Everything You Love About Globalization
Coffee, a view of its transmission and redistribution in the ...
After petroleum, coffee is the world's largest export commodity (Levi and Linton: 409). Westerners drink a large and ever-increasing quantity of the beverage, and it may well be inextricable from the view of the cosmopolitan businessman. We are raised on the image on Juan Valdez, the persevering, independent farmer with his laden donkey--but, as in many things, the reality is far more complicated.

In four sections, we shall explore the transnational distribution of coffee, from the time it leaves the farms and plantations where it is grown to the time it is purchased by end-level retailers. We will outline the coffee trading process, look at who it benefits and harms, and then examine the factors behind its continued prevalence. Finally, we will take a brief look at the leading alternative trading system.

If they can make it there, they can make it anywhere: coffee in the city that never sleeps

In a very real way, the heart of the beverage itself is neither in a Seattle coffeehouse nor on a Colombian plantation, but in a bustling market in New York City's World Financial Center. The New York Board of Trade (hereafter "NYBOT") is the world's largest market in so-called "soft" commodities, coffee among them. Here, decisions are made that affect the lives of millions of producers and nearly every coffee drinker in the United States.

Coffee is bought and sold either directly, or through the futures market , in which people bid on forthcoming crops. The spot price --e.g., the amount that would be paid for coffee immediately or within a few days--is notoriously variable; Margaret Levi and April Linton (2003: 411) report that in the 1990s, the spot price was "as low as $.48/pound and as high as $2.71/pound."

For coffee purchasers, such variability is anathema, and so the NYBOT offers a sound alternative: purchasers agree to buy coffee at a specific price, and producers agree that, at a given date, they will be able to deliver. Although the prices for these contracts are also fluid, the existence of the futures market serves to mitigate the high degree of flux.

Not all coffee is equal at the NYBOT. Beyond typical variations between Arabica and Robusta coffees, the Board of Trade retains 48 licensed "cuppers," who subjectively grade coffee by drinking it in a manner comparable to wine tasting. Using words like "acidic," "bright," and "potato," these graders segregate coffee between the best of the best--and the inferior. (Reding)

The result of this are country-specific origin discounts , a modifier to the coffee's price based on its perceived lower quality from a mean standard. Indian coffee, for instance, has a one-cent per pound discount (Krishnan), whereas Vietnamese coffee traded five years ago at only sixty cents a pound--well below the production costs of coffee-heavy countries like Mexico. ("El Economista: Mexican Coffee Growers Lose Ground to Imports")

Coffee is a commodity that is globalised to an extremely high degree--unsurprising, given the wide range of countries that grow it and the even wider list of consumers. The coffee market has, however, has been subject to a series of recent disturbances which have changed the market structure considerably.

Prior to 1989, the coffee traded on the world market was regulated by the International Coffee Agreement, a set of international standards that governed quality as well as setting production and consumption quotas. Under these restrictions, coffee was a more stable commodity, and the market conditions were generally more favourable to coffee producers.

With the collapse of the Soviet Union, these trade agreements fell apart, the net result of which has been the proliferation of a virtually unrestricted free-market system. (Bacon: 498) For producing countries, the effects have been generally negative, marked by a decline in profits and the transfer of control away from local authorities.

This last is significant to conceiving of coffee as a globalised commodity. In Tanzania, for instance, Stefano Ponte concludes that "liberalization saw the dramatic capturing of the Tanzanian coffee market by foreign companies at all levels (domestic trade, processing, and export) except for farming." (Ponte: 619)

Christopher Bacon (2005: 499) provides the expected summary: the liberalisation of coffee markets, combined with a greater degree of coffee production with the end of quotas, "coincides with high rates of transnational corporate concentration." By 1998, he continues, "Phillip Morris, Nestl'e9, Sara Lee, Proctor and Gamble, and Tchibo controlled 69% of the roasted and instant coffee market... Eight transnational export-import companies control 56% of the coffee trade."

