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State of Coffee by Mark Prince
So You Say There's a Coffee Crisis
Posted: November 27, 2002
Article rating: 9.4
feedback: (27) comments | read | write
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Coffee Farmers like Santiago Rivera in Nicaragua (with hat) and his family benefit from Fair Trade coffee. Thousands more don't have the luxury. From TransfairUSA website.

There's a coffee crisis going on. A major one. So what's it all about?

In the simplest terms, people are dying. They are dying because of unbelievably low Grade C global coffee prices, hovering around 40 cents per pound of green beans. That 40 cents per pound translates into as little as 7 or 8 cents per pound that actually gets to the farmer for their labour, their land costs, and their expenses. The farmers are dying from starvation. They are dying from territory and cartel fights. They are dying because of drugs… yes, drugs (I'll explain more below).

The Coffee Crisis Explained

About 13 years ago, the coffee producing nations had a cartel, of sorts. It was not unlike OPEC for the oil industry. The cartel mainly existed for one reason - to keep coffee prices at what is called a "sustainable level". Sustainable means it makes enough money for the farmers, farmer cooperatives, and farming corporations and conglomerates to make a living, and even make a profit.

In 1989, the Grade "C" global coffee price was around $2.40 per pound. Grade C is the standard purchasing price set for coffee futures buying on the global coffee markets.

The cartel collapsed in 1989, and if you research the reasons behind it, you'll find many rumours and some plain facts that point to four primary companies who played a role in the cartel's demise. Those four companies are Nestle, Kraft, Proctor and Gamble, and Sara Lee. These four companies deliver between 70% and 80% of the coffee sold in the US, and provide a lot of coffee to Europe as well as the more developed Asian countries. The market many popular brands you know: Nescafe, Folgers, Yuban, Maxwell House, and others. They are commonly known as "The Big Four".

For a while, the collapse of the cartel didn't affect farmers much - prices fluctuated a lot more than before the cartel's demise, but they stayed, for the most part, healthy, or at least reasonable. In 1997, they were as high as $3 a pound, mainly due to a major frost in the biggest coffee producing nation: Brasil. (Brasil is the world's largest coffee producing nation, putting as much as 1.4 million tons of coffee on the world market annually).

But things were happening behind the scene to change all of this: Vietnam.

In 1990, Vietnam was growing coffee - about 90,000 produced tons a year. That's a sizable amount, but compared to Brasil's 1.4 million tons, not a lot. There's a couple of core problems with Vietnamese coffee, but the biggest problem is that the vast majority of the coffee they grow sucks, for lack of a better word. Vietnam is not suited for growing high quality Arabica coffee - it is too low in elevation for the most part, and too north of the equator. But robusta, the hardy version of the coffee tree that produces beans that are best described as "rubber burning" when tasting, could grow there, and did. There's good robusta, and not so good robusta - Vietnam had stuff that was just about the worst robusta you could grow.

Still, they had lots of land, and many poor citizens who were hoping for the golden fleece - coffee promised that. Major loans from the World Bank, from the Vietnamese government (which obtained the money from world banking institutions) and from, guess who - the Big Four made it possible for thousands of poor Vietnamese to become coffee farmers. Quality of product was not a concern - maximum profits and yields were. By 2000, Vietnam was producing almost a million tons of coffee - an eleven fold increase in 10 years. And most of it was the same quality of crap produced 10 years before - non-drinkable robusta.

Yet we have quotes like this one in the December 8, 2002 Fortune Magazine from Frank Meysman, the main coffee buyer for Sara Lee:

"Vietnam offer(s) excellent coffee at very reasonable prices."

It is funny that Meysman would say this, given that Sara Lee has to do some extraordinary things to the massive amounts of robusta they buy from Vietnam to make it drinkable. What do they do, exactly?

They steam the green coffee. I'm not kidding. The Big Four have developed a steaming process and technology to remove the "burnt rubber" taste, for the most part, from the robusta. In the process, they remove just about every other flavour as well.

