The Status Quo
The price of green (unprocessed) coffee has remained downward since the International Coffee Organisation (ICO) member countries’ inability to sign the international coffee agreement in 1983.
A combination of revenues for roasters and retailers have increased over the past two decades, the volatile nature of commodities prices, green coffee production surplus, and lack of information on the real full cost of production means that many farmers in coffee-producing countries struggle to cover their production costs and as a consequence their ability to increase their living standard.
Between 2010 and 2019, international coffee prices continued to fall, until a global coffee shortage in 2019 caused an uptick in prices. During the price fall period, the revenue gained by the coffee producing countries has reduced from 24% of the value (since the mid-90s) to only 16% in 2017.
This reduction is to such an extent that some Latin-American producers refuse to sell their crops at such low prices.
In Honduras, despite there being a minimum price-fixing policy aimed at reducing international coffee price volatility, the income of the majority of small producers is insufficient for survival (with approximately half of the workers in the sector living in extreme poverty and over two-thirds are poor).
The critical insight is that the 120,000 families with coffee as a primary income live and earn an income under terrible terms of trade, demonstrating the unequal value distribution that affects the industry. In addition, the proportion of farmers living below the poverty line of USD 1.90 per day increased by 20% in 2018.
The current coffee value chain is an unfair system with more pressure placed on those least equipped to mitigate these risks, but the return does not equate to risk - those with the most risk (the farmer) also have the least return.
This has repercussions in coffee-producing countries. This socio-environmental impact creates a societal cost borne by those individuals and public authorities.
On the retail side of the coffee industry, the status quo is that most consumers are not aware that the price of coffee in the commodities market is insufficient for coffee farmers and their employees to turn a profit or earn a living wage sustainably. This lack of transparency is supported by antitrust laws that protect companies against sharing price information.
This translates into brands telling disingenuous sustainability stories without highlighting that coffee producers do not earn a sufficient income at low coffee commodity prices. Consequently, consumer trust in brand stories around coffee farming is becoming distorted as consumers already believe they support farmers’ livelihood, which translates into less willingness to pay more and lower demand for change from the consumer side.
Moreover, responsible trading practices conflict with the current industry business models obsessed with exclusively short-term profit maximisation. As a result, producers must typically bear most of the shifting costs toward climate-smart production systems and do not always perceive the benefits.
Climate change may further marginalise more impoverished producers. Farmers with good access to capital and technology are more likely to manage emerging climate risk access when standards non-compliance is criminalised.
An extensive review of published data on coffee land-use change suggests that apart from Brazil, where production increases are driven by technology, in nearly all countries where coffee production is expanding rapidly, deforestation is the primary source of new coffee lands.
Currently, farmers across the globe are affected by similar challenges, in every food system, you can imagine.
What we fail to understand is that if we need a framework for sustainability that includes not only sustainable business practices that focus on energy, water, natural resources, pollution and waste management but forewarning any wrongdoing and emphasise the importance of making sure that the industries of developing countries (usually agricultural exporters) are economically viable, and they can improve their living standards.
Alternatively, we can do nothing and wait for our global food security to be compromised.
In response to this, we have created Don Maslow Coffee.
Don Maslow Coffee sources only single-origin coffee from Honduras, produced using solar-powered drying machines to eliminate deforestation, packed in 100% compostable packaging and uses the ‘direct trade’ model to ensure that farmers who supply green coffee are paid fairly.
Don Maslow Coffee has the mission to transform the coffee industry toward a business model that is equitable and sustainable for every part of the supply chain.
Contact us to learn more.
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