This, then, is the reality of the coffee exchange: an abstracted, subjective system of determining value, with the majority of the crop being traded by transnational corporations within a largely arbitrary futures market. Obviously, this has been done with some reason--but who are beneficiaries, and at what cost?

The best part of waking up: consumers benefit from coffee commodification

Overwhelmingly, the positive traits of the NYBOT-centred coffee trading world are felt by consumers--customers at coffeehouses, but also the coffee shops and retail stores themselves, who are responsible for bringing the crop to market.

With the bottom of the world's low-quality coffee exchange having fallen out as the result of the influx of massive quantities of coffee from new productions centres (predominantly Vietnam, as per Ed Faubert in Nick Reding's article on coffee trade (2006)), the market has shifted directions.

Chief among the changes has been a general rise in quality. Having to cope with their sudden inability to sell low-grade Robusta beans, "the coffee industry... is increasingly leaning towards quality improvement as a means of permanently raising prices." Leading the charge has been Central America, which has undertaken a plan to destroy the lowest five percent of their poorest-quality coffee beans. ("Central America Wants Own New York Coffee Contract")

Indeed, coffee is now overwhelmingly a buyer's market. Since 1990, worldwide production has far outpaced consumption, rising at a rate of 15 percent while consumption increased only 7 percent. (Levi and Linton: 412)

The result is that consumers, both at the terminal and intermediate levels, can afford to be much more discriminating, and indeed this is what has been reported; Christopher Bacon (2005: 498) notes among the consequences of changes to the coffee market "shifts in power to the roasting and retailing end of the commodity chain," as well as "falling prices paid to producers."

In general, for the average consumer, this has been an unmitigated boon, resulting in generally lower prices and a higher-quality product. Further, the futures market, combined with some strategic decisions on the part of retailers (as per "Starbucks Stockpiles Coffee to Stabilize Volatile Prices"), has flattened coffee prices nearly absolutely.

Strongly contrasting with, for example, gasoline prices at the service station, consumer-level coffee prices are virtually invariable. Appendix A is a graph representing trading on the NYBOT futures market over the last three years. Despite these fluctuations, Starbucks increased prices at their retail stores only twice during this time, once in 2004 and once in 2006. ("Starbucks Implements Beverage Price Hike" and "Starbucks to Hike Coffee Prices," respectively)

Significantly, the most recent raise of 5 cents represents an increase of 1.9 percent over 2004 prices ("Starbucks to Hike Coffee Prices"). The Consumer Price Index, as measured by the Bureau of Labor Statistics, reports an inflationary increase of 6.83% between 2004 and 2006; ("Consumer Price Indexes") in other words, the adjusted cost of coffee has only decreased over the same period.

For the man on the street, the coffee market has only been a good thing, lowering real prices as the quality of coffee steadily climbs. At the same time, as the truism says, there's no such thing as a free lunch, and this revolution has come with a heavy cost.

Smelling the coffee: the effects of coffee trade on producers

The cost of globalisation has been borne almost exclusively by coffee producers, particularly small-scale farmers. The "origin discount" system, for instance, has significant repercussions: the decision to lower Burundi's discount represented the potential for a $583,000 gain for the average Burundi farmer--a positive boon, until one realises that the exact opposite could well be true. (Rudolph)

Too, the futures system, by abstracting away the complexities of coffee farming, makes unreasonable demands on producers and locks them into an unprofitable scheme. In the 1999-2000 fiscal year, for instance, India exported 180,000 tonnes of coffee valued at $447.3 million. In fiscal year 2001-2002, this value dropped to $246.4 million, even thought their production had only increased, to 200,000 tonnes. (Krishnan)

And, while Starbucks may appreciate declining real costs (to say nothing of their customers!), such a change does not accurately reflect the expenditures of the average farmer. In 2002, the May futures contract was for $.59 per pound of coffee; at the same time, production costs alone were sixteen cents higher, at $.75 per pound. ("Central America Wants Own New York Coffee Contract")

As a result of the global reach of the NYBOT system, coffee producers find themselves obligated to fulfil contracts that provide them with shrinking and at times completely non-existent profits. For Ed Faubert, passing judgment on the potato-ness of a given coffee, this has little relevance--but for the putative Juan Valdez, it means the world.

