A bitter brew for coffee farmers

The Toronto Star: Aug. 4, 2002

Growers struggle even as sales soar for gourmet beans
Oakland Ross, Feature Writer

Maria Fiallos is not your average Nicaraguan coffee grower.
For one thing, she's making money, at a time when most Nicaraguan coffee growers — like most coffee growers all over the world — are losing their tattered and sweat-stained shirts.
For another thing, she doesn't live in Nicaragua. She lives in London, Ont., where she manages a small family-owned coffee-importing business called Aroma Nica.

Her father, Reynaldo, takes care of the tropical end of the operation, tending to the needs of a small but lofty coffee finca that hugs a cool Central American mountainside in the northwestern Nicaraguan province of Madriz, a property that has belonged to the Fiallos family for three generations.

Each year, the plantation yields about 17,200 kilograms of premium, high-mountain arabica coffee, all of which finds its way north to Canada.
This small Nicaraguan crop is, to the world of coffee, what fine, estate-bottled Burgundy is to the world of wine.

A stickler for quality, Reynaldo Fiallos raises his crop organically, in the cool, chiaroscuro shade of a rainforest canopy at more than 120 metres above sea level. The ripe beans are then picked by hand and gently conveyed to market.
Canadian coffee roasters and specialty outlets are willing to pay a premium to acquire such high-grade beans, eagerly shelling out three or four times the current base price for standard-grade coffee, as set by the New York Coffee, Sugar and Cocoa Exchange.

"Our prices for the past couple of years have remained pretty stable," Maria says. "We're quite lucky we're getting these kinds of prices."
Millions of mainly small-time coffee growers scattered across some 50 tropical countries in Latin America, Asia and Africa undoubtedly wish that they could say the same.
Instead, they are ready to scream.

"It's just a terrible situation," says Peter Pesce, owner of Reunion Island Coffee Ltd., a small Toronto coffee roasting operation. "You have this tremendous glut."
In fact, you have an unprecedented glut — far too many people in far too many places planting far too much coffee.

Consumption of the dark and jittery brew may well be on the rise in North America, Europe and Japan, but that trend has not kept pace with a pell-mell increase in supply.
The resulting imbalance has spelled abysmal prices and misery for millions of unfortunate people who devote themselves to growing the feisty little beans that kick-start millions of yawning, bleary-eyed souls at the dawn of each new day.

Five years ago, in May, 1997, the base rate for mild, standard-grade arabica beans on the New York coffee exchange was slightly more than $3 U.S. a pound. Today, that pound is fetching less than 50 cents.

Mostly cash-strapped to begin with, vast legions of coffee growers are now losing money, because you cannot produce a pound of decent coffee for spare change.
"It is a crisis," says Sandy McAlpine, head of the Coffee Association of Canada, an umbrella group representing Canadian buyers, roasters and sellers. "It's a classic imbalance of supply and demand."

To judge by the quantities of caffeine nowadays being imbibed with earnest abandon by Toronto café denizens, you might have thought that the demand side of the coffee biz was buzzing along just fine.

And so it is, if you happen to reside in wealthy northern climes, where specialty coffee shops delight their customers' palates — and make light of their wallets — with a mesmerizing variety of high-end coffees and coffee-based drinks.
Sales are up, and consumer prices are not exactly going down.

Coffee now ranks as Canada's single most popular beverage. In the United States, it is exceeded in popularity only by soft drinks.

Europeans and especially Scandinavians are devoted to coffee, too.
You'd think it would all add up to heart-quickening news for the coffee growers of the world.
But it isn't so.

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'A lot of growers can't afford to pick their crops and are laying off their workers'
Coffee importer Maria Fiallos

If you had the ill fortune to be a small-time coffee farmer in Nicaragua, say, or Mexico, or Kenya, then you might be cursing the day you first got the stupid idea of planting coffee trees on your little plot.

Worse, if you happened to be a landless peasant, employed by the day to pick coffee on someone else's property, you would probably be at your wit's end by now, forced to abandon the countryside and trudge with your children toward a city to beg for your keep, just as thousands of Nicaraguan peasants have lately been doing.

According to a recent report in La Prensa, the leading Nicaraguan newspaper, some 12,000 jobless and desperate people have congregated outside the northern city of Matagalpa — in the heart of the country's main coffee-growing region — after straggling down from the now-paralyzed coffee plantations in the surrounding hills.
"A lot of growers can't afford to pick their crops and are laying off their workers," says Fiallos. "Some cannot meet their obligations to the bank and are going bankrupt."

Who is to blame?
Some people point their stir-sticks at the specialty coffee chains, companies reaping handsome profits while legions of dirt-poor coffee growers and workers go under.
Just this week, for example, Starbucks Corp. — the world's largest chain of coffee houses — reported net revenues of $261 million, an increase of 26 per cent over the comparable period in 2001.

Others hold the true giants of the coffee world to account: the big conglomerates such as Proctor & Gamble and Philip Morris. They dominate global coffee sales, cramming supermarkets with vast amounts of not-especially-good coffee, while paying rock-bottom prices to producers.
Still others peer to the east, toward poor, benighted Vietnam, which recently vaulted from nowhere in the business to become the second largest coffee producer in the world, edging out Colombia. Only Brazil produces more.

Or maybe the World Bank is at fault, for having encouraged Vietnam to go into coffee-growing in a big way in the first place.

Or why not simply blame Mother Nature?
This year, Brazil has been blessed, or damned, by perfect coffee-growing weather, resulting in a bumper crop of beans. Result: still more coffee and still lower prices.

It would be bad enough if small growers were indeed able to earn a measly 50 cents U.S. a pound for their coffee. But, in fact, the situation is often even worse.
Typically, a parade of middlemen stands, hands outstretched, between the producer and the vacuum-sealed bag. As a result, a grower might receive 25 cents or even less per pound of green coffee.

