands, the growers and producers can retain a bigger portion of the final price, a greater level of compensation sometimes known as a Fair Trade premium. The Fair Trade premium can be clearly observed as a preferable alternative to the commodity coffee market. At the time of this writing, the minimum price set by Fair Trade America for coffee is $1.40 per pound, and $1.70 per pound organic, a substantial difference compared to the commodity price of only 98¢ per pound. However, while organizations like Fair Trade America strive to give farmers a better shake, by their own admission this premium still falls short of the price needed to create a living income for all growers.
With even the alternative market that Fair Trade organizations provide unable to offer sustainable prices to small coffee growers, the conscious coffee buyer may wonder how they can keep these farmers afloat. Fortunately, small coffee farmers have united cooperatively and democratically in order to bring about systemic change on the supply side. Through this collaboration, small producers have created the Simbolo de Pequeños Productores or SPP. The Small Producers Symbol is the first of its kind, a third-party certification developed and implemented by coffee farmers themselves. Through this control, the growers can ensure a more equitable and viable economy for coffee farming at a more concentrated and intimate level. This is achieved through limitations on farm size and the number of hired hands, prohibiting large plantations. With limits on production size, farmer cooperatives must consider labor rights and the sustainability of their land to ensure their future business interests. They also set a higher standard of compensation for farmers, requiring a premium price of $2.20 per pound of coffee. At this price, these farmer cooperatives can not only enjoy a sustainable living standard through coffee farming, but they can also invest proceeds in better production techniques, greater infrastructure for processing and transportation, better education for their children, and environmental practices that will ensure their farmland can remain sustainable for years to come.
Equal Exchange
By embracing the cooperative model, SPP coffee farmers can better compete with the economies of scale on the supply side, but in order for coffee with this symbol to reach shelves, the growers must partner with buyers and roasters who share such values and commitment to a fair price.
Probably no organization better exemplifies this commitment in action than Equal Exchange. Annie Scholar, Sales Manager for Equal Exchange, notes that Equal Exchange can do things that other coffee roasters cannot by addressing the unfair market and the issues which create the need for Fair Trade organizations. Equal Exchange goes beyond other Fair Trade organizations by partnering with Small Producer cooperatives to match the SPP price on all organic coffee contracts.
It’s not just the commitment to fair pricing that makes Equal Exchange stand out as a cooperative coffee roaster. Beyond simply renewing coffee contracts with producers, Equal Exchange practices building long-term relationships with those growing the coffee. This is achieved in part by hosting strategic planning conferences with different farmer co-ops. Through such strategic planning, Equal Exchange works with coffee producers to identify their business’s needs in the years to come as well as to identify how they can help address these needs. Strategic planning sessions also provide an opportunity for farmer cooperatives at the table to share what projects and approaches they have taken in their community so that other co-ops can learn from and experiment with their examples. For example, one co-op has a training module to educate its members about regenerative agriculture and organic standards. This helpful tool can be replicated and used by other cooperatives to disseminate this knowledge and these techniques. In this way, Equal Exchange helps to leverage the resources that are available when many growers collectively meet at the table. This approach utilizes the powers of scale gained when many participate while maintaining a better, more democratic system by keeping ownership in the communities where the work is happening. In this way, Equal Exchange acts to take a systemic approach to confront a systemic problem.
The Future of Coffee
Even as Equal Exchange and the Pequeños Productores leverage the power of cooperation to combat the inequalities of the world coffee trade, there are only greater challenges to contend with in the years ahead. According to Todd Casperson, who has been with Equal Exchange for over 20 years, the coffee market in 20 years will likely be less sustainable than it is today. Climate change threatens to accelerate issues that can have a negative effect on the variety and quality of coffee available, and will likely drive up the price as a result. “Looking at the impact predicted 30 years ago, the changes were understated,” says Todd. “There is a potential to have systems collapse.” The continued loss of viable farmland could also go hand-in-hand with forms of coffee agriculture that are more input-intensive and mechanized, favoring chemically dependent GMOs over organic, regenerative methods. With the likelihood of more resource-intensive production methods producing more homogenized products, small planters will have less opportunity in coffee-growing while consumers will have fewer options of inferior quality to choose from.
Why should you choose Equal Exchange and SPP
With such uncertainty about the future of coffee, it is ever more important to seek a closer connection with your coffee grower through greater consumer knowledge about what is on your shelf. By picking up coffee with the Equal Exchange label or the SPP symbol, drinkers will know that farmers are being paid according to the actual value of the coffee they grow. Making informed choices about how you buy your coffee reflects the support you would give to small growers and farmers in Wisconsin when purchasing from small local producers. In turn, that money helps to build our own communities and ensure a better future here at home. When we make that same investment in our coffee, we can ensure that we are supporting better communities and futures for the farmers who cultivate this important staple.