"Many farmers," write Levi and Linton (413), "face an immediate crisis: they cannot continue to produce at a loss." Unfortunately, the realities of the global marketplace mean that they "have few--if any--incentives to grow high-quality coffee, and cannot compete with other producers of low-quality coffee." The consequences are drastic.

Cascading effects are devastating in a national sense: in Nicaragua, "falling coffee prices have accelerated migration to urban poverty belts." Economic necessity trumps ecological concerns; "a walk through a coffee farming community in Coto Brus, Costa Rica, reveals eroded hillsides where farmers replaced coffee agroforestry systems with treeless cattle pastures." (Bacon: 498)

The collapse compounds the trend of control exportation mentioned earlier; "at times of falling prices," according to Stefano Ponte, coops and independent traders, disappear entirely or begin to act solely as "agents of major exporters." (Ponte: 621) The result is the progressive move towards what Linda Diebel, quoted in Levi and Linton (2003: 413), described as "places characterized by working children, starvation wages, bonded labor," and a host of other inhumanities.

If this system is so destructive, why has it persisted? An easy answer would be to blame the hegemonic actions of transnational corporations and the power of western businesses, which would be entirely inaccurate. A more complex picture is painted when one begins to examine the coffee-growing patterns in the countries themselves.

Making their own bed: are farmers responsible for their own fate?

As with many other unsavoury aspects of global trade, from the sweatshop labour used to make Nike tennis shoes to the subtleties of international tourism, the reality is that in many ways, the self-same producers who suffer at the hands of the NYBOT and their associated endeavours are responsible for the preservation and furthering of that system.

In some cases, this complicity is simple. Vietnamese merchants, for instance, trade in the futures system as a form of gambling, without actually having any coffee to trade ("Vietnamese Coffee Futures Generate Losses"); this, among other things, contributes to the perception of Vietnam as a problematic coffee grower (as in Reding). But at times, it is much more complex.

As a general rule, producers may or may not be happy with their lot in life (and frequently they are not), but they nearly always accept the basic premise of the system: that unrestricted capitalism, as embodied in NYBOT, is the ticket to their salvation.

For this reason, Indian coffee growers, protesting the NYBOT's origin discount before its revision, couched their defence in the terms of the exchange--saying not that the judging system was subjective and arbitrary, only that it was unfair to them that they be discounted "even though discerning traders have rated them as superior to other origins [emphasis mine]." (Krishnan)

Similarly, Faubert's vision of "quality" in coffee shares nearly universally acceptance. Commenting on his country's trade, the Burundi Minister of Agriculture and Livestock was explicit in embracing it: "what is most important is the recognition of the quality and consistency of our coffee industry. For our growers, it's a challege..." (Rudolph)

Writing in Asia Pacific Viewpoint , Stan B-H Tan paints a view of coffee cultivation in the central highlands of Vietnam in which intermediaries, village businessmen, wholeheartedly recapitulate Ed Faubert's views on quality, selecting beans accordingly. (Tan: 59)

Indeed it seems clear that, as he says, the global quality discourse "demands that peasants be initiated" into the "demands of the commodity regime." (Tan: 55) Nor are they the only ones; Stefano Ponte evocatively shows the ways in which the Tanzanian government uses the global system they participate in to their own advantage--for instance, by reassuring the very farmers the system exploits that they are on their "side." (Ponte: 624)

Does the system spell nothing but doom and gloom for growers? No, of course not; many will benefit, particularly those in a good position to exploit the vagaries of the demands placed by the global market. By and large, however, it is a system, willingly participated in by everyone, that has vested control firmly in the hands of transnational corporations, New York businessmen, and the comparatively-wealthy western world.

