NI: Global Issues for Learners >The Issues > Coffee > Unfair Trade

logoUnfair trade!


When you drink your next cup of coffee, think about how much it cost.

chart of profit distributionThen ask yourself:

  • How much of that price went to the growers, the people who planted the coffee, took care of the plants, picked the coffee beans, cleaned them, and dried them?
  • How much went to the exporters?
  • How much went to the companies who shipped the coffee beans and roasted them?
  • How much went to the retailers who sold the coffee in their shops

This chart shows the answer:

Coffee is a multi-million dollar industry, but the profits don't go to the people who actually work so hard to grow the coffee beans, and carry all the risks of failing crops or falling prices.

Most of the profits go to the shippers, roasters and retailers.

PROFIT: (n) the money that someone makes after all the costs have been paid. (Can also be a verb)

SHIPPED: transported

The Growers: poor farmers in the South

chart: coffee producing areasCoffee grows only in the tropics. It is grown mostly by small farmers as a cash crop, a crop that they can sell to try to make a living.

These farmers are poor, and they do not have any reserves of money to support them when their crops fail or when coffee prices are low. The small farmers have to sell their coffee beans when they are ready to be harvested, and take whatever price the coffee buyers offer.

The governments of many coffee-growing countries have very large external debts. Therefore the governments need to export in order to get the hard currency with which to repay the debts.

The coffee-growing countries are forced into competition with each other, each trying to get a bigger share of the market. This means that they all produce more and more coffee. As a result, there is too much coffee on the world market and the price falls, so each country has to try to sell more coffee to make the same amount of money.

 

NORTH & SOUTH

RESERVES: (n) extra money that has been kept to use in 'bad' times

SUPPORT: (v) to 'hold them up' - to help them live until things improve. (Also a noun)

EXTERNAL DEBTS (Money & Debt)

HARD CURRENCY: currencies like the US$ or the yen, which keep their value. (Money & Debt)

 

Another example of this problem is
Copper mining in Zambia (mining)

The Buyers: powerful corporations in the North

Most of the world's coffee is bought by just a few countries, and most of the world's coffer market is controlled by a very few companies.

Over 70% of the coffee on the world market is imported by just nine countries in the North.

chart: coffee consuming countries

 

Within those countries, the giant corporations have most of the market share.

Take Britain, for example: "There are 2 big manufacturers, Nestle and Kraft, and 2 big retailers, Sainsbury and Tesco. Between them, they sell well over half the coffee in this country." Peter Cushman, public relations manager for a Co-op superstore in England.

chart: coffee sellers, UK

 

MANUFACTURERS: the companies that process the coffee (roast & pack it)

RETAILERS: the companies that sell the coffee (here, 2 large supermarket chains)

WELL OVER HALF: a lot more than half

Coffee prices and coffee production

Coffee prices and coffee production are very unstable.

The weather can destroy coffee crops. The chart shows how world coffee prices suddenly rose as a result of serious damage to the Brazilian coffee crops (20% of the world's coffee) in 1975 (frost), 1984 (drought), and 1994 (frost).

graph: yearly price fluctuautions

 

FROST: (n) powdery white ice

The effects of price fluctuations

When prices are high, small farmers often plant more coffee bushes, in the hope of making a little more money. However, if a lot of farmers plant more coffee, there is a problem when the plants start to produce coffee beans about three year later.

Suddenly, there is far too much coffee on the world market, and so the price falls sharply again. Some coffee farmers have to leave their farms and try to find other work, so that in the following years there is a shortage of coffee again.

The small farmers are powerless in the face of disasters and low prices, but the retailers and manufacturers are protected because they are big enough and rich enough to get through the 'bad' times.

Have you noticed that retail prices rarely go down?

When world coffee prices rise, the price we pay in the shops usually goes up too.
Yet, when world coffee prices fall, the price in the shops doesn't come down. This is one way that manufacturers and retailers can even out the effects of world price changes.

RETAIL PRICE: the price for which something is sold in the shops

Commodities trading: coffee futures

In theory, the futures market is another way to keep coffee more prices stable.


This is how it works.
Because the price of coffee can change so much from year to year, a lot of coffee is bought at a fixed price long before it is ready to be harvested: instead of buying actual coffee beans after they have been picked, the corporations buy 'coffee futures' that is they agree that they will buy the coffee beans for a certain price when the harvest time comes.

However, in reality, the system provides an opportunity for speculators in the 'futures' markets to make a lot of money, because the coffee futures are bought and sold many times before the coffee beans themselves reach the manufacturers.

The London Commodities Exchange* (which deals with commodities like sugar, cocoa, oil, and African-grown coffee) has more than $30 billion of investments - and makes more profit than the London Stock Exchange.

* Most of the coffee beans from Latin America are traded on the New York Coffee Exchange, but they are very similar.

COMMODITIES: things that are bought and sold on the world market

IN THEORY: as an idea (not hoe something works in practice)

FIXED PRICE: a price that is agreed and will not change

SPECULATORS: people who buy and sell things on the money market in the hope of making a quick profit.
Speculation (Money & Debt)

LONDON STOCK EXCHANGE: the centre of financial dealing in the UK

 

 


This information was taken from the September 1995 issue of the New Internationalist.

© 1995: the New Internationalist


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Last Modified: 10th March 2000