The Coffee Crisis

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Tamara Young

To begin, The Coffee Crisis is about an acute coffee crisis and how it threatens millions of small coffee farmers around the world and is putting economic growth, as well as social and political stability, at risk in scores of coffee producing countries in Central and South America, Africa and Asia. In 2004, the governments of coffee producing countries were considering how to respond to the dramatic decline in coffee prices caused in part by a large increase in coffee production in Brazil and Vietnam. Coffee was the main source of income for roughly 25 million farmers, mostly small land holders, in Latin America, Africa, and Asia. Coffee prices had hit 40 year lows in 2001 and had remained low since, resulting in real hardship for many farmers. A variety of alternative solutions had been suggested. (Gomez-Ibanez & Quinlan, 2004) The International Coffee Organization was advocating increasing demand through programs promoting coffee consumption; the Inter-American Development Bank supported promotion but also thought some high-cost countries should get out of coffee, while the non-governmental organization Oxfam was pushing fair trade pricing.

The coffee crisis is worldwide. It is affecting farmers in Central America, South America, Africa, and Asia. While the Arabica farmers in Costa Rica may be getting 40 cents per pound for their coffee cherries, the Robusta coffee farmers in Viet Nam are only receiving 15 cents a pound for theirs. Even the low cost producers are not benefiting from the current situation. This condition is created because the market place does not view coffee as a true commodity. It places premiums and discounts on both coffee types and coffee grades. While both markets may move up and down in tandem, the arbitrage, or spread between one Arabica and Robusta, does not give one farmer an economic competitive advantage over another. This fact tends to get glossed over in most economic...
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