Cup of Joe: Globalization and Coffee
Cup of Joe: Globalization and Coffee

Introduction

From the Colombian cherry picker to the Italian espresso shop owner to the Starbucks wi-fi user, globalization impacts all aspects of the coffee supply chain. Harvested in 80 countries, though consumed in nearly every country world-wide, coffee is the 2nd largest commodity (behind oil). Twenty-two million people worldwide depend on coffee for their livelihood.1

There are two main species of coffee: Arabica and Robusta. Arabica coffee is mainly grown in Africa and Latin America, while Robusta is main grown in Asia. North America has the world’s most coffee consumers.2

This analysis will examine the regulation of the coffee industry; the global consequences of the recent Coffee Crisis; the globalization of the coffee supply chain; the role of the coffee industry in Africa, Asia, and the Americas; the impact of the sustainable development and climate change on the coffee industry; and, the role of corporations in shaping the coffee industry and global coffee culture.

Regulating Coffee: International Treaties

The International Coffee Organization (ICO) is the main world institution used for regulating coffee through the use of quota systems to help keep the price of coffee stable. There have been seven agreements since the ICO was founded (1962, 1968, 1976, 1983, 1994, 2001, and 2007). Each agreement offers increasing oversight over the coffee industry, such as quotas (and suspension of quotas when the supplies are too low or prices too high) and increased market transparency measures. The ICO agreements provide a forum to publish and discuss issues, such as sustainability and private sector concerns. The ICO funds research, such as pest control studies, and promotes consumption.3

Coffee Crisis

From 2000 to 2005, there was a global coffee crisis in which coffee prices reached historic lows, impacting farmers from around the world. The crisis stemmed from a flood of low-quality, Vietnamese coffee (robusta) onto world markets, upsetting the balance of supply and demand. Vietnam aggressively promoted its coffee industry; it even expropriated land from the indigenous “Montagnard” people to build coffee plantations.4 The large quantities of low quality Robusta coffee beans on the world market forced Arabica coffee producers to lower their prices and also lowered customer expectations and interest, due to the increased number of defective coffee beans.5

The coffee crisis led to a loss of jobs, lands, and livelihood in all coffee-exporting countries, including Vietnam. Social upheaval and unrest and migration followed. For example, in Colombia, there was a surge of kidnappings, violence and farming of drug crops.6 Since a coffee tree takes five years to cultivate, before it becomes fully productive, the low prices had a long-term effect, as crops were neglected and farmers shifted products.7

Coffee prices rose again by 2005, partially due to increased consumption of coffee in China and Russia, as well as lower harvest yields around the world. While coffee prices have been higher since this crisis period, within the last few years, farmers have had to contend with rising fertilizer costs. Latin American countries, such as Colombia started subsidizing fertilizers, to offset the increased prices.8

Coffee Supply Chain

Coffee cherries are picked by hand. In the dry season, there can be multiple flowerings and thus multiple times when the coffee is picked. To ensure quality, many countries, including the United States and EU-countries employ mandatory grading and standards. Other countries, such as Ethiopia, use grading systems as well.

Middlemen (often referred to as coyotes) buy the coffee from the small farmers; larger plantations usually do not use middlemen, but sell directly to the international coffee processing or distribution company. The middlemen tend to pay less than the market rate and then sell the coffee at the higher market rate (keeping the difference).

During processing, ripe coffee cherries are separated from the under- and over-ripe berries and then are dried or sent to pulping machines. After being pulped, the beans can be dried or fermented.9 Once all the beans are dried, they are ground into a powder and shipped worldwide, or boiled (a traditional Arab way of preparing coffee). At this point, some beans are placed into machines for special processing used to make espresso and cappuccino.

The larger producers are able to sell coffee, by prices set by the the New York Coffee Exchange. Similar to other commodities, futures contracts for coffee are bought and sold on the New York Mercantile Exchange.

Coffee and Economic Development
Africa

Legends site that coffee was originally discovered in Ethiopia in 850 and cultivated on the Arabian Peninsula in 1100.10 For top African producers of coffee, Ethiopia (#1) and Uganda (#2), coffee is the one of the main sources of income for the country.

