Coffee farmers face crisis

Stephen Mahia, 10, is one of the new generation of Kenyan children who cannot go to primary school. Ten years ago, this was almost unheard of in Stephen's district, where for generations there has been a passionate hunger for education. Cash from growing and selling coffee beans helped build the primary and secondary schools, and pay for the children to attend them.

But over the last five years world prices for coffee have dropped dramatically. At the moment they are fetching only half the price they were in 1997. This year, Stephen was sent home from primary school because he was unable to pay his fees. His brother Samuel Boro, 8, has been unable to even start at school.

Stephen is one of 25 million people around the world whose livelihood has been drastically affected by the collapse in the price of coffee - which has halved in the past three years to a 30-year low. Long-term prospects are grim. Many developing-country coffee farmers, mostly poor small-holders, now sell their coffee beans for less than they cost to produce. In Vietnam’s Dak Lak Province, for example, they fetch only 60 per cent of production costs. The coffee crisis has become a development disaster whose impacts will be felt for a long time.

Families dependent on the money generated by coffee are pulling their children, especially girls, out of school. They can no longer afford basic medicines, and are cutting back on food. Beyond farming families, coffee traders are going out of business. National economies are suffering and some banks are collapsing. Government funds are being squeezed dry, putting pressure on health and education and forcing governments further into debt.

At the other end of the supply chain, the big four coffee roasters, Kraft, Nestlé, Procter & Gamble, and Sara Lee, are doing quite nicely. Profit margins are high. Nestlé has made an estimated 26 per cent profit margin on instant coffee. Sara Lee’s coffee profits are estimated to be nearly 17 per cent – a very high figure compared with other food and drink brands.

A basic cause of the price collapse has been an over-supply of coffee beans on the market. Eight per cent more coffee is currently being produced than consumed - and production is increasing faster than demand. Under pressure to maximise export earnings, Brazil, the world's largest exporter, has increased its already substantial production. And Vietnam has made a dramatic entry into the market in the last few years increasing production from almost nothing to becoming the world's second largest exporter.

Until now, rich consumer countries and the coffee companies based in them have responded to the crisis with inexcusable complacency.

There have in the past been inter-government agreements to manage the supply of coffee beans, but these have failed dismally. The lessons of these failures have to be learnt - but so too must the lessons of the moment. A Coffee Rescue Plan, which brings together all the major players in the coffee trade, is needed to make the coffee market benefit the poor as well as the rich.

This means roaster companies paying farmers a decent price, above their costs of production. It also means reducing supply and stocks of coffee on the market - for example, through roaster companies trading only in coffee that meets basic quality standards, and by destroying stocks of lower grade beans. Coffee-producing governments have already agreed a plan that aims to reduce supply by improving the quality of coffee traded.

Few of us enjoying our freshly brewed cuppa each morning are aware of this coffee crisis and the plight of coffee farmers in Asia, Africa, Central and South America. Their situation will only change with the help of the companies and rich countries, alongside measures that address long-term rural underdevelopment.