Time for a Caffeine Fix


By Mark Tran*

May 30, 2003

These are the best of times for coffee drinkers and the worst of times for coffee growers. In London myriad coffee bars from Starbucks to Cafe Nero vie for customers. But the proliferation of coffee outlets gives a deceptively healthy image of the coffee business. As far as coffee growers are concerned, conditions are dreadful, so much so that coffee-producing countries have called on leaders attending next week's G8 meeting in France to halt the slide in commodity prices that is impoverishing small farmers.

Some 25 million coffee growers from around the world in countries such as Rwanda and Ethiopia are struggling to make ends meet against the backdrop of the lowest coffee prices in decades. Prices on world markets, which averaged around $1.20 (£0.73) a pound in the 1980s, are now around 50 cents. At such prices coffee growers - mostly poor smallholders - sell their beans for even less than the cost of production.

The crisis stems in part from a glut in coffee, with Vietnam and Brazil in particular cranking up production in an already saturated market. Meanwhile, coffee consumption is not keeping pace; while coffee production has been rising at an annual rate of 3.6%, demand has been growing by only 1.5%. Throw into the mix the lack of bargaining power of small coffee growers against the might of the four main coffee roasters, Kraft, Nestlé, Procter & Gamble and Sara Lee, and the plight of coffee farmers is pretty grim.

Various ideas for boosting the coffee price exist, including the destruction of low quality coffee stocks and calls for the big coffee buyers to pay fair trade prices to coffee growers. Those are long term plans, but in the meantime, one coffee company, Cafédirect, has successfully carved out a niche by selling high-quality coffee and paying decent prices to growers. Under its "gold standard" trading policy, Cafédirect pays on average three times the world price to growers and yet still manages to make a profit. Since it was established in 1991, by Oxfam, Traidcraft, Equal Exchange and Twin Trading, Cafédirect has grown to be the sixth largest coffee brand in the UK and one of the country's fastest growing roast and ground coffee brands. In a static market, Cafédirect coffee sales grew by 20% in value and 18.6% in volume in the past year, with its 5065 brand the fastest-growing freeze-dried coffee product in Britain. The Cafédirect office on Old Street, east London, has expanded to 24 people from 10, reflecting the rapid growth of the company. The company's dramatic growth is evidence of people's interest in where their food is coming from, says Sylvie Barr, Cafédirect's head of strategic development,

"The interest may spring from an individual desire for organic food or from wider concerns with the environment or social issues," she said. "But we are a commercial venture not a charity. We are here to develop a trading relationship with farmers who just want a decent income from the fruit of their labours." The Cafédirect approach has struck a chord with consumers, even though its products are more expensive in supermarkets. Its freeze-dried coffee is about 15% higher than the competition, while its fresh coffee runs about 5% more.

Although the market for ethical goods is tiny - the combined UK market share of ethical products over seven food and non-food segments is 1.5% - it still came to £6.6bn in sales in 2001, according to the Co-op bank's ethical purchasing index. The totals are also growing fast; the index is up by 25% since the 1999 baseline, double the growth rate of the equivalent non-ethical basket.

Paying fair trade prices is just the tip of the iceberg of what goes on at Cafédirect, which shares some of its profits with coffee farmers. Cafédirect last year invested £299,000, or 8% of gross profit, into building stronger producer organizations as part of the company's own development program. The money goes into ventures that include technical training for coffee farmers, water sanitation and children's education. Cafédirect reckons that its fair trade premium payments of £1.9m on coffee and £196,000 on tea, helped keep 1 million farmers and their families say afloat. Last week, Cafédirect expanded its approach to tea, launching the first ever guaranteed minimum price for tea farmers, no matter how low auction prices fall. Under its new initiative, Cafédirect will pay a guaranteed minimum price of $1.95 a kilo, or the auction price plus 60 cents, whichever is the highest. Before, Cafédirect paid 60 cents a kilo on top of the auction price.

There are limits to what a tiny company like Cafédirect can achieve. Even if the big multinationals started paying premium prices for higher quality coffee, that would be self-defeating. "If too many producers try to move into this segment of the market, it would cease to be a niche capable of commanding high prices," Oxfam argued in a comprehensive study on the coffee crisis published last year. "Simply supporting producers in the speciality market cannot lead to a solution to the systemic problems affecting millions of farmers," Oxfam said in its paper, Mugged: Poverty in Your Coffee Cup.

Ms Barr acknowledged the problem of oversupply, which she blames on international institutions - the IMF and the World Bank - for encouraging poor countries to grow coffee for exports. She also pointed to the concentration of power among the handful of big coffee buyers pitted against millions of small growers. "This creates an imbalance of power where the farmer finds it hard to have a voice in the market. Fair trade tries to correct this distortion in the market," she asserted. But until those with real clout - governments, the IMF and the World Bank - get to grips with the gap between supply and demand in the coffee market, coffee farmers will see Cafédirect as a precious lifeline.

About the Author: Mark Tran is business editor of Guardian Unlimited.

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