Low Coffee Prices – A Dire Call to Action

Fiar World Project
June 11th 2019

by Fair World Project

“We cannot live on $0.90 per pound.” That’s the message that the coffee farmers behind SPP Global sent to the global coffee industry in April. Coffee is trading on the commodity market* at historically low prices, well below the cost of production. The situation for coffee farmers is increasingly dire. Headlines often tout the coming end of coffee due to climate change, but the reality is not a distant apocalypse. It’s happening as we speak.

Coffee is a staple luxury for many. Yet behind that morning cup, and hidden in the price increases that many coffee drinkers are seeing, is a grim reality. Too many of the people who grow coffee can’t afford to live. Low coffee prices are not new news. We’ve written of them before (most recently here). Indeed, it was a price crisis even worse than this one in the 1990s that caused a minimum price to be a centerpiece of fair trade certification as it developed.

Now, more than two decades later, the issue continues. And, while it’s not clear where to go, it is clear what is not working.


Coffee Growers in Crisis

The crisis brewing in coffee didn’t happen overnight. In addition to ongoing price volatility, coffee farmers are seeing climate change transform their farms and the harvest cycles they rely on. Coffee doesn’t grow just anywhere. There is a narrow band of mostly high elevation land around the equator where conditions are just right. Now, as rainy seasons shift, predictable patterns are getting disrupted. Both droughts and massive storms are becoming more frequent, disrupting coffee plants’ blooming and fruiting cycles. Or rain damages fruit on the trees, reducing quality—and thus price. A changing climate also means new pest and disease pressure; the fungal disease la roya has been wreaking havoc on coffee plants and decimating yields.

Farming is neither easy nor predictable for farmers around the globe. And, as grim as the impact of climate change has been over the past decade, there are plenty of stories of ingenuity and resilience. Farmer-led solutions exist and have been making a difference. If you clicked through these links to read the amazing regenerative, organic techniques these farmers are implementing, you will quickly also see that they require work, resources—and faith in the future of coffee farming. Bottom-of-the-barrel prices provide farmers none of those things. Instead, more and more is being required of coffee farmers just to produce their crops, even as prices fall.

Coffee is not the only crop impacted by the climate crisis. Staple foods like corn are also being hard hit, forcing people to face a stark choice: Go hungry or leave their land and migrate.


Small-Scale Farmers Feel the Brunt of the Crisis

Not all coffee farmers are feeling the pressure equally. The estimated cost to grow a pound of coffee varies across Latin America from $1.05/pound to $1.91/pound for conventional commodity-grade coffee,** based on a plot size of three hectares (7.4 acres). That last bit of information is important, but also often skipped over as the statistic gets cited. The less land a farmer has, the more expensive it is to produce coffee—some fixed costs remain the same. The average plot of land a coffee farm family cultivates varies greatly. In Colombia, most farmers have fewer than two hectares, while in Brazil the average is 7.5 hectares—the larger the farm, the lower the cost of production.

Market factors come into play as well. Coffee is traded around the world in U.S. dollars. Meanwhile, the Brazilian currency is currently quite weak against the dollar, meaning that that $0.90/pound market price translates to more like $2.00/pound. The Financial Times offers an excellent explanation of just how currency fluctuations are another way that market prices impact producers, but the consequences are clear. Once again, small-scale farmers are most impacted by the volatility of global markets.


“We Cannot Live on $0.90 per Pound.”

Those are the mounting pressures that lead to the statement that the members of SPP Global issued: “We cannot live on $0.90 per pound.” The coffee industry has been grappling with elements of this issue for years. There are studies chronicling poverty in coffee lands, white papers looking at the problem of cyclical hunger even among those who grow specialty coffee. There is an ever-mounting number of company initiatives from McDonald’s to Starbucks seeking to make coffee more “sustainable.” And in grocery store aisles, certification labels make the same pledge—with varied impact. Yet far too few of them actually address price.

Instead, far too many focus on getting farmers to improve quality and run their farms more efficiently. The biggest “sustainability” certifications, Rainforest Alliance/UTZ Certified have no minimum price. Neither does Starbucks’ CAFÉ Practices.*** Collectively, we continue to require more of producers without increasing minimum prices.

There is a great deal of talk about eco-friendly coffee, about “green” coffee, about “sustainable” coffee. But at this point, we are not paying prices to make coffee a bare minimum, break-even proposal for those who grow it. That is not and can never be sustainable—or just.


Farmers Can’t Keep Footing the Bill for our Coffee

The challenges facing coffee farmers are enormous and systemic. The coffee trade has been built on colonial models of extraction—farmers’ labor is treated as cheap or free. When stories of hunger or of forced labor on coffee farms come out, the only true surprise is that we don’t hear of them more often. We can’t expect coffee farmers to keep footing the bill for our morning cup.

Even as coffee prices fall for farmers, coffee drinkers see prices stay steady or increase. Part of that is that the price of a pound of green coffee is just a fraction of the cost of a latte. And part of that is that farmers capture just 6-10% of the $200 billion dollars of coffee sales annually. Even as coffee farmers make a plea for their lives and livelihoods, investment advisors are noting that Starbucks shareholders are doing well, with a nod to the low cost of coffee. Most small coffee roasters aren’t getting rich on coffee, but they certainly aren’t losing money at the rate that coffee farmers are expected to. It’s clear that the system needs to change.

While there are no easy answers, there are a few steps to take today.

  • Add your name to the petition in solidarity with small-scale coffee farmers: Sign here.
  • Where do you drink coffee every day? Ask your coffee supplier where your coffee comes from and how much the farmers get paid.
  • Looking for coffee that pays farmers fairly? Check our list of mission-driven brands! All members of Cooperative Coffees and coffees that are SPP certified pay a minimum of $2.20/pound for organic coffee, and often more.

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*Arabica coffee from around the world is traded based on the price set on the ICE Futures market or New York Stock Exchange, often referred to as the C Market. That price, often abbreviated to the “C Price” is the basis for most coffee contracts with the price per pound often calculated as the C Price plus a “differential” for coffee from different origins and premiums for organic or quality. Most, although not all, fair trade minimum prices for coffee are also set relative to the C Market: the commonly expressed “fair trade minimum price” is actually whichever is higher of that minimum price or the C price + fair trade and organic (if relevant) premiums.

**Coffee is graded on a very specific set of standards to determine the score based on a number of defects, etc., found in the green coffee. Commodity grade what you’d be likely to find in a can of Folgers or the like. Specialty grade coffee is what goes into basically all of your local coffee shops’ brew. The price for specialty grade coffee is often calculated based on the C price with additional money for quality.

***Although it is unlikely that Starbucks is buying coffee at the ultra-low commodity market price, they have not been transparent over the last few years about how much they are paying.

Fair World Project (FWP) educates and advocates for a just global economy where: people are treated fairly with dignity; the environment is respected and nourished; commerce fosters sustainable livelihoods and communities in a global society based on cooperation and solidarity; fair market opportunities and fair government and trade policy defend, and support the contributions of farmers, workers, and artisans to our global society; marketing claims have integrity and promote throughout entire supply chains, and support dedicated brands that put people before profits.