Wednesday, January 26, 2011

What’s behind the coffee trade (part 2): The market and the farmer

Here’s another term to put under your belt: commodity dependency. Somewhere between 20 and 25 million families worldwide produce and sell coffee. That is, it is their livelihood. They depend on it. This is a commodity dependency, which leads us to what is referred to as the coffee paradox.

The coffee paradox refers to the disparity between the poverty of coffee producers and the rising profits of retailers. It is estimated that 90 percent of coffee production occurs in developing nations, while the majority of specialty coffee is consumed in the developed world.

It is also estimated that the coffee producer will reap less than 10 percent of the retail price of specialty coffee. Small-scale coffee farmers, often looking to make ends meet any way possible, are especially vulnerable to an extremely volatile market and those local traders, exporters and representatives of large companies who are looking to buy at the lowest price possible.

The ever-changing coffee market makes it very difficult for farmers to be able to take into account the projected income of any given harvest. Without knowing what the international price of coffee will be, they cannot plan production accordingly. This volatility also makes it difficult for governments to respond effectively to estimated revenue with social spending and debt servicing.

Now if we zoom in a bit more, we can see that there are a number of factors at a local level that contribute to a farmer’s income. For instance, a farmer’s access to technical assistance, lines of credit and transportation all make a big difference in a family’s ability to get by.

Coffee Kids regularly goes to origin and talks to the producers about their relationship with the coffee market. They tell us that low prices are nothing new for them. They have found ways to get by, even if it is only a temporary solution.

To be continued…