The bitter cost of one nation's coffee boom

In just 20 years, Vietnamese coffee has come from nowhere to dominate the global market. Its success has left a nasty taste in many mouths, reports Antony Wild

Next month the International Coffee Organisation (ICO) in Berners Street, London, will host its council meeting. And it promises to be a strong brew, with the word "crisis" figuring large - and high - on the agenda. At issue will be whether the ICO, a once-powerful commodities regulator now reduced to a paper tiger, can solve three systemic problems: chronically low prices, a slump in quality and massive global unemployment.

Next month the International Coffee Organisation (ICO) in Berners Street, London, will host its council meeting. And it promises to be a strong brew, with the word "crisis" figuring large - and high - on the agenda. At issue will be whether the ICO, a once-powerful commodities regulator now reduced to a paper tiger, can solve three systemic problems: chronically low prices, a slump in quality and massive global unemployment.

Underlying everything is the effect of the huge increase in production of Vietnamese coffee at a time when the ICO, which would once have been able to withdraw millions of bags of coffee from the global market at the stroke of a pen, has been rendered largely toothless by the withdrawal of the United States in 1995.

The US consumes one quarter of the world's coffee and has effective economic hegemony over the western hemisphere, where three-quarters of the world's coffee is produced. Attempts to encourage the US to rejoin the ICO continue to flounder because an international commodity-price control agreement has no place at the neo-liberal economic table.

A company called Café Direct, the sixth-largest roaster in the UK, operates from a rundown area north of Liverpool Street, London. The owners - Oxfam, Traidcraft, Equal Exchange and Twin Trading - have agreed to reduce their holding to 39 per cent and allocate five per cent to producing groups already doing business with the them. The remaining 56 per cent will be sold to institutional investors representing ethical investment trusts or individuals, who will get tax relief under the government's enterprise investment scheme.

The fair trade movement espoused by Café Direct has long made coffee its centrepiece. Indeed, the idea was inspired by the pioneering work of a former Dutch colonial administrator. Written under the pen-name Multatuli, Havelaar, or the Coffee Auction of the Dutch Trading Company was published in 1860 and sent "a shiver through the country". Today the fair trade concept embraces a welter of products, from tea to peanuts, and is reckoned by analysts to represent a similar growth opportunity to that of the organic market in the 1990s. Like organics, fair trade products may soon be widely available through the decidedly less-than-ethical distribution channels of the large supermarkets.

The decline of the ICO, created and founded by governments, and the rise of Café Direct with its proposed shareholding structure mirrors the increasing inability or unwillingness of the governments of nation states to counter the influence of transnational corporations, and the trend towards non-government organisations to create a parallel universe in which individuals' concerns are addressed.

The crisis in coffee that has been largely prompted by the failure of international institutions to consider properly the full effect of their grandiose visions, coupled with the perpetual requirement of trans- national institutions to buy at the lowest price possible, has combined in the shape of Vietnam to produce a crisis of unparalleled scale in the coffee industry.

In the 1980s, Vietnam was the 42nd ranked producer of coffee in the world, largely of a fair quality grown on what had been former French colonial plantations nationalised by the new government. The 67,000 bags it exported scarcely registered a blip on the radar of the world coffee trade.

In 2001, Vietnam produced about 15 million bags, making it the second-largest producer of coffee worldwide. This massive increase has been blamed for the global collapse of coffee prices. The World Bank, which strenuously denies any miscalculation, is in turn widely criticised for financing the vast expansion of coffee growing. In the meantime, there are unsubstantiated but persistent rumours concerning possible dioxin contamination of the coffee crop, a legacy of the widespread spraying of Agent Orange by the Americans during the Vietnam War. Vietnam is the country where coffee's dark history has come home to roost with a vengeance.

An estimated 5,700 tons, or 12 million gallons, of Agent Orange were sprayed on South Vietnam during the war, destroying as much as 14 per cent of the forest cover and 50 per cent of the mangrove swamp that had previously been a valuable source of lumber. Over 4.5 million acres of vegetation were wiped out, with devastating results for the wildlife and ecology, let alone any unfortunate Vietnamese who found themselves in the flight path of the sprayers. Inevitably farms and smallholdings were also sprayed, causing widespread poverty and starvation.