So what do they do about it? Let me ask you, have you noticed a lot more "Hazelnut Mocha Instant" and "French Vanilla Instant" coffees on the shelf in the supermarket over the last few years? Guess what - that's the steamed robusta, which is then brewed in 5,000 gallon kegs, then flash evaporated, then coated with artificial flavours and colours with a lot of sugar tossed in. They have to flavour it because the steaming techniques leave something that, to be frank, isn't coffee any longer. But hey, marketers came to the rescue: spin this marketing pony around, and call it "French Vanilla Superior Moments Coffee".

And people call that crap "specialty coffee".

I personally would love to sit Frank Meysman down to a table, fresh roast up 10 varieties of Vietnamese robusta (straight from the source, no steam bath included), and watch him as he drinks it. I can't think of too many worse torture methods for someone who is supposed to appreciate fine coffee. But I digress.

Vietnam and the Big Four's Role in the Coffee Crisis

Here's where I probably will get into trouble. But I'm laying the coffee crisis right in one big lap: the Big Four.

The Big Four encouraged the growth of the Vietnamese output. They developed technologies in the 1990s to deal with the Vietnamese output. Guess what - that development of technology doesn't happen overnight, and it takes a major investment in time, resources, and money to make it happen. In other words, it was planned for.

The Big Four got scared by the growth of true specialty coffee (re: Starbucks et al) in the 1990s and lost market share as a result. Instead of thinking along the lines of "well, we need to buy better coffee", they instead took the route of looking for ways to compensate for lost profits by a) buying cheaper, lower quality beans, and b) converting a sizable chunk of their product line to "specialty", in perception if not in reality.

As a result, they got coffee at 40 cents a pound, yet got something that couldn't be called "coffee" if people drank it straight without any steam baths or flavours added. That's okay though because it solved both the problems I outlined above - they got ridiculously cheap coffee, and they increased the market share of their "specialty" line by flavouring the coffees more and more.

And not just outwardly "flavoured, specialty" coffees produced by them were sprinkled with pixie dust… if you think that can of Maxwell House Gold isn't flavoured, guess what…

The Big Four likes to put spokespeople in the limelight to talk about what's going on. Folgers issued a big press release and ad campaign to talk about how they were passing along "substantial savings" (one example was a 10 cents per can price break) to their customers because "Hey! Coffee's cheaper now, and we love you!" (okay, the ads didn't say that, I'm paraphrasing here).

You also have classically ironic examples like Sara Lee's Meysman practicing the equivalent of doublespeak by saying - hey! Vietnamese Robusta? Mmm Mmm Good! (again, a paraphrase to press a point). You have them spending tens of millions of dollars on ad campaigns showing off their new line of "gourmet" "specialty" coffees like the aforementioned French Vanilla Mornings on a Boat in the Seine in Paris Coffee. (okay, so that's not a brand, but I wouldn't put it past their marketers).

You have the Big Four deflecting constantly, and never addressing the core issue: Their encouragement of development in Vietnam for very low quality robusta growth, and their subsequent shift of coffee buying from places like Colombia and Central America to Vietnam have had a massively damaging impact on the global coffee market. The effect is long reaching, and the ironic thing is, the current methodologies practiced by the Big Four will eventually be detrimental to them in the long run.

Why it's a Crisis

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Owning a horse to move hundreds of pounds of coffee cherries is a true luxury for most independent coffee farmers - fair trade farmers can usually afford it - most farmers cannot.

The effects are already visible - quality, true specialty coffees are disappearing. Some of the world's best known quality coffees are going extinct. Farmers are abandoning their coffee crops, and where they can, move to other cash crops. Many are moving to growing plants that are used to create illegal drugs. Others are moving to anything they can grow to feed their own families.

In Ethiopia, many farms are moving to a crop called "False Banana", which is one of the few crops they can grow besides coffee. This false banana is used to sustain the individual farming family's nutrition needs, but the problem is, it's called false because it doesn't have the nutrients real bananas have - there's no proteins and vitamins to speak of, basically just starch and carbs. Imagine eating this stuff 3 meals a day, seven days a week? People are dying from malnutrition from it. Many more farms are moving to produce "Quat" or "Chat", which is a narcotic and dangerous to one's health (but also a highly sought after drug).

In Central America, farms are evaporating, and the farmers are moving to cities where they become part the poor and destitute living in the city. This taxes the local governments, and results in more deaths through violence, malnutrition, and disease.

