The Coffee Market Today

Steve GSeptember 12th, 2007
By: Steve G

(Page 5 of 5)

After the collapse of the ICA in 1989, free trade was the name of the game. Those non-ICA countries that could not trade with the U.S. suddenly had the opportunity to sell their beans to the US. More beans meant less value. The market was flooded with so many producers of coffee that prices fell to all-time lows. For the producing countries, it was analogous to that kid who drank all the kool-aid: party over. The developing countries that relied on coffee as their major export were crushed. Some country’s GNPs were completely split in half, others were completely wiped out. Billions of dollars were lost in mere months. Brazil, the mother of the coffee economy, had coffee exports representing less than 1% of their GNP by the late 1980’s. The IBC which kept Brazil’s coffee industry in order was shattered into small exporters with no regulation. Like a decentralized government, the industry in Brazil was a live and let die atmosphere.

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The price of coffee collapses

With the industry in complete disarray, producers freaked out at the bombing prices and proceeded to liquidate all of their coffee assets in an attempt to quickly recuperate losses. A big mistake on their part as it stimulated further drops in the prices. The FNC jumped in to help to help the farmers in Columbia guaranteeing minimum prices for their workers. By the 90’s, Columbia was on par with Brazil in terms of production and got relatively higher prices for their coffee because of their aggressive marketing schemes. Several non-ICA countries that already developed infrastructure, such as Vietnam, were on the rise as a producer due to the ICA collapse and the fall of the Soviet Union, but their arrival couldn’t have come as a worse time. Farmers in those regions that thought they would get higher prices, ended up losing more money once the markets opened up. Vietnam with its high yield fields were only able to cover about 60% of their producing costs. By 2001, the price of coffee crashed to only 42 cents per lb., which is the worst coffee has ever been since its beginning in international trade.

The coffee crisis was a full scale disaster that directly affected hundreds of millions of people. It signaled a new formation in the coffee market where the local farmers end up being at a severe disadvantage. For the consumer in the First World country, this was a boon as they got coffee at cheaper rates. But the question we pose to you is this: Is it worth the suffering of millions of people to enjoy a cheaper cup of coffee? It is obvious that greed did play a role in coffee's collapse, but it's the residual problem that trickled down to the farmers that represents the greatest injustice. What's the best solution? No one really knows. The best action that the consumer can do is support fair trade coffee. It may be higher priced than what you're used to paying, but it makes a bigger difference to the farmers.

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