- The Washington Times - Wednesday, October 15, 2003

Prices paid to coffee bean growers are stuck at 30-year lows, with thousands of farmers choosing among selling below the cost of production, turning to alternative — often illegal — crops, or abandoning their plots and migrating to cities for jobs.

Mainstream companies such as Dunkin’ Donuts, Starbucks and Procter & Gamble, driven by consumer sentiment and a need to ensure a steady supply of quality beans, are increasingly turning to “fair trade,” “organic” and “eco-friendly” marketing programs that aim to alleviate the coffee crisis.

La Central, Honduras’ largest coffee cooperative with more than 10,000 farmers, in 1999 began a program to grow a specially certified, high-quality coffee bean that is sold directly to retailers and earns a higher price than coffee typically sold on international markets.

These beans today represent 17 percent of the cooperative’s sales, offering better profits for farmers, as the market niche for the product expanded, especially in the United States, says Juan Angel Paz, financial director for La Central.

“For the producer that is in the mountains, it means that he can live with his family. The other choice would be emigration, and they abandon their farms for Mexico or the United States.”

Falling prices have cost 600,000 rural workers in Central America their jobs as farm income has dropped 60 percent from a decade ago, the presidents of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua said last year in a letter to President Bush.

Coffee is one of the world’s most important commodities, providing a livelihood for about 25 million families, according to the Interna2tional Coffee Organization. The economies of countries in Central America, the Caribbean and East Africa are especially dependent on coffee for export earnings.

In the early 1990s, coffee-producing countries earned some $10 billion to $12 billion while retail sales were about $30 billion. Retail sales now exceed $70billion, but coffee-producing countries only receive $5.5 billion, the ICO says.

The “sustainable coffee” programs try to turn that around. Fair trade, for example, requires a guaranteed price that is at least 5 cents above the prevailing market price and direct purchase of coffee by importers from producers, a measure to cut out brokers and improve profits for producers.

Fair trade also is supposed to help boost quality by allowing investment, rather than cost-cutting, and encourage environmental protection.

While the higher-priced coffees still make up a tiny segment of the world coffee market, about 2 percent of consumption, they are rapidly gaining mainstream recognition in North America, Europe and Japan.

“With average sales growth many times greater than conventional coffees, these are among the fastest-growing market segments because they appear to be attuned with emerging consumer demands, increasing corporate responsibility and heightened risk management along agricultural supply chains,” the World Bank said in a report released last week.

Kraft Foods, one of the world’s big four marketers of coffee, Oct. 7 announced support for sustainable coffee in Latin America, though the firm has not yet announced a marketing strategy for the United States.

Procter & Gamble, another of the big four, last month announced a new line of fair trade coffees sold under the Millstone brand.

“I would say our focus is selling what the consumer wants, which is an excellent product with excellent taste. And secondarily, we help them understand that the choice they are making is helping [coffee producers],” says Tonia Hyatt, a company spokeswoman.

Dunkin’ Donuts, which sells 2.7 million cups of coffee a day, on Sept. 30 announced a new line of espresso drinks made only with fair trade certified coffee.

“We’re looking at a real trend throughout the main coffee retailers. Fair trade is going mainstream,” says Nathanial Raymond, spokesman Oxfam America, a poverty-relief charity that has championed the cause.

While major coffee companies accept that they must help producers, they do not agree on methods.

“The fair-trade approach … we do not believe it is a solution for the present coffee crisis,” says Francois-Xavier Perroud, a spokesman for Nestle, another of the four major marketers.

Instead, the firm buys 14 percent of its beans directly from farmers — one of the fair-trade tenets — and, more important, is trying to expand markets.

Thailand, China and Russia are growing markets for a relatively low-cost product, he says.

“We believe in the long-term this approach is a better alternative for consumption,” Mr. Perroud says.

Nestle is not the only skeptic of “sustainable” marketing efforts. The Cato Institute, a libertarian-oriented Washington think tank, this spring released a study detailing higher output and greater productivity as causes of lower prices, while criticizing “fair trade” proposals as well-intentioned but doomed to end in failure because they ignore market realities.

There is also disagreement among retailers as to what constitutes sustainable coffee. Kraft has a group called the Rainforest Alliance certify its product, Procter & Gamble uses TransFair USA, the group that developed and can confer the “Fair Trade” certification, while other firms use internal corporate measures.

The lack of a single, well-recognized certification is confusing to consumers and potentially damaging to the programs, the World Bank says.

Apart from corporate efforts, Central American leaders, U.S. congressmen and coffee companies have pressured the Bush administration to help address the cost crisis.

The U.S. Agency for International Development is funding programs to produce a higher-price, higher-quality product, but the administration also is being pressured to rejoin the International Coffee Organization, an intergovernmental body that tries to coordinate public-sector policy on coffee.

The United States dropped out in 1994 because the ICO acted like a cartel to control prices and production, but it has since reformed. The administration has not yet decided when or whether to rejoin, says an official who asked not to be identified.

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