Coffee is the second most traded commodity in the world, after oil. The coffee business is worth $100 billion dollars, making millions in profits for the big companies that control it.
And yet, most of the world’s coffee farmers made USD $1-3 per day, living well below the poverty line. Millions have been forced to leave home in the last three decades.
How is this possible? Why do the people who do the most backbreaking work see so little profit? Where is all the money from the coffee trade going?
Most of the world’s coffee trade is controlled by five companies: Starbucks, Sara Lee, Procter & Gamble, Kraft, and Nestlé. This gives them enormous control over the business, allowing them to buy coffee from the farmers as cheaply as possible.
Philip Morris alone controls several major coffee brands. These include:
- Maxwell House
- General Food International Coffee
- Carte Noire
These companies are the very definition of “too big to fail.” Their economies of scale are enormous. They can afford to buy thousands of tons of coffee and let it rot, just to maintain control of the market.
The profits for Big Coffee are astronomical. In the year 2000, the President of Philip Morris earned over $5 million. Nestlé’s sales alone were worth more than 20 times the GDP of Nicaragua, a coffee-producing country.
Because these companies handle such large economies of scale, they often control every step of the supply chain. Every intermediary and third party involved is indirectly working for them, from the people buying directly from the farmers to the people moving the product out of the mountains and jungles, into cities where it will be sold.
These companies have access to satellite photos and sophisticated weather reports to closely follow ecological trends. They know where in the world crops are likely to fail, and where they can buy the beans cheaply from desperate farmers.
Of course, making a profit isn’t necessarily a bad thing. But can’t there be enough for everyone? Why does so little of the money get down to the farmers who do the hardest work?
Coyotes: doing the dirty work
Most corporate executives of Big Coffee will never meet a coffee farmer in the field. The folks who do their “dirty work” are the intermediaries—those who buy the coffee from the farmers for dirt cheap, making a profit by moving it from one place to another.
In many Latin American countries, these intermediaries are referred to as coyotes—named after the hungry, fanged predator. They are known for their dirty tricks: promising one price to farmers, only to knock the price down when the harvest comes in.
The coyotes monopolized the trade and gauged the farmers on the price, always with the same excuse: “Hey, that’s the market price these days. You can take it or leave it.”
These middlemen do the dirty work of Big Coffee. They are known across coffee country for intimidating farmers and cooking the books—and they are an integral part of corporate coffee’s strategy. The “Big Boys” would never make their profits without them.
The farmers who invest a year’s work into harvesting coffee get mere pennies, while the intermediaries step in and make huge profits. And in much of the world, these coyotes monopolize trade at a local level. Because there are no other buyers, the farmers have no choice but to sell to their local coyote—even if the price is a pittance.
For decades, coffee-producing countries maintained a degree of stability through something known as the International Coffee Agreement. Created in 1962, it functioned like a sort of OPEC for the world of coffee—coffee producing countries agreed upon their quotas, keeping prices high and stable.
Then the 1980s “neoliberalism” became popular. Ushered in by U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher, it was the belief that the economy always works best when left alone. No price controls, no tariffs, no government aid—just leave the sovereign market to work everything out. The Invisible Hand will decide what’s a fair price, they preached, and everyone will prosper.
Governments around the world bought into this doctrine. Across Latin America, nations were pressured to open their markets to unlimited foreign trade, to get rid of all their subsidies and assistance programs. Let the market solve problems like poverty and inequality, the neoliberals promised. The market knows best. The market is supreme.
After years of pressure, the ICA fell apart in 1989. The United States had been supporting it as an effort to keep coffee-producing countries from falling under Soviet influence. With the Soviet Union gone, however, the U.S. saw no need to keep supporting the ICA. While a reboot of it appeared in 2011, it has never returned to its pre-1989 level of influence.
With the ICA gone, farming coffee became a gamble. Hardworking farmers were at the mercy of global market prices, forced to survive with no subsidies, no price controls, no assistance. Meanwhile, the countries in the Developed World kept their own subsidies and safety nets in place. The application of neoliberal economics was lopsided and unequal.
