Wednesday, January 26, 2011

What’s behind the coffee trade (part 3): The market and the farmer continued

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.

When prices rise, though, specialty coffee producers find themselves facing different challenges. Program Director José Luis Zárate recently interviewed Tomás Pacheco López, coffee producer and one of the leaders of the Miramar Cooperative in the Mixteca region of Oaxaca. He explained that coffee cooperatives such as his sign their contracts long before harvest. When the harvest does arrive, prices can be so high that it is very tempting for the farmer to sell his coffee to the coyote at a better price than what the cooperative can offer. This then creates conflict and divisive behavior within the organization. Members of the cooperative begin to feel suspicious of the leaders and their motives for not paying as high as the market dictates.

Tomás explains that is difficult to explain the international coffee market to the producers. And so the cooperative uses the money it has saved for community investment or borrows money to artificially raise the price of coffee and therefore meet the demands of the producers.

So coffee prices rise. Some say that the farmer is finally getting paid a fair price. But cooperatives are faced with only a few bleak options. They could refuse to comply with their contracts, given that the producers do not want to sell their coffee for less than what the coyotes offer. Or the cooperative spends its savings or accumulates debt trying to compensate for the disparity in prices. Or the cooperative may face disintegration when the leaders are unable to face the buyers, who demand that producers comply with their contracts, and the producers who demand a more just price. To further complicate things, local traders take advantage of the situation by speculating and buying coffee at one price from one group and at a lower price from another group, thereby creating the appearance of a threat rather than healthy competition.

There have been cases, although rare, of cooperatives that have developed strong relationships with their buyers. In these instances, the buyer understands the potentially serious consequences of not adjusting the price to better reflect the market. The buyer is more sensitive to the needs of the producer, and they are able to reach an agreement that makes for a long-lasting relationship.

One may be tempted to think that certification is the answer to a volatile market. Unfortunately, though, there are not adequate measures in place to support the producers when the market becomes unpredictable and governing bodies have been unable to respond with proper compensation or regulation.

This has lead to an overall disappointment in the certification process, whether it be organic, fair trade or both. Many cooperatives believed that the seal would protect them from the negative effects of the market. Many have come to the conclusion, though, that the protection is insufficient when prices are low and a disadvantage when prices are high.

The group of people in the coffee chain that should receive the most protection and support turns out to be the group that is most vulnerable to the market and its volatility.