In Bahia, the world seeks a new coffee policy

São Paulo – To analyse the recent scenario of coffee economy, marked in the last three years by one of the most serious price crises lived by the sector, and to trace strategies that allow for a balance between world production and consumption of coffee. These are the aims of the 2nd World Coffee Conference, which starts this Saturday (24), in Salvador, capital city of the northeastern Brazilian state of Bahia. The meeting takes place, indeed, at the exact moment in which coffee – the second greatest commodity of international trade, losing only to petroleum – starts showing signs of overcoming one of the hardest periods in the world history of coffee growing.

Promoted by the Ministry of Agriculture, Livestock and Supply, in partnership with the International Coffee Organisation (ICO), the conference is being organised by the Association of Farmers and Irrigators of Bahia (AIBA). The event will be officially inaugurated in a ceremony that will have the presence of Brazilian president Luiz Inácio Lula da Silva, the presidents of Colombia, Álvaro Uribe Vélez, and El Salvador, Elias Antonio Saca, as well the governor of the state of Bahia, Paulo Souto, the minister of Agriculture, Roberto Rodrigues, and the executive director of the ICO, Néstor Osorio.

The meeting will gather about 1,000 participants, amongst delegations of exporting countries (producers) and importers, associated or not to the ICO and representatives of the private sector, such as coffee growers, industrialists, exporters, traders, companies that supply equipment and inputs, financial organizations, researchers and market consultants.

The central theme, “Lessons that come from the crisis; new paths for the coffee sector”, will be approached in specific sessions: “Lessons that come from the crisis”; “Coffee policies in a market economy”; and “How to develop a sustainable coffee economy”.

The first session of the conference – “Lessons that come from the crisis” – will take place on Saturday and will be one of the main topics, as it will analyse the sector’s recent past, trying to identify the main mistakes or factors that made the coffee economy fall causing an increase in unemployment, hunger and misery in the great majority of the 60 coffee producer countries.

Matter of survival

To have an idea of the commodity’s importance, all one has to do is to recall the drop in the grain’s prices on the foreign market at the beginning of the 1990s, caused by excessive supply and dictatorial low prices imposed by the multinational companies in the sector, which almost broke over 40% of the countries that produce coffee.

This is the case, for example, of Ethiopia, Burundi, Rwanda and Uganda, whose economies are basically dependant on coffee growing. It is the source of income and employment. In these countries, coffee represents up to 80% of exports. It is worth recalling that the United Nations (UN) considers these nations the poorest on the planet.

A study carried out by the ICO in 2003 shows that 25 million people in the world, amongst rural workers and producers, live off coffee growing. In Brazil, 3.5 million workers are in the coffee sector. In Colombia, 800,000 direct jobs are generated in the rural area with this crop and, in Mexico, more than 3 million people depend on coffee.

To economist Sandra Mara de Alencar Schiavi, of the Agroindustrial Research and Study Group (Gepai) of the Federal University of São Carlos, coffee is therefore of fundamental importance to producer countries with regard to social aspects.

In a research organized in 2003 (Preliminary Sector Report), she shows that most of the countries that produce coffee are responsible for a substantial part of family farming. Based on ICO figures, the economist proves that family farmers are the majority among the countries that produce around the planet: in Brazil, they answer to two thirds of the properties. In Africa and Venezuela, small farmers are the majority.

According to the ICO, many of these nations are “coffee-dependant”, i.e., the product is synonymous to revenues, answering to up to 50% – and in some cases 75% – of foreign trade revenues.

To Thiago Masson, a technical advisor at the National Coffee Commission at the National Confederation of Industries (CNA), the conference in the northeastern Brazilian state of Bahia, therefore, will be a unique opportunity for the world coffee community to reflect on the errors committed and define new strategies and policies for the sector.

The root of the crisis

To the specialists, the reasons for the world coffee crisis were many, starting at the end of the 1990’s. In that period, the average price per bag of coffee rose to US$ 40. Due to the lack of joint operation, producers fell in the hands of large multinational companies that control the world market. These companies imposed on exporters prices that were blow production costs.

Among the various reasons causing critical situation prices are the lack of balance between supply and offer. The euphoria due to the high prices at the beginning of the 1990’s (due to the climate, among them the 1994 frosts that affected production in Brazil) caused a significant increase in production, even causing new countries to start producing. One of them is Vietnam, which grew from a harvest of little over one million bags in 1998/99, to 15.230 million bags in 2003/04.