"There is a fair bit of exploitation at the level of these middlemen," says Caroline Whitby, managing director of Transfair Canada, which markets high-quality coffee purchased at above-market prices. "The more isolated the community is, the more vulnerable the producers are."
Whitby's outfit is part of an international network of commodity marketers seeking to ensure that small-time growers get a just price, what's known as the Fair Trade movement.

At present, her organization pays $1.26 U.S. per pound of coffee, or roughly 2.5 times the current base price as set in New York. The money is distributed to growers' co-operatives in 22 countries. The co-ops deduct their expenses before passing the rest on to individual producers, who typically wind up with about 80 or 90 cents U.S. per pound of beans, still vastly more than they would probably receive otherwise.

"It's not about charity; it's about justice," says Laure Waridel, Canadian author of Coffee With Pleasure, a recently published book about the international coffee business.
At the outset of her research, done largely in Mexico, Waridel regarded Fair Trade as a naïve and unrealistic response to a complicated problem, "a feel-good thing," as she puts it.
Now she feels differently. "I realized how much of a difference Fair Trade can make," she says.
Not everyone agrees.

"In terms of market impact to date, Fair Trade is a very small presence," says McAlpine at the Coffee Association of Canada. "I'm not sure it's ultimately the solution."
In fact, Second Cup — like other specialty coffee outfits, including Starbucks — also pays prices well above the New York base rate, often after negotiating multi-year purchase agreements with suppliers.

The gourmet chains do this not out of unalloyed altruism, but because decent prices are the only way to ensure a reliable supply of superior beans over the long haul.
"We do know there is a premium, and we're prepared to pay it," says Alton McEwen, Second Cup's CEO. "You cannot produce really good coffee at a low price."

'We're not a part of the problem and we're not a part of the solution. We're so small. The big volumes are going through the supermarkets.'
Second Cup CEO Alton McEwen

Unfortunately, really good coffee — the kind that will set you back $10 to $14 for a pound of whole beans at a high-end Toronto store — is a fairly scarce commodity. It must be grown in cool, shady conditions, in rich soil, at high altitude — about 5,000 feet above sea level. It must be protected from pests and damage and be picked by hand.
"There's not that many places in the world that have an ideal climate at that altitude," Pesce says.

For the most part, the men and women who grow such coffee are not the people suffering now.
In fact, they represent a tiny part of the global coffee business, producing only about 5 per cent of the 6.03 billion kilograms consumed around the world in any given year.

"We're not a part of the problem and we're not a part of the solution," McEwen says. "We're so small. The big volumes are going through the supermarkets."
And the big volumes are mainly controlled by just four multinational companies: Proctor & Gamble Co., Philip Morris Cos. Inc. (through Kraft Foods), Nestle S.A., and Sara Lee Corp.

Together, they market dozens of brands, few of which approach the complex "flavour profile" of the blends or varietals on sale at specialty coffee houses.
The difference is mostly a matter of beans.

True, some supermarket coffee is composed entirely of arabica beans, albeit probably not the best arabica beans. But much of the coffee on the grocery store shelves contains a considerable portion of ground robusta beans, mixed with some arabica for the sake of flavour.

Highly resistant to disease and chock full of caffeine, robusta beans can be grown at low altitude and without shade, and are therefore inexpensive to produce. Alas, in the taste department, robusta coffee doesn't amount to a hill of, well, beans. Vietnam grows robusta beans almost exclusively.

"You can make a cheaper coffee by putting in more robusta," concedes Bruce Legge, Sara Lee's director of Canadian coffee sales.
Maybe so, but Canadian consumers have failed to reap savings at the supermarket, despite cheap beans.

This is partly a matter of packaging. The big marketers have responded to falling prices by putting their product in ever smaller containers, downsizing from 369-gram packages to, lately, 250-gram. Such tactics have helped hold prices up.
"The pricing has remained relatively flat over the past few years," says Legge, who argues that consumers have nonetheless been getting a break in some cases.

He points to big-box outfits such as Costco or Wal-Mart, which have spawned a new trend in coffee vending: economy-size packs of roasted-and-ground coffee tumbling off the shelves at low prices.

Unfortunately, anyone who buys an entire kilogram of ground coffee in a single container is probably making a mistake, even at $4.89 Canadian, because ground coffee pretty much turns to gravel about a week after purchase.

What, then, is the solution?
People such as Caroline Whitby at Transfair Canada urge coffee lovers to buy more Fair Trade beans — and it certainly wouldn't do any harm if they did.
Some 30 Toronto-area businesses sell Fair Trade coffee, at prices competitive with premium coffee generally. For a list, go to Transfair Canada's Web site at www.transfair.ca/index.shtml and follow the coffee link.

Many others involved in the coffee trade say that lasting solutions must either increase demand or reduce supply — or do both.

"Unfortunately, the solutions are very long-term," says McAlpine at the Coffee Association of Canada. "None of them will have much impact tomorrow."
On the demand side, he endorses ongoing efforts to promote coffee in China and Russia, two major potential markets still more enamoured of tea. He also suggests that people in coffee-growing countries should start drinking more of their own brew, something happening in Brazil, for example.

On the supply side, many people see just one painful way out: A lot of growers will simply have to bid the business adieu.
Marginal lands will have to be taken out of production, they say, making room for other crops.

The need for such restraint may be acute in one Southeast Asian land.
"The Vietnamese will have to cut back," McAlpine says.
A lot of people believe matters would improve if there were simply more good coffee on the market, as opposed to the dreary fare that tends to fill grocery shelves now.

"If you give somebody good coffee," says Pesce at Reunion Island, "they'll drink one or two cups, rather than leave half a cup."
It's a start.

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