In South America, coffee plantations are giving way to cocaine and opium production at an alarming rate, because there's no honest money left in coffee. Other farms are moving to other cash crops, or farmers simply lay off workers, then slowly go bankrupt and starve.

All of this is happening for a variety of reasons, but the most prominent cause is that companies like the Big Four wanted cheaper coffee. And it's still not enough for them. Consider this quote, pulled from a recent Fortune Magazine article:

"Less than 20% of the world's population is drinking 65% of the coffee," says Gordon Gillett, a senior vice president at Nestle. "We think there is a huge opportunity to reach out to that other 80% and deliver them a coffee beverage they can enjoy at a cost they can afford."

It's always a spin doctor at work - notice how Gillett likes to give the impression that Nestle is all about "helping" people out? The problem is, Nestle, along with Sara Lee, Proctor and Gamble, and Kraft are not helping people out. They are hurting farmers' livelihoods and lives. They are hurting the availability of quality coffee on a global scale. And they are producing coffee beverages that are apparently so undrinkable, that they have to be steamed and flavoured to once again be palatable to Joe and Jane America.

I mentioned above a case of irony - while the Big Four have been reaping in record profits in the latter 1990s and early 21rst century due to the crisis, it is at best a short term profit haul. With the alarming rate of "quality coffee" producing farms disappearing from the global scene, we could end up with a scenario where there simply isn't enough coffee (of any quality) to go around in a few years. That would drive the prices of remaining coffee production way, way up, and it is quite possible that in a decade or so, the Big Four may be paying $3 a pound for the world's worst coffee: robusta from Vietnam. Meanwhile you and I, the folks seeking true quality coffee, might be paying as much as $8 or $10 a pound green for some of the lower "specialty" coffees still remaining. And worse still, some of the world's truly great coffees may be gone for ever.

If this worst case scenario plays out, it's quite possible that it would take decades before we get back to the point where superior coffee can once again be bought for $2 to $3 a pound (in today's dollars) on the world markets. Everyone, including the Big Four, would suffer, from economics to taste buds.

The ICO's Solution - Middle of the Road

The International Coffee Organization is a middle of a road organization that has a good, common sense fix for the current crisis: if the lowest 5% of the current coffee market was declared off limits (as in no one buys that mediocre quality coffee; instead it is destroyed) and the lowest 5% producers are supported by the industry (read: the Big Four and other companies) to change over to other sustainable crops, roughly 350,000 tons of coffee would disappear from the global marketplace. This would boost Grade C prices, and start putting an end to the crisis.

Sounds like a good start, right? Except for one thing - while European countries are embracing this methodology, the US is not, and organizations like National Coffee Association (a lobby group backed by the Big Four) are heavily pushing US lawmakers to avoid making this methodology the law - raising the bar for the lowest-acceptable imported coffee can be. Yet we get more apparent doublespeak from the Big Four - in a recent Fortune article, all of them claimed they do not buy coffee that falls below the ICO's new standards. Now why would they say that if their lobby group is fighting to prevent the US Government from making the ICO's minimum standards more official (as in a trade law or practice)?

What You Can Do

Click for larger image
When farmers are paid a fair wage for their product, they take pride in the work, want to see it grow, and want to develop a better product - a fair wage is a minimum - they can garner more money with a better quality product. This is one of the core concepts behind fair and fairly traded coffee.

Why am I writing all of this? Because it's all part of "doing something about the crisis". CoffeeGeek gets roughly 100,000 visitors a month. Of that number some 52,000 "unique" visitors drop by - that's 52,000 people each month visiting the site at least once or more times.

That's a pretty big number. As a collective group, you all wield a certain amount of purchasing power. You also have the benefit of controlling an advertising modus that marketers both love and hate: word of mouth.

Robert Nelson, the president of the National Coffee Association (backed by the Big Four) would have you believe this: "Some in the industry would like people to think that if we only grew cause-related, organic, shade-grown coffee, the crisis would be over. There just isn't a huge market out there for this kind of coffee, and to encourage people to grow it would be doing them a disservice."