The problem is that world coffee consumption was lower than production. The result: starting in 2000, the price of the commodity on the foreign market collapsed, registering a record drop in coffee farmer revenues in Africa, Asia and Latin America. It is estimated that in the last five years at least 10 million farmers lost their jobs.

“In general, the coffee price crisis brought more poverty, social disturbance, incentives to the cultivation of drugs, rural unemployment and migration out of many developing countries,” alerted the executive director of the ICO, Néstor Osório, in an statement sent to the Summit of the G-8 (the group of seven richest countries in the world and Russia, which met between July 6 and 9, in Scotland).

To Osório, the challenge is still the development of policies and actions to avoid the return of the kind of imbalance in demand and offer that caused the crisis.

Point of equilibrium

Nobody doubts that it is necessary to avoid the imbalance between offer and demand. But, in the opinion of an important member of the Colombian Federation of Coffee Farmers, for this to happen it is necessary for producer countries to adopt a joint operation on the world coffee market.

And at the same time it is necessary to create internal conditions for governments and producers in countries that produce the commodity to generate awareness of the danger of the release of projects or programs that may result in the increase of offer, without the corresponding expansion of demand.

A similar position is being taken on by the Brazilian Ministry of Agriculture. In recent times, the secretary of Agricultural Production at the Ministry, Lineu da Costa Lima, stated in Colombia that Brazil would like to further straighten the cooperation ties with the country so as to make coffee farming an activity that will generate income to farmers in both countries. The measure would also avoid new crises.

Colombia is the second largest coffee exports in the world. Together, both countries answer to over 40% of world coffee exports. The secretary at the Ministry of Agriculture also said that producer countries cannot admit another excess in offer of the product. But, to Brazilian exporters, it is necessary to find mechanism that limit the greed of the multinational companies which control the world market.

The control of multinationals

“Thus, in the international context, it seems that the coffee crisis of recent years has more serious social and economic consequences in countries that produce the commodity. On the other hand, in the case of the countries that import, what may be noticed is a growth of market opportunities, either through sales expansion or introduction of new products, generating multinational companies interest in strategically placing themselves in the sector, both in developed and in third world countries,” analyses economist Sandra Mara de Alencar Schiavi.

Therefore, while the coffee crisis affected the economies of various nations, multinational companies are having greater and greater coffee profits. So as to have an idea of what this represents, a study by non-government organization (NGO) Oxfam shows that of every 100 cups of coffee sold around the world, less than two correspond to farmer payment.

In an article published by magazine “Conjuntura Econômica”, ambassador Rubens Ricupero, former secretary general of the United Nations Conference on Trade and Development (Unctad), stated that the concentration of the world coffee trade is notorious. It is dominated by six multinational companies, in roasting there are only four.

“From there comes a curious paradox. In developing countries, with immature capitalism, there is true competition between producers, keeping prices down. In the capitalists countries, supposed followers of Adam Smith, there is concentration, causing trade and industry to receive almost all the profits, not bringing the end consumer any of the benefits of the drop of prices of coffee beans,” stated Ricupero.

To him, this volatility and the tendency towards low prices are old, “but what is graver and scarier is the new problem: the shrinkage of the producer’s share at the end of the coffee productive chain, which fell from around 36% to 38% at the beginning of the 1990’s to between 6% and 8% in 2000.”

Figures by the Ministry of Agriculture show that at the end of the 1980’s and during part of the 1990’s, FOB exports of countries that produce the commodity varied from around US$ 10 billion to US$ 12 billion a year – a total that dropped to around US$ 5.5 billion after 2000.

In the last two decades there has been a 50% to 86% drop in foreign prices of the product. In the same period, in turn, the value of retail sales in countries that consume the product rose 166%, from US$ 30 billion to US$ 80 billion.

Turnaround

“The moment for the establishment of new policies and strategies is now,” stated Lineu da Costa Lima. “Prices, after having remained at around US$ 40/bag in recent years, in the beginning of 2005 exceeded US$ 100/bag, which helps reduce the price crisis, but not the financial one.”

Recalling the past crisis, he makes an alert: “this higher price may once again generate excessive production, restarting the critical cycle.”

To Lima, recent forecasts showing a worldwide consumption of 145 million bags of coffee up to 2015 must be observed. The current consumption is 120 million bags. “We are at a moment that requires care and strategy, as we cannot miss the opportunities that will come with greater global demand, but we must also not produce in excess, which would again slump the market.”

*Translated by Mark Ament