Socioeconomic Effects of Coffee Trade on the Ethiopian Farmer Essay Example

the history of Ethiopian coffee to best understand its status today. A notably disastrous blow to the worldwide coffee market happened in 1989 with the collapse of the International Coffee Agreement (ICA). The ICA, initiated in 1962, served as a regulatory effort to keep consumers and producers at set levels of supply. They set high benchmarks for coffee prices and were responsible for regulating the exports of producers.

The ICA was successful in keeping coffee prices at relatively high and stable levels for over twenty-five years, but the 1989 council failed to reach an agreement due to violations by countries outside the agreement and “the rigidity of ICA quotas” (Daviron, Ponte 2005, 87-88). The deregulated, post-ICA coffee markets quickly grew to be dominated by bigger, more economically stable nations, particularly Brazil and Vietnam. While Brazil had always been a prominent player in the coffee industry, Vietnam was entirely new to it.

The Asian country, after a period of heavy economic liberalization, planted over a million hectares of coffee in the 1990’s (Shively, Ha 2008). Ethiopia, while still a major producer, began to suffer heavily from decreased regulations and falling coffee prices in the 1990’s. This brings us to Ethiopia today, where the average coffee farmer makes just around $1. 25/day. “There is clearly an intangible value in the specialty coffee of Ethiopia, but it’s not being captured here,” says Ethiopian government official Getachew Mengistie (Faris 2007, 3).

This quote provides a succinct explanation of the main paradox in Ethiopian coffee trade: in comparison to the market price that consumers pay, farmers are profiting at appallingly low rates. It’s been estimated by Landell

Mills Consultans that some farmers make back only 60% of production costs (Gresser, Tickell 2002, 9). Case studies done by Oxfam, like the following, are testaments to the injustice. “Mohammed Ali Indris, an Ethiopian coffee farmer from Kafa province interviewed by Oxfam in March of 2002, gave a graphic sense of how the rice collapse has affected his family….

Around five years ago, he estimates, he could make about $320 a year from the combined sale of coffee and corn. This year he expects aound $60 for the coffee” (Gresser, Tickell 2002, 42). Yet again, we are faced with the unavoidable question: if the farmer is not making any money, the millers aren’t making any money and the exporters are not making any money, who is? To answer this, we must look to the roasters and retailers: a group of five corporate giants who purchase over fifty percent of the market’s green coffee beans (Gresser, Tickell 2002, 27-28).

Certain analysts have estimated that Nestle earns up to 26% profit on all instant coffee sales (Luttinger, Dicum 2011, 131). The great disparity is made possible by the massive amounts of power these companies possess. Though public perception of the companies has begun a move toward skepticism, it is still largely positive. Corporations work to enormous lengths to ensure brand loyalty. For example, instant coffee companies in the UK spent over $68 million on advertising in 1999. Because they’re aware that the public might not agree with their business practices, they work relentlessly to ensure that we don’t learn too much.

Nestle is known for releasing intentionally complex business records that often pool all

of their beverage profits, which includes many non-coffee products, into one (Luttinger, Dicum 2011, 118). The end result is a farmer who can’t provide for his family after working day and night to produce a substantial crop. Not only does this poverty-stricken farmer suffer from the unfortunate series of events, but the consumer too. As desperate farmers strive to produce larger amounts of coffee at lower costs, there’s a major degradation in product quality.

Ethiopia, through a great deal of care and pride in their coffee, has been able to maintain a quality product, but mega-producers like Brazil and Vietnam are producing increasingly lower-quality beans. The notion of fair trade has become a cornerstone of the twenty first century goods market. In coffee’s instance, fair trade sets the minimum price of a pound of green coffee beans at $1. 60, over double the regular market’s price. Increased education of the trade market has led some consumers to pursue a more holistic approach in purchasing their coffee.

In the UK, fair trade coffee now has a 7% market share (Gresser, Tickell 2002, 41). The prospects of fair trade are promising, but the market share is not yet big enough to improve conditions for most. Though the farmers who are involved have seen significant profit increases and greater stability in their lives. According to Oxfam, “at the Oromiya Coffee Farmers Cooperative Union in Ethiopia, for example, farmers can get up to 70 percent of the export price of their coffee that sells as fair trade, while those in Ethiopia’s Kafa province, selling in the open market, get only 30 percent” (Gresser, Tickell 2002, 41).