Ethiopia uses four coffee productions systems: forest coffee (10 percent), semi-forest coffee (35 percent), garden coffee (35 percent) and plantation coffee (15 percent); 95 percent Ethiopia’s coffee is organic. Fifteen million Ethiopians are involved in the coffee industry; the coffee is harvested using both wet and dry methods. Since consumers seem to prefer wet coffee, Ethiopia plans to increase the use of wet harvesting methods.11

Asia

The world’s first coffee shop opened in Istanbul in 1475. In 1690, The Dutch were the first to transport and cultivate coffee commercially, smuggling it from the Arab world to the East Indies.12 The Dutch also brought coffee to Java, Indonesia (which is now the 4th largest supplier of coffee worldwide).13

Over the last decade or so, Asia has begun to play an increasingly important role in exporting coffee, with India, Vietnam, and Indonesia as its top exporters. Vietnam, the world’s second largest coffee producer, mainly produces robusta coffee. Recent drops in the price of coffee, due to the global economic downturn and to decreased speculation, have led Vietnam to consider stock-piling coffee to protect its growers from the low international prices of coffee.14

Nestle has recently entered into a partnership with Vietnam to help train the country’s farmers to improve the sustainability and quality of their coffee crops. Nestle plans to introduce water optimization techniques as well as post-harvest procedures. The coffee though will still be used for low priced blends.15

Americas

Coffee is grown across the Americas.  There are differing accounts of its origin in the Americas. Some say John Smith first brought coffee to Virginia in 1607 , while others claims early settlers first brought the crop to Canada. Coffee was brought to Brazil in the 1700s. While Brazil is still the world’s top producer, Colombia, Mexico, Honduras, Nicaragua, Peru, are also big producers/exporters as well. For many of these (and other countries in the region), coffee is the primary export product.

Coffee exports provide about $700 million in national income for Mexico. About 200,000 of the 283,000 coffee farmers in Mexico are indigenous campesinos, who own less than five acres of land. Some of these farmers are part of cooperatives, such as Union of Indigenous Communities of the Isthmus Region (in Oaxaca), which provide most of the social services needed by these communities.16 Similar cooperatives can be found all across Latin America.

While these cooperatives are successful, there is still unequal land tenure in much of the region, in which a small number of land-owners control most of the land. This problem is particularly bad in Guatemala where two percent of landowners own 65 percent of the farmland. Much of the population is land-less and work as part-time, wage laborers.17

Colombia is the only country in the world to have a National Coffee Federation, which subsidizes farmers when international prices are too low. The Federation taxes the coffee when it is high to provide social services and infrastructure improvements in coffee-growing regions. There are about 560,000 coffee farms in Colombia, many of which are organized into cooperatives.18

Environment and Sustainable Development

There are different ways for growing coffee; one of the most sustainable methods is forest grown or shade-grown method. The coffee cherries are infused with the flavor of plants growing in the vicinity, such as cardamom, citrus, and vanilla. Forrest- grown coffee allows for natural soil replenishment, reducing the need for the use of pesticides and other chemicals.19

Climate change is expected to greatly impact many coffee-exporting countries. Coffee-growing regions will shift as increases/decreases in temperatures will affect disease and pestilence problems.20 Too little rainfall causes coffee cherry to shrivel. Another environmental problem associated with coffee bean farming is soil degradation from the use of too much fertilizer as well as exposure to the elements, which occurs when forests are cleared for coffee farming.

One issue that is often associated with coffee is the use of the fair trade system. Fairtrade coffee guarantees $1.26/pound (which is considered to provide a living wage to the farmers.) The fair trade movement also guarantees access to credit at fair prices. Often the extra funds associated with fair-trade are reinvested in the local communities for schools, health care facilities, and better housing.

