When the Market Drops Again, Who Will Be Left to Speak Up?

When the Market Drops Again, Who Will Be Left to Speak Up?

By KIM ELENA IONESCU

Join us on September 25 at 8 a.m. PST / 4 p.m. BST for the 2nd webinar in our Sustainability series on Farm Profitability. Register here

On Tuesday, August 21, 2018, the commodity futures market for coffee opened at ninety-eight US cents after hovering just above a dollar for a few days. This drop below the $1.00/lb. mark prompted my colleagues and friends across the globe to react with outrage, sadness, and disgust. Many expressed on social media that “this is not okay” with them (though actually, it was more like, “THIS IS NOT OKAY”), and sought confirmation from the rest of the industry that others feel the same way. I certainly agree, and as I look around the specialty coffee industry I see broad and vocal agreement that it is outrageous, sad, and even disgusting.

But you know what it’s not? It’s not surprising.

The report on coffee farm profitability published by the SCA in 2017 concludes, based on the studies it reviews, that across coffee-growing geographies, farms with production costs in excess of $2.50/kg, or $1.14/lb., are not profitable. Costs vary between farms, of course, but even if $1.14 is on the high end (and I don’t believe it is), that’s a farm gate* price that is 16 cents higher than the futures market** price, which would be paid for coffee that was prepared for (international) buyers by being milled, sorted, bagged, and loaded on a ship – of which activities add costs to that $1.14. In this scenario, a farmer selling any portion of their coffee to the local market at 98 cents would have to receive a thirty-two-cent premium on the same quantity of coffee in order to simply break even on their crop! That’s not happening for coffee producers, despite prices for top-tier coffees (including auction lots at Cup of Excellence competitions) making headlines for breaking records – their high prices belie small volumes.

The C was at $1.27 when that report was published last October, and at the time that felt sickeningly low. Barely ten months later, the same price would likely be welcomed with relief by many in the industry even though $1.27/lb. on the futures market translates to farm gate prices below the $1.14/lb. benchmark. Coffee farmers and organizations representing farmers have been warning buyers for years that from a purely economic perspective – to say nothing of environmental and social pressures – coffee production is increasingly unattractive in all but a handful of places. I often hear (and I repeat) the prediction that climate change will cut the amount of land suitable for coffee production in half by 2050, but with market conditions like the ones we’re living in, I wonder if the sector might lose half of its farmers by 2030.

I have seen calls for the SCA to do something about the current market, which have included at least one exhortation to lobby. The last time the price dipped below the $1.00 mark (largely as a consequence of the collapse of the government-regulated International Coffee Agreements), in the late 1990s and early 2000s, the association did go to work to advocate for investment, including encouraging donors like USAID to invest in specialty coffee and quality improvement as a means to increase incomes and stabilize rural communities in coffee-growing regions. The investments of that era were critically important and in some cases, transformative, but USAID grants to development projects always eventually end. Market relationships, on the other hand, have the potential to last and even to grow, as long as demand for the product persists. But while demand for coffee has strengthened in the past two decades, many of the purchasing relationships initiated by aid funding, and the communities of coffee growers involved, have not benefited from the industry’s overall growth.

Some responsibility for today’s market levels lie with factors – like the relative value of the US dollar – that are beyond the control of any individual coffee buyer, but currency fluctuation can’t be fixed by lobbying. Ultimately, the futures market isn’t regulated by producing or consuming governments – it’s a platform for buyers and sellers (and yes, speculators) – and that’s who we are. And we don’t need to lobby ourselves, right? Especially if we agree that this is not okay? We’ve got tools at our disposal to effect change, including personal relationships with suppliers (and our customers), consumer research, an ever-increasing amount of publicly available data, and promising new technology… but we have to use them.

There’s a famous, poetic quote by a German pastor and theologian named Alfred Niemöller that begins “first they came for the socialists”. In it, the author lists groups targeted by Nazis and uses the fact that he’s not a member of each group to rationalize his decision not to defend the group before it’s finally his turn to be targeted and “there’s no one left to speak up.” If we apply that metaphor to coffee, it might go something like this:

  • First coffee rust came for producers in El Salvador, but I did not speak up because I could substitute coffee from Guatemala.
  • Then labor scarcity came for producers in Guatemala, but I did not speak up because Nicaragua had a favorable harvest that year.
  • Then political instability came for producers in Nicaragua, but I did not speak up because Honduras invested mightily in higher-yielding, disease-resistant varieties.
  • Then coffee rust morphed and came for producers in Honduras, and…

 

I think you get the point: eventually, there will be no one left to speak up.

While it’s cathartic to bemoan the injustice of a sub-dollar market, I can only stand to wallow if wallowing helps us harness our energy to change its future course. If you don’t know where to go to learn how to channel the outrage, sadness, or disgust you feel at seeing coffee sold for 96 cents per pound into action, here are a few good places to start: read this report, listen to this podcast, and watch this webinar. If you’ve done all of those things and want to delve deeper, we are also hosting a series of webinars on profitability led by volunteers and SCA staff and incorporating diverse perspectives and strategies. Register here to join us for the 2nd webinar on Farm Profitability and Prosperity September 25, at 8 a.m. PST / 4 p.m. BST.

And once you know, well, please speak up and act out.