The Coffee Crisis In Colombia

Yanis Iqbal

With the unabated march of the Covid-19 pandemic, the economic situation of Colombian coffee farmers is rapidly deteriorating. The price of Arabica coffee has reduced to an exceptionally low $0.9 per pound in June.  Earlier, coffee production had fallen by 28% in April, 12% in March, 9% in February and 19% in January.  Specialty coffee farmers too are experiencing difficulties in the form of shortage of experienced coffee pickers. In specialty coffee, coffee cherries are picked at the peak of ripeness. But with the absence of expert pickers, “Coffee cherries left on the tree will over-ripen or fall to the ground, effectively nullifying all the additional work put into the coffee to achieve the higher quality.” This labor shortage has been partly caused by the pandemic-necessitated closure of Colombia-Venezuela border which has significantly blocked the flow of Venezuelan migrants. 1.8 million Venezuelan migrants reside in Colombia and their contribution to Colombian coffee sector is indispensably important with nine out of ten coffee pickers in Colombia being Venezuelans.

If we historicize the current Coronavirus coffee crisis, we will observe that the dire situation of extremely low prices has previously occurred. For example, in 2016 the price of Arabica coffee was $1.55 per pound on the New York Stock Exchange. In 2018, it declined by more than 30% to less than $1 per pound. Similarly, in 2019 coffee prices were under barely $1 per pound, compared to $3 in 2011. These market fluctuation triggered systemic changes in the everyday lives of innumerable Colombians who are involved in coffee production. In Colombia, more than 550,000 families cultivate coffee and 96% of coffee farms, spread over an area of 877 ha, cultivate 5 or less hectares of land. When price fluctuations happen, it is these small farmers who are heavily impacted.

The origins of present-day market fluctuations in Colombia coffee prices can be situated in the 1990s process of neoliberalization. Before the unleashing of neoliberalization, the Colombian coffee market was extremely stable and secure. This stability was achieved through two primary mechanisms: – the International Coffee Organization (ICO) and the National Coffee Federation. Firstly, the founding of ICO in 1962 led to the establishment of an International Coffee Agreement (ICA) through which a quota system was established. Through ICA, states “sought to guarantee coffee profitability by providing financing, warehouses, and extension services for growers, engaging in research and development on high-yield and disease resistant coffee varieties, regulating coffee processing and/or internal price structures, and expanding exporting facilities.” Secondly, the Colombian state augmented the booming coffee prices guaranteed by ICA through the enlargement of its National Coffee Federation. The National Coffee Federation or the National Federation of Coffee Growers (FEDERACAFE), created in 1929, was functionally expanded with the stabilization of global coffee market: it was allowed to collect taxes from coffee farmers (currently, the tax represents 15% of farmer’s income), oversee production and devise developmental plans in health, education and infrastructure. To carry out these tasks, the Colombian government created the National Coffee Fund in 1940s which allowed FEDERACAFE to finance its programs.

With the end of cold war, every effort was made at erasing the traces of Soviet-style state institutions. This was part of the “End of History Project” wherein capitalist states were trying to achieve what Francis Fukuyama had called “the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” Consequently, ICA also came under attack and it was subverted through the selling of coffee “to the nonquota markets of non-ICA signatory countries”. With the eventual collapse of ICA, “producing states surrendered their ability to regulate the world coffee trade.” and “coffee traders and roasters in the United States and Western Europe consolidated into a handful of enormous corporations that stockpiled large coffee reserves to strengthen their hand in the market. Under these conditions coffee prices dropped precipitously beginning in 1989.” The monopolization of coffee market by multinational corporations led to a decrease in the income of coffee farmers: “whereas coffee growers obtained an average of 20 percent of total income in the 1970s, this percentage dropped to 13 percent after 1989. Concomitantly, the percentage of total income accruing to roasters in the consuming countries increased from 53 percent to 78 percent in the same period”. In Colombia, neoliberal globalization caused a decrease in coffee production from 840,000 tons in 1990 to 682,580 tons in 2005.

In the contemporary time, Colombia is still reeling from the continued onslaught of neoliberal globalization. An important player in this Colombian coffee crisis is the American multinational corporation Starbucks which buys 40% of Central American Arabica varieties and has strategic interest Colombia which is the second largest Arabica producer.  After the end of the ICA regime, “there has been a general shift of power from producing to consuming countries in the coffee marketing chain”. According to Stefano Ponte, “Grower organisations have not been able to substitute governments as organisers of coffee exports. ‘Local’ exporters have not been able to raise necessary funds to compete with international traders, and have now either disappeared or allied themselves with international traders. The general trend has been a strengthening of the position of roasters vis-à-vis other actors.”

Starbucks has capitalized on this shift of power to gain an upper hand in the class war against Colombian coffee farmers.  Operating in a thoroughly deregulated coffee market, it has hyper-exploited small coffee farmers by purchasing their coffee beans at ridiculously low prices and selling the finished coffee at stable retail prices. As documented by “The Economist Group”, “Although world coffee consumption has been increasing at an average rate of 2.2% per year since 2011, to 163.6m 60 kg bags in 2018, the international price of raw coffee has been falling rapidly since late 2018. Meanwhile, coffee roasters are enjoying rising margins and coffee shops are booming globally. The C Price (the benchmark price for futures of raw arabica coffee) plunged to US$0.90/lb in mid-April [2019], while the cost of a cup of brewed coffee in coffee shops in the US and Europe has been increasing in recent years, to about US$2 at present”.

