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April 25, 2011

Fair trade, supply and demand, and Peace Coffee

When IATP started Peace Coffee in 1996, its position as the country's first certified 100-percent organic and fair-trade coffee company was more than just a first—it was the central idea behind the company. Peace Coffee's use of fair-trade, organic green coffee beans helps connect farmer cooperatives around the world to consumers. Over the years, IATP has continued its work advocating for fair trade and Peace Coffee has flourished, with a new coffee shop in Minneapolis and an ever-growing, passionate staff. The piece below first appeared in Peace Coffee's April Peace Spokes newsletter, written by Anna Canning, Peace Coffee's project manager. It addresses the issues affecting the rising price of coffee and what it all means for farmers, co-ops and coffee drinkers.

Harvest Update, by Anna Canning

Perhaps you've already noticed it in the grocery aisle; perhaps you're an avid follower of the commodity markets; or perhaps you've read, seen, or heard the news lately: coffee prices are up. "What's going on in the commodity market?" seems to be the question of the season.  It's a complex system and experts disagree on the precise causes of the rapid rise in coffee prices that have now reached 34-year highs -- and no one can say for sure whether they'll continue to rise or fall. General consensus is that we're experiencing the interaction of a few factors. As we reported last year, recent harvests in many areas have been lower, which producers are attributing to changing weather patterns, putting pressure on the available supply of quality coffee. Add to that increasing coffee consumption around the world in producing countries such as Brazil and as well as in emerging markets such as China, where more people are reaching for a coffee mug every day.

So far, that's classic supply and demand, forces whose interactions are sketched quite neatly in a straight diagonal line across the pages of high school econ text books across the country. Real life, however, is not so neat. In recent years, as the rosy glow paled on the notion of investing in real estate and vague mortgage products, investors flocked to diversify into commodities. Increased speculation has increased volatility across the markets for various products and means that an increase in coffee prices can no longer be so cleanly linked to bad weather in Brazil, for example (if curious, our parent organization IATP has thought extensively on this topic.

All these factors impact commodity market prices for basic, Folgers' grade coffee. Similarly, as more coffee drinkers come to appreciate coffee as more than a generic caffeine delivery system, demand is increasing for specialty grade coffee. We've long told the story of the coffee we roast as being unique from region to region, community to community, not just "decaf" or "regular" or the "washed mild" of the trade. That's not just marketing hype and just as the flavor of each bean is unique, so too is the impact of recent developments on each farmer group.

Fifteen years ago, the story of Fair Trade could be distilled into a few talking points: in those days of low market prices, the goal was to pay coffee farmers a fair, stable minimum price, provide access to markets and financing while cutting out the middlemen who profit at the expense of small-scale farmers. When prices are up, the simple story "Fair Trade pays higher prices to farmers" is no longer quite so true. Indeed, high commodity market prices can cause logistical challenges for co-ops as they scramble to communicate with their sometimes far-flung members and compete with deep-pocketed local middlemen for coffee. 

Queen Bean Lee recently returned from a trip to Guatemala to visit some of our producer partners there: Apecaform (from whom we've been buying the beans that make up the Guatemalan Dark roast and the backbone to this year's Pollinator Blend) and Chajul, another long-time trading partner. Her stories of this trip sum up some of the evolution of  Fair Trade, and what remains relevant in these days of high coffee prices. 

Last year when we were beginning to look ahead to this year's harvest and the escalating coffee market, we sat down with the other members of our importing cooperative and the farmers that we buy from. It was quickly clear that this was to be a year in which cash would be crucial. At the request of several savvy farmer co-ops, we increased the amount of pre-financing that we'd help secure and increased the minimum price on the contracts to allow access to that financing (read more on how this works). This means that while some organizations have struggled to come up with the cash to purchase their member's coffee, well-managed co-ops such as Apecaform and Chajul are currently able to collect coffee in a competitive marketplace. For isolated communities such as Chajul, these well-run co-ops play an especially vital role—not only are they paying competitive prices for coffee, they continue to provide much needed community projects (for more on this, see Kyle's account of the trip in this issue). 

The next chapter in this new Fair Trade market remains to be written. One thing seems clear: amidst all these changes, it's no longer really meaningful to speak of a Fair Trade market or a specialty coffee market in general; the local market is key. Similarly, the answer to whether these higher prices are good for coffee farmers ends up being a qualified "it depends" on which ones and where. At Apecaform, yields are down which means that while the price per pound may be high, less coffee means that individual farmers aren't getting a raise. Meanwhile, at Chajul, times are good. Weather patterns that have set back other farmers haven't reached their fields. A few months ago when in Ethiopia, Lee observed that country's response to higher prices for the crop that makes up such a large part of the economy: Plant more coffee! Such large-scale projects to increase cultivation of coffee could of course create a glut of Ethiopian coffee in a few years when this spring's seedlings start to set cherries. Yet which of these trends will prevail remains to be seen. What is clear is that a well-managed co-op continues to serve its members well, in good markets and in bad, providing good economic stability and development.

Just as each year's harvest arrives with slightly different nuances in the cup, so too each season's harvest has its themes, its challenges and its successes. While the challenges are clear, it's truly inspiring to see how our long-term producer partners are responding to them. This is the eleventh season that we've been buying coffee from Apecaform and that relationship continues to evolve and to demonstrate the potential for the next decade, whatever it may bring.

Andrew Ranallo

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