This was certainly the case with the North American Free Trade Agreement (NAFTA) of 1994. Mexico was pushed to stop subsidizing their farmers—including the half million people who farmed coffee—but the U.S. kept subsidizing its own massive agribusiness. (And still does, to this day.)
U.S. corporate farmers got fat government checks; smallholder farmers in Mexico were left to play the Russian roulette of the “free market.” NAFTA created a huge, unnatural handicap for Mexican farmers and, when they couldn’t compete, they left the farm. At least three million people abandoned Mexico’s countryside in the years immediately following NAFTA.
Coffee producers were a big part of this exodus from the countryside. Many of them actually lost money some years, as the market price dropped below the cost of bringing in a harvest. A whole year’s work for that harvest, only to lose money in the process.
Coffee farms: far from the city
Coffee can’t just be grown in a greenhouse on the outskirts of town. Much of it is grown in remote, rural places, in the mountains and jungles of Ethiopia, Guatemala, and Vietnam, far from major cities. High-quality shade-grown coffee is planted between trees deep in the forest.
The farmers who grow it live in small mountain villages, accessible only by one tiny road. It takes hours, and sometimes days, for vehicles to transport it into the cities, where it will be bought, sold, and exported.
It would be great if every coffee farmer had their own vehicle, their own direct access to the selling markets in the cities, and enough free time and money to drive their harvest down the mountain every year. But this is not the case. Many farmers can barely put food on the table.
So they depend on the intermediaries—the coyotes—to transport it for them. Since they are dependent on them, they have to accept whatever price the intermediaries offer them. The coyotes, meanwhile, are pressured by the corporate folks at the top to pay as cheap a price as possible.
It all depends on that one harvest
Many coffee farmers have not been able to diversify their crops. They depend on the coffee harvest—which, in most places, comes only once a year—to make a living. If they are offered a price that is too low, they can barely feed their families.
It isn’t just the farmers who haven’t diversified—there are entire countries that depend on this one crop. To this day, 60% of Ethiopia’s foreign income comes from coffee, with 15 million people depending on the coffee trade. It makes up nearly 80 percent of the total exports of countries like Uganda, Burundi, and Rwanda.
A drop in the market price, with no safety net or price controls, can be absolutely devastating.
The farmers have no access to the value added
It isn’t just that they get gouged on the price paid for their raw coffee beans. Much of the money made in the coffee trade comes from processing them, a lengthy series of steps to turn freshly harvested coffee—in the form of red cherries with a single bean inside—into the final product.
Just getting the bean out of the cherry involves:
- Soaking cherries to loosen the fruit from the bean
- Removing the fruit pulp
- Extracting the bean to dry it
- Removing the thin husk from the dry green coffee beans
Of course, the green coffee beans aren’t ready to be brewed yet. First, they must be:
- Roasted to the desired hue
- Ground according to the brewing style: espresso, drip, pour over, French press, etc.
- Brewed into the final product
Every step of this process adds value to the coffee. Coffee farmers don’t have access to all the equipment to turn harvested cherries into a cup of coffee. Most of them just sell the raw, green beans—and someone else makes the profit from the remaining steps.
Add all of these factors up—corporate monopolies, coyotes who pay low prices, deregulated markets, the remote locations of the farmers, dependence on one crop, and no access to value added—and it’s no wonder coffee farmers are so poor.
Is it always wrong for a CEO of a company to make five million dollars a year? Who knows. I’ll leave that question up to the philosophers and theologians. However, it is definitely wrong to get rich off the suffering of others. When corporate profits rise while coffee farmers can’t feed their own children, something twisted and perverse is going on.
Luckily, this isn’t the end of the story.
Fair Trade is a movement to change this lopsided situation, to get more of the profits back to the farmers. [ARTICLE: HOW FAIR TRADE WORKS] Fair Trade-certified coops bring farmers together, giving them access to equipment to process coffee, connecting them with direct Fair Trade buyers and cutting out the middlemen. While it isn’t perfect, it’s made a lot of tangible progress towards improving the lives of coffee farmers. And it’s easy to make the switch as a consumer: Is Fair Trade Coffee Always More Expensive?
Most of the world’s coffee farmers are very poor—but it doesn’t have to stay that way.