Coffee History
coffee boom & bust cycle
Coffee has always been a boom and bust crop in Latin America and Africa with little of the wealth going towards the growers. Although it is the second most traded commodity in the world next to oil on the global market, in many countries a days wages for picking coffee wouldn't buy a fancy cup of java at your favourite coffee shop.
Commodity
price volatility is a big problem for commodity-dependent countries and
producers.
An estimated 25 million people depend on the production coffee
Farmers and workers rely on coffee production for the cash incomes they use to pay for food, school fees and healthcare.
At the national level, 95 of the 141 developing
countries derive at least half of their foreign exchange earnings from commodity
exports
Clearly, low coffee prices will result in lower incomes for farmers and
fewer jobs for workers. But volatile prices also have a negative impact
on livelihoods.
At the heart of the coffee price problem
is the imperfect nature of commodity markets. The theoretical ideal of a
supply-meets-demand market equilibrium is rarely, if ever, actually achieved
because commodity supply and demand forces respond inflexibly to price fluctuations.
The poorest producers are hurt most by coffee price volatility since they
have few resources and social safety-nets to fall back on when commodity
prices turn against them.
Most conventional coffee is traded through the world commodity markets, so the buyer and seller never meet. This means that buyers do not know who the growers are, or how much they receive for their beans, nor is it possible for buyers to know what conditions the producers work in.
When coffee is traded in this way, it is impossible for international buyers to influence the price paid to the farmers.
Coffee is a "boom and bust" industry characterised by highly volatile prices: Arabica coffee prices rocketed to US$2.73 per pound on the New York market in 1997 when the Brazilian crop was hit by drought but plummeted to 30-year lows of around 45 cents in 2001 when the market was oversupplied.
The world price does not reflect the amount the farmers actually receive for their coffee. Due to the very complicated supply chain involved in the purchasing of coffee the growers may receive considerably less than the market price.