Are you going to let Nelson speak your own mind, speak for your own dollars? There isn't a huge market for cause-related quality coffees - that much of what he said is true - but the reason it doesn't exist? Because the Big Four try everything from their lobbying to their marketing to prevent Joe and Jane Public from knowing that better coffees truly exist out there - better tasting, and better ethics.

So I am asking you this: if the coffee crisis is something that you want to do something about - then do it! Stop buying products by the Big Four coffee companies - not just their coffees, but the other products they sell. Write letters to them (addresses provided below) saying you will not buy their products until they boost the quality of their products, buy better coffees at fair prices, and stop endangering peoples' lives and livelihoods in coffee producing nations.

You could bring up the ICO's recommendations (visit their web site) in your letter writing and ask the Big Four why they are so vehemently opposed to any kind of legislation raising the lowest standards bar, while all claiming that they never buy coffee below the quality set by the ICO? There's irony, and possibly hypocrisy in there - the answer will most likely be that they want to do it voluntarily, not through legislation, but if enough people write in and show knowledge of this specific issue, maybe they will change their tune.

There are other things you can do. Speak to your friends and families about the coffee crisis. Don't be a zealot - just explain that quality coffee is disappearing and the quality of supermarket coffee is going down so much that the Big Four have to regularly modify, enhance, and process beans with new methods to disguise the horrid taste of the robusta they are putting into their products. If I was a long time Folgers drinker, the thought that Folgers had to steam bath my coffee, or add hazelnut flavours to the coffee, or spray chemicals and do other mechanical things to reduce, eliminate, or hide the rubber burning flavours, I'd want to know and I'd consider changing brands!

Tell your friends and families that if they don't switch their buying habits today (and thus boost the demand today for true specialty coffee), even regular coffee could be double in price within a few years - it could very well happen if nothing changes today.

Speak to your friends and families, and tell them that there is better coffee out there that will not only taste great, but provide living wages for farmers who don't have to roll over their crops into growing drug-producing plants or barely digestible foods like "false banana" or convert their crops to opium production, cocaine, or other illegal drugs. Explain to them that ethical coffees can often be the best tasting coffees you'll ever drink. Becky Herndon recently wrote an article on CoffeeGeek that serves as a primer for what quality, ethical coffees are, and how to seek them out. If the coffee crisis means something to you, read her article, and get out there, and make a difference.

Articles Referenced:

Crisis in a Coffee Cup, Fortune Magazine, Nicholas Stein, December 9, 2002. highly recommended reading

Coffee Crisis - the Hard Realities that Fill Your Cup, MSNBC, August 26 - highly recommended viewing / reading

Waking Up to a World Coffee Crisis, St. Petersburg Times, David Adams, August 11, 2002

World View: Coffee Growers' Good Fortune Dries Up, Pittsburg Post-Gazette (reprint from LA Times), T. Christian Miller and Davan Maharaj, October 28, 2002.

Coffee's Quality Crisis Spurs Attempt to Curtail Bad Beans, Wall Street Journal, Katy McLaughlan, November 19, 2002

Glut Brews in Coffee Market, Eagle-Tribune, Rebecca Griffen, July 30, 2002

US Coffee Groups Dispute Oxfam on Poor Farmers, Reuters, September 26, 2002.

Article on Qat or Chat, Addis Tribune.

Contact Information for The Big Four

Kraft Foods Inc.,
Pat Riso, Director, Communications
Three Lakes Drive,
Northfield, IL 60093

Sara Lee Corporation
Frank L. Meysman, Executive Vice President
Three First National Plaza
Chicago, IL
60602-4260

Proctor & Gamble
Tonia Hyatt, Snacks and Beverages External Relations
Cincinnati, OH
45202

Nestlé SA
Peter Brabeck-Letmathe, CEO
Avenue Nestlé
1800 Vevey
Switzerland


Article rating: 9.4
Posted: November 27, 2002
feedback: (27) comments | read | write
State of Coffee Column Archives email author
Mark PrinceColumn Description
This regular column will tackle the world of espresso and coffee, including all the theories, controversies, changes and structures that make up this world. A heavy emphasis is placed on the online coffee community, and one thing this column won't do is pull any punches. Every week we'll feature the up's and downs, a quick yet detailed rundown of things that are good and not so good in the coffee world.

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