- Of the world’s 12.5 million coffee-farming families, 80% live below the poverty line
- Paying farmers higher prices is a reductive solution which does not address issues of value addition
- Broad-based development means investing in productive assets that benefit and give power to farmers.
WHILE IT may seem simple and straightforward, paying more money for coffee does not solve as many problems as the specialty coffee market might think it does.
It is well-known that coffee farmers are largely price takers. This means they generally have no choice but to accept the price they offered – and that other actors in the supply chain influence and decide selling prices.
Kenneth McAlpine is the founder of Tusker Coffee Roasters, a company that farms and roasts coffee. “[It’s clear] that between the farmer and the consumer, people in between are making money,” he says.
But given how complex the supply chain is and how irregular income is for coffee farmers, “paying more money” is unfortunately an overly reductive and often one-dimensional response.
The mathematics are simple: paying more for coffee does not change the percentage a farmer receives from the value of their lot.
Consumers purchase specialty coffee at a higher price, but that increase filters back through every stage of the value chain – the roaster, the importer, the exporter, and any other player through which the coffee has passed.
In this situation, the farmer still has the smallest slice of the pie. The majority of the value is added after the coffee leaves the origin country.
There are plenty of things that would help farmers become more profitable, but value addition is one of the most important conversations to have.
Moreover, paying farmers more money could have unforeseen consequences. If farmgate prices were to double overnight, we’d see plenty of disruption. People would abandon other cash crops in droves and flock to coffee production, capitalising on these higher prices.
If production surged in this way, this would have an impact on the supply of coffee and prices would again become volatile. While speculative, this shows that simply increasing prices alone is not as straightforward as it seems.
And while attending to the supply issues that the industry faces is critical, addressing this through price increases is a reductive solution that does nothing to address certain longstanding structural issues.
A broad-based development model would present a holistic and integrated approach when addressing inequity in the coffee supply chain. It looks beyond pure economic growth to incorporate a range of social, cultural, environmental and political factors, often across a range of sectors so that development is resilient.
For the coffee industry, it would extend beyond the singular goal of paying farmers more money, integrating higher prices with wider social objectives.
It would mean investing in productive assets, such as infrastructure for processing mills, that benefit and give power to farmers.
As it stands, the current model is far too unstable.
Kenneth explains: “Every crop season, there is a phenomenon that will affect production. Maybe it’s floods in Kenya, severe frosts in Brazil, drought in Sri Lanka…”
Generally speaking, producers only receive payment in one lump sum when they sell their entire harvest. This ends up being their working capital for the following harvest season. This means that if adverse weather, a natural disaster, or large-scale infrastructure investments cost them a significant amount of money, it can be debilitating and take years to fix. The irregular nature of payment and ongoing climatic issues also mean banks generally won’t lend to farmers without extortionate interest rates.
This is a structural issue – and not one that can be addressed by simply paying more for coffee.
By addressing problems with a more holistic approach, farmers gain more control, can make infrastructure changes, and improve their long-term security. A broad-based development model would also see knowledge regarding agronomy and finance become more democratic. In line with this, we would get a pathway to genuine sustainable development.
Does domestic consumption have a role to play?
Another issue to solve is the fact that most coffee producers have few avenues to sell their coffee through. This is why the industry so often refers to them as “price takers”.
But what if farmers were able to sell to a greater range of markets?
For example, as Colombia’s coffee farms have expanded into the specialty sector, changes in regulation have increased the domestic demand for coffee. The Pasilla y Ripio law encouraged Colombian companies to use defective beans and prohibited buying, roasting, and marketing the high-quality coffee grown in the country.
The lifting of that law in 2003 saw the domestic consumption of specialty coffee in Colombia begin to steadily increase in the years that followed.
An increase in domestic demand leads to greater competition against the global market. If an exporter offers a producer a price that is too low, farmers can look to a domestic buyer instead – where they may be able to benefit from a larger slice of the pie.
Ultimately, an increase in domestic demand gives actors in coffee-producing countries more control over the markets where they sell and can provide more stability for rural coffee farmers.
However, few countries have managed to successfully develop a robust internal market for high-quality coffee. Brazil is one example (following a long campaign by ABICS to drive internal consumption) while there are also hotspots for specialty coffee consumption in Colombia. It’s clear that internal consumption is not an issue that can be resolved overnight.
Ultimately, it’s clear that we can’t afford to be reductive when addressing any structural issues in the coffee supply chain. An intricate, strategic approach which tackles the issue of value addition is clearly a good place to start. And while price increases may well be a part of this strategy, it’s clear that they will not be the singular focus.