According to a report produced by ICO, Colombia is one of the 13 countries ( the other 12 are Brazil, Cameroon, Costa Rica, El Salvador, Honduras, Nicaragua, Papua New Guinea, Peru, Rwanda, Sierra Leone, Tanzania and Uganda) where 53% of coffee farmers work at a loss. This is bound to happen because the cash costs of production for Colombian farmers is estimated at $1.10 per pound and the selling price is even lower than $1. Starbucks has turned a blind eye to the rapid immiseration of coffee farmers and is busy in introducing new market segmentation techniques. In 2018, Nestle paid Starbucks $7.2 billion to acquire the market rights to sell Starbuck’s consumer and food service products. With the signing of this deal, “Starbucks continues purchasing the green coffee beans from farmers, but Nestlé roasts and distributes the coffee for consumers under strict Starbucks licensing and branding rules, while paying annual royalties.” This shows that Starbucks is only interested in commoditizing and increasing the value added of coffee and is uninterested in helping impoverished Colombian farmers.

Apart from its involvement in the international coffee market, Starbucks also has a domestic presence in Colombia. In 2013, Starbucks announced that it was entering the Colombian retail market through a “strategic association between Alsea and Grupo Nutresa”. In the domestic market, Starbucks has an objective differing from its aim in the international market. The internal Colombian coffee market is unattractive because Colombians drink less coffee than other Latin American people. An average Colombian consumes 1.5 kilograms (3.3 pounds) of coffee, compared to “3.7 kilograms per capita in Costa Rica and 5 kilograms per capita in Brazil.” As a result, the Colombian coffee economy is wholly export-oriented with most of the coffee being exported to other countries (in 2018, for example, 13.56 million 60-kilogram bags was produced and out of this 12.7 million 60 kilogram bags was exported).

Starbucks, instead of using the domestic Colombian market for economic purpose, uses it for politically covering its hyper-exploitative practices. For example, in 2017 Starbucks cooperated with the Inter-American Developmental Bank (IDB) to invest $2 million in a smallholder farmer loan initiative. In 2013, it formed a public-private partnership with the US Agency for International Development (USAID) with a $1.5 million investment. It has also partnered with the Colombian Coffee Growers Federation to supply twenty million coffee trees and other technical support. The meager Starbuck-sponsored assistance of $2 million or $1.5 million is nothing compared to the $4.52 billion annual income of Starbucks and $3.4 billion net worth of Howard Schultz, the owner of Starbucks.  Furthermore, Starbucks is attempting to provide only minimal assistance so that it can safely enter the zone of plausible deniability. It has done next to nothing to implement climate change adaptation and mitigation techniques in the regions where it operates. Some of the regions where Starbucks operates are Antioquia, Caldas, Quindío, Huila, Nariño and Tolima. All these regions are experiencing severe climate change.

In Caldas, “increasingly erratic and extreme weather conditions, such as excess rainfall and more frequent droughts, are threatening a way of life generations in the making.” The Quindío mountain region “is warming at a rate of 0.3°C per decade” and this is “having a dramatic effect on weather patterns in the region, altering the flowering and fruiting cycles of coffee and increasing pests and diseases.”

In the Huila region, “it has been found that the increase in temperature and the demand for water, together with the reduction in rainfall are, among other situations, proof that Huila Department is not free from the effects of global climate change… it is possible to conclude, in general, that the temperature will increase by close to 2°C in 75% of the Department, precipitation will fall by 67%, and even that certain ranges of precipitation above 2,500 mm per annum will disappear. These changes, added to the loss of natural vegetation coverages and the reduction in bio-diversity, have caused considerable environmental impacts which have placed this Department on alert.” In the Nariño plains of Colombia, river banks overflowed and converted the beautiful sight of 2000 Arabica coffee plants into “desert terrains scorched by the dry heat and severe droughts.” In Tolima, “Seasonal differences between wet and dry season are expected to increase.”, “Minimal increase in average annual rainfall” is anticipated and higher rainfall is “expected mainly at the end of the rainy season”.

The catastrophic impact of climate change on Starbucks-operating regions is contrary to the rosy narrative dishonestly peddled by the company itself. According to this narrative, “Starbucks has been implementing a climate change strategy since 2004, focusing on renewable energy, energy conservation and collaboration and advocacy.” No one exactly knows how this “conservation and collaboration” policy is being implemented when Colombia has already lost 40,000 hectares of coffee planting areas in 2019. Moreover, 30% of coffee crop areas in lower elevation are expected to become unsuitable, 15% of coffee growing areas are likely to experience a temperature increase of 3 degree Celsius (making them unsuitable for Arabica cultivation) and the shift of coffee production to higher altitudes is poised to disturb diverse ecosystems. Despite the existence of all these climate change catastrophes, Starbucks is somehow set to become “resource positive”.

With the intensification of the global economic crisis precipitated by the Covid-19 pandemic, the situation of Colombian coffee growers is likely to get worse. While Starbucks will emerge out of the pandemic unscathed, small Colombian coffee farmers will get economically oppressed further through the primary strategy of Starbucks. As noted before, the primary strategy of Starbucks consists in exploiting Colombian coffee farmers; politically covering it through a “strategy of bare minimum” with the help of USAID and IDB and effectively utilizing effusive rhetoric about climate change to hide its own destructive tendencies. But this strategy can’t last for long. As the Colombian senator Enrique Escovar alarmingly said, “Pay us good prices for our coffee or — God help us all — the masses will become one great Marxist revolutionary army that will sweep us all into the sea.” The specter of that “great Marxist revolutionary army” is looming over Colombia.