It was 10 years before crops could again be grown on affected land. The health costs are still not fully understood, but about 400,000 deaths and serious cases of illness, and a further 500,000 birth defects in Vietnam have been attributed to the agent by the one in depth study that has so far been conducted, by the Canadian Hatfield Consultancy. Dioxin enters the food chain through contaminated soil or water supplies, and the build-up in human tissue - revealed in one of the few "hot spots" where it has been properly monitored - is rising, which suggests that the problem is increasing rather than fading away. It is one of the many vicious features of dioxin that it breaks down remarkably slowly.

Given that the problem is quietly recognised, it is not surprising that the coffee industry, which has traditionally prided itself on its scientific prowess, has examined the issue of possible dioxin residues in the same Vietnamese coffee that has flooded the world markets since the late 1990s. The industry was paralysed, albeit briefly, in the mid-1980s by the sudden scare involving chlorine-bleached coffee filter papers and possible dioxin residues therein. Dioxin has thus negatively impinged on coffee consciousness before, and it would be natural for industry professionals to have a once-bitten, twice-shy level of paranoia on this issue.

Indeed paranoia seems to be the order of the day, for information on the subject is very hard to gather. This is curious, because all the evidence would suggest that, since dioxin is not water soluble, it cannot be taken up by plants, including coffee. Nonetheless, the coffee trade is very nervous about the subject. The PEC group of coffee scientists looked at the issue in 2002 and reported that no problems had been found. Or rather, they are rumoured to have reported this conclusion, because "once it was established that there was no cause for concern, they didn't go public". The report was, in effect, unreported. This guardedness may be in turn a result of the persistent scaremongering in the US, where apparently - according to the National Coffee Association of America - a group of people have, for unknown reasons, been regularly feeding the dioxin in coffee story to the press. At one stage they even managed to start an entirely false rumour that the FDA had placed an embargo on Vietnamese coffee.

Whatever the motives of this mysterious group, one thing is certain: if there were one sure way to cure the current problems afflicting coffee producers, it would be for the entire production of Vietnamese coffee to be taken off the market. There would be an immediate and dramatic rise in world coffee prices.

There is thus an intriguing suggestion of commercial terrorism in the existence of these shadowy figures: could it be that a coffee-producing country devastated by low prices is making a desperate attempt to influence the market? Or is some rogue syndicate seeking to make a quick killing on the New York market?

Given the lessons that could have been learnt from the Agent Orange debacle, the cavalier way in which the US government repeats the errors of the past beggars belief. As we have seen, in Colombia the "war on drugs" has led to the increasing use of herbicides, raising similar environmental and public health issues to those concerning Agent Orange. This carries on despite the vociferous opposition of many scientists and advocacy groups in the US, who charge that State Department reports made to Congress, which must be submitted by law before funding can be allocated, have been partial and inconclusive. Moreover, they claim that the required reassurances that "chemicals used in the aerial eradication of coca crops in Colombia do not pose unreasonable health or safety risks to humans or the environment" cannot be derived from the material presented in the reports. The conclusion must be that perceived geopolitical imperatives override all other concerns, and that in any case it will be the poor farmers of Colombia who will bear the brunt of any side effects. There are hints that contamination with Round-Up, the herbicide most widely used, may affect the coffee crop, in which case the State Department may in future be able to congratulate itself on having introduced poison from Latin America to its own citizens.

The way that other depressing historical patterns repeat themselves in the coffee industry is interesting. The botanical nature of coffee favours highland production; highlands in the tropics tend to be the last refuge of the virgin ecology, in the form of forest cover, wildlife, and indigenous peoples. Thus whenever coffee cultivation is increased, it tends to be at the expense of all three. Certainly the ethnic Cambodians, who until recently inhabited the areas of the central highlands of Vietnam where coffee production is being expanded, complain not only of being driven from their lands but also of being swamped by Vietnamese from the Red River and Mekong deltas who have been encouraged to move in. This is seen in some circles as a cynical political ploy to get them to leave for the areas nearer the Cambodian border where they would act as a "security seal" against possible incursions from that country. As we have seen in Central America, the purging of indigenous Indians from their highland refuges is closely allied to the fortunes of the coffee industry, and it would seem that the Vietnamese are following in this lamentable tradition.

