Unequal Exchange in the Global Coffee Economy
Sasha Breger Bush, Guest Blogger
The global coffee economy, a chain connecting different parts of the global division of coffee labor to one another, takes us downstream from the green coffees harvested in the field by farmers, through various traders and processors, to the cups of roasted coffee consumed by final consumers.
The diagram below illustrates how the global coffee economy operates and the severe inequalities that characterize it. International traders and roasters operate in a very uncompetitive market setting— they are monopolists. The six largest coffee trading companies control over 50% of the marketplace at the trading step along the coffee chain (Neumann Kaffee Gruppe from Germany and ED&F Man based in London are the largest international traders). The roasting stage of coffee production is even more concentrated, with only two companies (Nestle and Phillip Morris) controlling almost 50% of the market. Market power gives these modern-day robber barons influence over prices and other terms of trade, allowing them to place downward pressure on prices they pay to farmers, and upward pressure on the prices they charge to consumers.
This inequality in market power introduces inequalities in incomes and standards of living between different actors in the coffee economy. Unsurprisingly, farmers operating in the shadow of the big traders and roasters have relatively low incomes and standards of living. By contrast, owners, managers, and some workers at the big coffee monopolies enjoy relatively high incomes and standards of living. There are also race and gender dimensions to consider: coffee farmers are disproportionately women of color, while owners and managers in the big coffee monopolies are generally white men. There is also a strong North-South dimension to this power inequality—coffee farmers from Latin America, Africa, and Asia compete fiercely with one another, their incomes undermined by the pricing power of monopolies headquartered in Europe and the United States.
Twenty-five million coffee farming families from Latin America, sub-Saharan Africa, South Asia, and Southeast Asia compete globally with one another to sell coffee to a handful of international coffee trading companies. Similar to the situation of poultry producers, there are in practice usually only one or two potential buyers for a farmer’s coffee crop. Lacking the transport and information resources to effectively market their crops, many coffee farmers sell to whoever comes to the farm gate. Unsurprisingly, things do not usually go well for our coffee farmers.
The graph above illustrates the distribution of income in the global coffee economy. Only a small percentage of total income is retained by those—growers, small-scale traders who transport coffee from the farm gate, and petty processors who transform dried coffee cherries into green beans in producing countries—who operate in competitive markets. Most of the income is appropriated in consuming countries, mainly by the coffee monopolists in trading and roasting, but also by large retailers (e.g., supermarkets and corporate café chains like Starbucks). The position of coffee growers deteriorated between the 1970s and 1990s. Expanded global trade in coffee since the late 1980s, with “free trade” increasing the market leverage of multinational traders and roasters over coffee farmers and final consumers, has led to decreasing relative income of growers.
This is an excerpt from an article originally published in the March/April 2015 issue of Dollars & Sense.
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