fbpx

How we solved the global coffee price crisis

How we solved the global coffee price crisis

The coffee price crisis is not a new problem so the first thing we should do, it is to look back in history and realize how we have approached it in the past and what the circumstances that surround it were.

Hello Guys Marcelo here

Last week we talked briefly about the causes of the coffee price crisis and today I would like to discuss with you, how we can work together to tackle the situation.

This problem is not new so the first thing we should do, it is to look back in history and realize how we have approached it in the past and what the circumstances that surround it were.

During the 20th century, European nations withdrew their dominance over their oversea territories. A massive decolonization process allowed more than three dozen nations around the world to obtain freedom and independence.  Some of them were coffee producing countries. Indonesia (1945), Kenya (1963), Tanzania (1961), Uganda (1962), India (1947), Vietnam, (1945), Laos (1945) and Philippines (1946), to name a few.

The undoing of colonialism took several decades and overlapped with a period of geopolitical tension between the US, and the Soviet Union we later named the Cold War.

During this period, the US along with its allies (Western Block) began a strategy of global containment; focused on stopping the spread of communism and challenge Soviet domination.

SEE ALSO: Why does coffee matter?

The USSR and the Western Block competed for influence in Latin America and the decolonizing states of Africa and Asia. However, sympathy and support was uncertain, due to the systemic oppression experienced by some of these nations in the recent past by the now members of the Western Block.

One of the many outcomes of this rivalry between the two fronts and a way the Western Block tried to gain popularity among former colonies and Latin America was by the creation in 1963 of the International Coffee Organization (ICO). Which, main role was to administer a cooperation agreement (ICA) that gathered together the majority of coffee producing and consuming countries, to find ways to combat market volatility and its consequences over farmers.

The first version of the International Coffee Agreement (ICA) in 1964 enabled coffee producing countries the possibility to operate as a cartel and the ICO helped them by enforcing, estimating and modifying their yearly exporting quotas without the risk of saturating the global market.

For several years the ICA worked great and coffee producers around the world enjoyed an unprecedented coffee price stability. However, after 1964, coffee producing countries strategy focused entirely on fulfilling their individual exporting quotas, neglecting essential aspects as quality, technology and research.

Therefore, combined with the increasing popularity of soft drinks, coffee steadily lost acceptance among Americans. Picking in 1975, were studies and surveys performed during the time described general coffee perception as bitter, bad and unappealing.

By 1989, after multiple International Coffee Agreements iterations, the US and Brazil stepped out of the ICA. The US claimed quality issues and Brazil argued being held back by the quota system imposed by the ICO.

Without the most important and largest coffee producer Brazil and the Cold War over, the ICA quota system was unsustainable, therefore rushed to an end that same year.

SEE ALSO: Is specialty coffee the solution for the coffee price crisis?

Once the ICA ended on July 4 1989, all coffee producing countries officially entered into a free global economy where production quotas were unrestricted and fellow producing countries were no longer partners but competitors for the same market.

This race allowed Brazil to unleash its potential, doubling its production in less than 30 years and allowing unlike producers like Vietnam, raising from being an unknown and insignificant coffee origin in the early 90’s, to becoming the second largest coffee producer in the world.

Other countries like Colombia acknowledge their disadvantage against Brazil coffee yield supremacy; taking a completely new market approach.

Using differentiation as strategy, Colombia entered into the global market arena, aiming for a quality and consistent product rather than volume.

During the 90s, Colombia invested in technology and capacity, improving overall coffee quality and efficiency. Simultaneously, Colombia launched a campaign that radically changed the old negative perception US citizens had about coffee and became a pioneer in the Specialty Coffee production.

Other countries followed Colombia’s lead and found new ways to differentiate themselves, some invested in certification; some others tried extensive farming techniques, bringing shade trees and biodiversity back to the plantation fields. Likewise, the introduction of selective picking and new processing methods along with improved varieties significantly enhanced global coffee quality by the end of the 20th century.

At the end, the free market allowed two countries to stand out in coffee yields and exports and another group to create its own niche by differentiation and quality. However, there is a third group of coffee producing countries that stayed out and unaware of the competition altogether.

Most of these countries are accidental coffee producers, who grow coffee as a legacy from the colony or their distant past rather than choice, usually do not have a significant local consumption or coffee culture and do not enjoy support from their government agencies for development and education. Consequently, coffee quality and yields are low and cost of production high, making these countries the least competitive group in the global market and the most overwhelmed by the current coffee price crisis.

Capitalism and free market could be an advantage when coffee farmers are skillful, resourceful and educated but it could be brutal and devastating if they are not.

Despite their best efforts, coffee producing countries that bet on value and market differentiation are also struggling today. Although global demand for quality and differentiated coffee is steadily growing, it has not grown enough for these countries to completely disregard commodity coffee production. Therefore, as long as they keep depending on it, they will continue to be overpowered by Brazil and vulnerable to market volatility.

During the International Coffee Council meeting that took place this past March 29 in Nairobi, Kenya, Brazil was chosen to head the negotiations on the New International Coffee Agreement (ICA) that will go into effect starting in 2021.

Do you think a coffee quota system, like the one installed in 1964, it is the solution to the coffee price crisis; regardless it will undoubtedly affect global coffee quality?

Do you think coffee producing countries should focus on quality or volume?

This is all for today, if you have any question or comment just leave it bellow

Thank you very much for watching.

 
search previous next tag category expand menu location phone mail time cart zoom edit close