Coffee has become a symbolic flashpoint for consumer and civil-society action.  Oxfam believes the price is too low and demands that consumers pay more through their Fair Trade scheme.  All coffee trades internationally on what is known as the “c” price which is set by the New York Board of Trade, an archaic price control mechanism.  This type of price fixing is wonderful for large distributors and roasters, who are able to keep their input costs consistent, but is a disaster for small producers.  No matter how good or bad a coffee is it will still fetch close to this “c” price.  The price is currently around 105 c / lb (US).

By comparison, imagine if all wines were sold at a fixed price irrespective of the amount of work that a particular winery put into their product.  Instead you are used to a wide range of prices, including a non-rated base price of cheap boxed wine if all you want is an alcoholic wine-flavoured beverage.

Poor people have no money.  The measure of poverty is defined in terms of dollars-a-day earned.  So we hear about “the number of people living below US$ 1 a day is 1.1 billion” without defining poverty or giving an indication of what the problem is. The real question should not be “why are people poor?” but rather:  “why are people rich?” 

Wealth is not a miracle; poverty is the real miracle here.  If you consider that, despite the lack of concerts by Bob Geldof, or inspiring calls to action by Oprah Winfrey or Bono, European and US citizens are astonishingly wealthy (on average) by any measure you care to name.  There are certainly pockets of poverty and deprivation – and these are just as curious.  How does someone in the US – in the middle of one of the longest economic booms we have ever known, when more wealth has been created than ever – remain poor?

China too, despite super-star neglect, has over the past 20 years reduced the number of people suffering from absolute poverty from 268 million to 85 million.

The effects of poverty are clear to everyone:  little money, little education, poor health, no jobs, and poor safety and security.  The causes of these are less obvious since they are indirect.  It is impossible for the rich to have become rich because of exploitation of the poor.  The poor have nothing but their labour – and a large aspect of poverty is that the poor do not engage in productive work.  If they’re not working then they can’t be producing anything that the rich can take – whether the rich pay for it or not.

Latin American producers introduced the Cup of Excellence competition to stimulate a market in fine coffees.  The region has 25 million growers producing US$ 9 billion a year of beans.  The Economist states:  “Although the trade is profitable for importers and roasters, it has confounded governments and NGOs hoping to use the bean to stimulate developing economies.  The collapse of trade barriers, a jump in production and a tendency by the largest roasters to treat coffee as a uniform commodity caused prices to fall to historic lows.”

The Cup of Excellence demonstrates that coffee is not uniform and that some coffees are truly outstanding, deserving of special treatment.  The winner on January 16th – Fazenda Esperanca – sold their winning coffee online fetching 1 443 c / lb.  A staggering 1 233% more than the “c” price.

It is frequently government interventions that result in mass hardship and poverty. 

In Kenya coffee is traded in an open-cry warehouse similar to the New York Stock Exchange.  All the coffee sellers get together.  Their coffee is individually cupped and tasted by purchasers who are then able to decide for themselves the relative standards of the different producers.  Prices are significantly higher than the “c” price and it would look as if the farmers get a good deal.  But they don’t.  Until very recently the entire sale process was controlled by the Kenyan government who took their cut, and then passed on the rest to the seller.  The result is familiar to anyone in South Africa who has ever won a government tender; the process takes months.  Farmers can be left without an income for almost a year after the crop has been sold.  So Kenyan farmers have abandoned the open exchange for direct deals with buyers.  Without the open comparison, though, prices have returned to “c” levels.

In Ethiopia the government buys the bulk of the coffee, sets a price, and then sells to international buyers.  The price is fixed at “c” since purchasers are not allowed to taste in advance and have no means of evaluating what they buy.  Farmers suffer accordingly.

There is some hope though.  The most effective tool to ensure that farmers are not hurt by anti-competitive practice is in letting them know what the retail price of their product is.  The most powerful tool working to farmers’ advantage has become one of the most rapidly deployed technological innovations of all time:  the cell phone.

A number of SMS markets work to ensure that farmers know the latest auction prices for a range of products and are able to choose how to sell their own harvests.  As governments and other controlled markets gradually lose control of being the single source of information it is hoped that more of the profits will go down to the producers.