Economic upheaval over coffee

Economic upheaval over coffee - Rising production and falling demand bankrupt farms from Indonesia to Mexico

By Howard LaFranchi | Staff Writer of The Christian Science Monitor
Catherine Elton in Guatemala and MIke Crawley in Kenya contributed to this report.

15th August, 2001.

Working in the coffee fields of Nicaragua, Euxenio Rugama used to earn $1 a day. Those, it now seems, were good times. Today, with global coffee prices plummeting, Mr. Rugama, like many fellow field workers and small farmers around the developing world, is broke. In May, the desperate odyssey of six bankrupt Mexican coffee farmers hoping to find work in the US came to a fatal end when migrant smugglers abandoned them in the Arizona desert.

From Latin America to Africa and Asia, falling profits from the aromatic beans, the developing world's second-largest export commodity after oil, are triggering enormous social and economic consequences. The worst price bust in nearly a century is causing hundreds of thousands of coffee farmers to either abandon coffee or quit farming altogether.

Meanwhile, some in the coffee business have accused Vietnam, the newest player in the global market, of setting off the decline by overproducing. Along with the economic issues, environmental questions are also being raised. Some analysts note that high coffee prices in past years led many farmers to plant on terrain ill-suited for coffee cultivation. And with so much coffee production now in sensitive rain-forest regions, the prospect of large swaths of coffee acreage being converted to pastureland or other uses alarms environmentalists.

The economics of the coffee crisis are simple. With global production up but consumption flat or falling, prices began to slide two years ago.Behind the equations and the fingerpointing are wrenching cases of fading traditions and displaced families from Sumatra, Indonesia to Chiapas, Mexico.In Mexico alone, more than 300,000 coffee farmers are estimated to have left their land, including the six farmers from the Gulf state of Veracruz, in the last two years. El Salvador, another exporter of people to the US, has lost 30,000 jobs.

Thousands of coffee farmers and field workers in Nicaragua descended upon nearby cities recently to protest the collapse in coffee prices. "Hunger is what pushed us here," says Rugama, who joined hundreds of protesting farmers in the city of Matagalpa.Desperation is also forcing Kenyan coffee farmers to abandon longtime growing methods that have given the country a reputation for producing some of the world's best beans. "Farmers are not able to pay for [chemicals and fertilizers], which means you end up getting poorer quality coffee," says Ashford Miriti, general manager of the Coffee Board of Kenya. What ensues is a downward spiral, he adds, because "low quality coffee isn't fetching much."

The lessons of the current coffee are still being debated, but experts say that the crisis points out what happens when a big new player enters the fray in a global market that is experiencing little or no growth.Vietnam, a minor producer through most of the 1980s, more than quadrupled its coffee production over the past decade, from 92,000 tons in 1990 to 487,000 tons in 1999, surpassing Colombia last year as the world's second-largest coffee producer after Brazil. Over the same years, the average coffee price rose from under $1 a pound to more than $2 a pound at the end of the decade - before plunging below 60 cents now.On Saturday, Vietnam officials said production there would be cut 20-30 percent to help reduce oversupplies and boost prices, according to state-controlled media in Hanoi.

While economists say coffee, like any other commodity, is simply subject to market swings that will be addressed by competition, development specialists, international rights activists, and environmentalists say measures are needed to help traditional coffee farmers.For some, a return to an international accord that regulates price and production - something that existed until 1989 -- is the answer.

Other ideas include:

• Getting multinational coffee marketers to share with farmers the windfall they've reaped from paying less for the beans, even as retail prices have remained steady.

• Offering more funds to help small farmers improve quality and enter the more lucrative specialty-coffee niche.

• Starting "fair trade" campaigns that encourage consumers to buy coffee grown without exploiting workers or the environment.

Such coffees bring growers higher profits.To shore up the coffee trade, some market specialists are even calling for campaigns to boost coffee consumption, which has fallen despite all those fancy lattes out there."People pay a lot for an espresso with a lot of milk mixed in," says Matthew Quinlan, director of coffee programs for Conservation International (CI) in Washington. "But compare that to the guy who used to sit at the diner counter and drink cup after cup of coffee, and you get an idea of why consumption is down."

Some development specialists have accused the the World Bank of instigating Vietnam's rise in the coffee market.But bank officials reject those accusations. After "extensive research into [our] projects, we've found the complaint by NGOs and others of widespread lending for coffee production is unfounded," says Bryan Lewin, a bank development economist.The bank did assist a rural financing project spearheaded by other international lenders, including European countries, which offered about $17 million for maintenance of existing coffee plantations. But that money was disbursed beginning in 1998, and could not have played a role in Vietnam's production jump, according to the bank's Vietnam rural sector coordinator, Christopher Gibbs.

Even some experts who wouldn't normally defend the bank say that in an atmosphere marked by antiglobalization rallies from Seattle to Genoa, Italy - the World Bank is simply an easy target. "Bank bashing has become a recreational pastime, and it has provided some financial aid that can be linked to increased production," says CI's Mr. Quinlan. "But, basically, this is the story of export tropical products. In this case you can blame Vietnam, but the fact is, there's always someone to come along and produce for less."

Both the World Bank and environmental groups are working on diversification projects that would make farmers less dependent on a single crop.In Mexico, coffee grower and executive president of the National Coffee Council, Roberto Giesemann, says producers should focus on improving quality and raising domestic consumption. "What we in Mexico and Latin America should do is focus on diversifying our production" with more emphasis on specialty coffees such as environmentally certified or shade-grown products, "so we can command a higher price.""Vietnam decided to become a major coffee producer, and did its work very well," he says. "We can't blame them for that."