Conclusions:

Coffee is, perhaps obviously, a commodity massively dominated by globalisation and the discourse that surrounds it. In many ways, it is an unfair one, marked by hegemony and exploitation. The "quality" demands made by isolated "cuppers" in New York are just one example of the cultural imperialism associated with such trading--forcing millions of coffee cultivators into an agreement with terms dictated entirely from the top.

Is there a better way? The alternative, so-called "fair trade" coffee, represents an attempt to moderate the excesses of the NYBOT regime. Christopher Bacon (506) says the evidence suggests "that participation in alternative coffee trade... reduces exposure and thus vulnerability to low coffee prices."

But such a system only benefits producers if consumers are willingly to buy into it as well. And while half the respondents in a survey said they would not only buy fair trade coffee, they would also pay "$1.00-$2.00 per pound more for it," (Levi and Linton: 421) its absence from such venues as Dunkin Donuts is nonetheless telling.

Whatever the result of this debate, one fact remains inescapable: coffee is a crop of tremendous importance. For the subjects of Bacon's report, "coffee is the hope of a better future"; something which "gives value to [their] land." (Bacon: 504) The cultural significance of its cultivation should not be understated.

Because, if nothing else, coffee is an essentially human commodity: hand-grown, hand-picked, hand-selected, hand-graded, hand-purchased, and hand-consumed. It is not a mechanical abstraction into which values may be plugged at our whim, but the net product of a complicated system of interlocking gears, each of which would be best represented with a human face.

The same could be said of many commodities. But this, a product second only to petroleum in its presence in global trade, might perhaps rate somewhat higher, such that we might ask this question: what has gone into making the cup of coffee we enjoy in the morning "good to the last drop"?

WORKS CITED

"Central America Wants Own New York Coffee Contract." 2002, April 4. Business Recorder: Global News Wire

"Consumer Price Indexes." 2006. Consumer Price Index Home . US Department of Labor, Bureau of Labor Statistics. Accessed 4 December, 2006. Available online: http://www.bls.gov/cpi

"El Economista: Mexican Coffee Growers Lose Ground To Imports." 2001, April 3. Corporate Mexico: El Economista: Global News Wire .

"Starbucks Implements Beverage Price Hike." 2004, October 6. Display and Design Ideas .

"Starbucks stockpiles coffee to stabilize volatile prices." 1997, September 10. The Ottawa Citizen , C7.

"Starbucks to Hike Coffee Prices." 2006, September 25. The Gourmet Retailer .

"Vietnam Coffee Futures Generate Losses." 2006, September 19. Thai Press Reports: Global News Wire .

Bacon, Christopher. 2005. "Confronting the Coffee Crisis." World Development 33:3. 497-511

Krishnan, Raghu. 2003, May 28. "Discount on Indian Arabica Cut to 1 Cent." The Economic Times of India .

Levi, Margaret and Linton, April. 2003. "Fair Trade: A Cup at a Time?" Politics and Society 31:3. 407-432

Muradian, Roldan and Peupessy, Wim. 2005. "Governing the Coffee Chain." World Development 33:12. 2029-2044

Ponte, Stefano. 2004. "The Politics of Ownership: Tanzanian Coffee Policy in the Age of Liberal Reformism." African Affairs 103:413. 615-633

Reding, Nick. 2006, May. "Java Man." Fast Company . 72.

Rudolph, Sarah. 2005, May 2. "Burundi Farmers Welcome NYBOT Coffee Discount Change." Securities Week 32:18 . 6.

Tan, S.B-H. 2000. "Coffee Frontiers in the Central Highlands of Vietnam: Networks of Connectivity." Asia Pacific Viewpoint 41. 51-67
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