Socioeconomic Effects of Coffee Trade on the Ethiopian Farmer Essay

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Coffee and Ethiopia have shared a lengthy and highly tumultuous relationship. According to some, their history dates back to the fifteenth century, but it is widely acknowledged that extensive trade didn’t begin until the late eighteenth century (Aregay 1988, 19). As world coffee consumption skyrocketed in the nineteenth and twentieth centuries, Ethiopia’s economy grew increasingly dependent on the industry. By the mid 1970’s, it’s estimated that coffee accounted for a staggering 55% of all Ethiopian exports.

This figure has since declined, and today it’s estimated to be somewhere around 35% (Daviron, Ponte 2005, 61-62). The steady decline in production from the 1970’s to today has been attributed mainly to increased coffee production elsewhere, notably Brazil and Vietnam. These nations have developed massive coffee industries and are recognized as fierce competitors to African nations. Though today’s market is highly saturated thanks to globalization, world coffee prices are still rising. Why is it that an increase in availability leads to an increase in cost?

Daviron and Ponte, authors of The Coffee Paradox, suggest “the growing gap between the price of the raw material and the final product is the result of oligopolistic rents captured by an increasingly concentrated roasting industry” (Daviron, Ponte 2005, 3-4). Ethiopia has suffered greatly as a result of these systematic transformations; the average Ethiopian coffee farmer makes merely 2-3% of his coffee’s retail price. Due to volatility in world coffee trade, stemming from overproduction and the excessive profits of roasters, today’s coffee farmer in Ethiopia faces tremendous socioeconomic strain.

To combat this strain we must look to fair trade, the logical and ethical solution. It’s important to examine 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).

With coffee prices at dramatically low levels and no national price regulations, today’s Ethiopian coffee farmer simply cannot make ends meet, and fair trade offers a better chance for farmers to be compensated by their hard work. Consumer encouragement of the fair trade market has been essential to getting it where it is today, and it must increase if fair trade is to continue growing. The future of the Ethiopian coffee industry is somewhat up in the air. We’ve spent years facilitating a system that only benefits a select group of people.

The corporations that dominate the markets are very much alive and well, but on the other hand, there’s hope that fair trade will lead to justice for farmers. The transition to a fair trade system would be helped greatly by a reintroduction of government regulation. The ICA was an effective tool in helping farmers receive a far pay. As always, public opinion helps to sway the government’s actions, and it’s essential for consumers to stress the importance of fair trade coffee.

The Ethiopian government has been attempting to negotiate higher prices with companies for ages, but clearly they don’t have the upper hand. Through massive privatization of their respective industries, these companies have accumulated power in the form of wealth. It will take a major change in consumer habits in Europe, Japan and the United States, the world’s biggest coffee buyers, to improve the lives of Ethiopian coffee farmers. We can start by purchasing fair trade coffee, encouraging our local retailers to carry it and promoting sensible legislation from our politicians.

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