To be certified as fair trade, cooperatives must prove to be democratically operated and must implement sustainable-growing practices (which are often expensive). There are approximately 300 fair trade cooperatives worldwide, which represent more than half a million growers or 12 percent of the international coffee growing community.21



Corporate Impact

Starbucks, McDonald’s, and Nestle, are just a few of the major corporations seeking to shape coffee cultures world-wide. Each has tried to differentiate itself and offer something unique, which will attract customers.

Nestle’s instant coffees, such Nescafe invented in 1938 is still extremely popular; Nestle’s newer Nespresso is making waves world-wide as well, even in Italy. Last year, Nespresso made the Swiss company 2.26 billion Swiss francs. Nespresso machines process Nespresso capsules, for .60 cents (Canadian), which is still cheaper than a cup of gourmet coffee. Some believe that this product “democratizes” the coffee market, by making it easy for anyone to brew a perfect cup of coffee.22

Starbucks was extremely popular in the 1990s, but has seen its sales slump, as competitors have offer high-quality products for lower prices. Starbucks is planning to offer higher-quality machines, such as Clover, which involves more personal oversight and more beans, hence a higher quality product. One aspect of Starbucks business that will make it attractive in the future, especially to environmentalists, is its focus on sustainability and use of fair trade coffee.23

Howard Schultz, CEO of Starbucks, sought to re-create the coffee culture of Europe and especially Italy, through creating a coffee- drinking experience, which makes the coffee shop a place for socializing and hanging out.24 Young coffee drinkers, who have spent time in Europe or the United States, have brought this coffee culture back to Asia (i.e. China), where tea used to be the dominant drink.25

McDonalds is trying to position itself as a legitimate rival to Starbucks, by offering high-quality, low-cost coffee. Recently McDonalds is trying to promote its McCafe and provide specialty coffees, like espresso.

Conclusion

Globalization impacts every aspect of the coffee industry. International laws regulate the industry and try to prevent price spikes and dips. Major corporations try to shape the market and influence which beans are grown and how they are processed. Farmers around the world are joining cooperatives, often funded and supported by international NGOs, to obtain better prices for their crops, as well as gain needed social services for their communities. Not all of the impacts are positive though, environmental degradation and greedy commodity traders can certainly hurt the industry and its supply chain.

Nonetheless, socially-conscious coffee drinker can play a role by choosing to support companies that treat their workers fairly and pay them living wages.


1 “White Paper: The Global Coffee Crisis.”
2 “The Story of Coffee.”
3 http://www.ico.org/history.asp
4 “Coffee Culture Around The World – Culture In Asia.”
5 “White Paper: The Global Coffee Crisis.”
6 Ibid.
7 Ibid.
8 Harris, Brian. “Fertilizer costs threaten Latin American coffee harvest.” New York Times.
9 Coffee drying.
10 Coffee History.
11 “Ethiopia: Coffee History, Production, Economy facts.”
12 Coffee History.
13 “The Story of Coffee.”
14 “Price drop prompts motion to stockpile coffee.” Thanhnien News. July 3, 2009.
15 Merrett, Neil. “Nestlé plots sustainable coffee in Vietnam.” Beverage Daily. February 16, 2006.
16 Fair Trade Farmers in Mexico.
17 Fair Trade Farmers in Guatemala.
18 Fair Trade Farmers in Colombia.
19 Titus, Dr. Anand and Geeta N Pereira “Coffee Forests – a Gateway to Wild Life.” June 15, 2009.
20 “Africa: Climate Change Threatens Crop Yields.” All Africa. July 7, 2009.
21 “The Politics of Coffee.”
22 Reguly, Eric. “No ordinary Joe: Nestlé pulls off caffeine coup.” The Globe and Mail. July 7, 2009.
23 Wiggins, Jennie. “When the coffee goes cold.” Financial Times. December 13, 2008.
24 Ibid.
25 “Coffee Culture Around The World – Culture In Asia.”

* Pictures: http://www.flickr.com/photos/bitzcelt/399136360/, http://www.flickr.com/photos/geodanny/17246054/, http://www.flickr.com/photos/bloggle/33034765/, http://www.flickr.com/photos/chavals/3042716351/

Leave a Reply


× 6 = eighteen