The enormous expansion of coffee production in Vietnam has been widely attributed to the World Bank, which has been at considerable pains to deny any involvement, producing fiercely worded press releases exonerating itself from any blame. As with Agent Orange, the veil of official secrecy is hard to tear aside, as the financial institutions as well as the Vietnamese Government itself are unwilling to shoulder the responsibility of having contributed substantially to the collapse in world coffee prices. If there had been a material improvement in the lot of the small coffee farmers to whom money was lent (by the government, with or without the cognisance of the World Bank) in order to plant coffee, that would be some consolation. However, as a result of their own "success", these same farmers are currently being forced to sell their coffee at about 60 per cent of the cost of production, and are locked into having to repay loans taken out on the basis of wildly optimistic forecasts for potential revenues from coffee farming.

Vietnamese coffee production, having boomed, is now falling rapidly as it is realised that the promised riches are chimerical. The larger cost, to the fragile highland environment, to its beleaguered wildlife, to the displaced indigenes, and to the migrant lowlanders left stranded without an income and deep in debt, is incalculable. It is not surprising there is no one willing to take the blame.

Vietnam was the focus of well-meant development plans, of which coffee was a prominent feature, intended to pull it out of the chaos and devastation caused by the long war with America. Its chief asset, low labour costs, was a direct inheritance of that war. By deploying the promise of its cheap labour and factoring it into its projections, the government was able to attract development capital from institutions such as the World Bank, who foresaw a realistic route for the country into the global trading community. This is colonialism in our era: the exploitation of cheap labour by the deployment of capital from wealthy lenders for the benefit of First World consumers. The World Bank is of course controlled by its 51 per cent shareholder, the US Treasury. Along with the IMF and the WTO it is part of the unelected triumvirate of the Washington consensus whose decisions affect the lives of millions. All three are ideologically motivated, infatuated with the American model of free market capitalism and the purported benefits it can bring. That the World Bank failed to act responsibly in the case of Vietnam and its coffee, bringing untold misery to millions around the globe, should come as no surprise to those who have followed the path it has charted over the last decade or so. The defection of its former chief economist, Joseph Stiglitz, who was ejected in 1999 for daring to suggest the Bank should soften its approach, appears to suggest that everything its worst enemies have said about the World Bank seems to be true: the one-size-fits-all economic prescriptions for countries seeking loans; the bribes to government ministers in return for the knock-down sale of public assets to Western corporate interests; the opening up of the financial markets to foreign investors that leads to runs on the local bank when confidence wavers; the anticipation of social unrest requiring strong measures to suppress it; the bailing out of local banks when their loans from Western banks are at risk; the constant reiteration of the free trade mantra despite the continuation of agricultural subsidies in the First World . . . The list is unrelenting.

Stiglitz, an outspoken critic of the IMF, compares that organisation's approach to a country's economic problems to high-altitude bombing: "From one's luxury hotel, one can callously impose policies about which one would think twice if one knew the people whose lives one was destroying." The bombing analogy is an apt expression of the way in which the wielders of power in global politics and economics are increasingly removed from the consequences of their actions. The deliberate killing of civilians - a war crime in any other context - has, by the curious circumlocutions of power politics, come to be regarded as unfortunate but wholly legitimate collateral damage resulting from aerial bombardment of strategic targets. Similarly, in the operations of the global economy, the wholesale destruction of lives and livelihoods of entire nations wrought by the financial institutions in pursuit of an ideology is not generally seen for the horror it is, but as the slightly misguided but fundamentally well-meant application of sound principles.

The reverberations in the coffee industry of these economic policies are manifold. Many coffee-producing countries used to have coffee marketing boards who bought up all the farmers' produce. Although these were frequently corrupt and overly bureaucratic, at least the farmers knew they would sell their coffee, and that they would get paid. The structural adjustment programmes imposed by the IMF World Bank in the 1980s and 1990s led to the abolition of many of these boards, allowing the market to be opened up to private traders. As these are frequently the transnationals that dominate the trade, the farmer rarely has much choice regarding whom to sell to and at what price, and there is no guarantee that they will come back for more. The effect has been shattering.

Coffee used to be a business in which, despite its manifest drawbacks, a worker could think themself honourably employed. In common with many others in business, the coffee worker as often as not now finds themself effectively a receiver of stolen goods and an enslaver of the Third World. The more conscientious may scratch their heads and wonder how on earth this came about. Most keep their conscience prisoner.

'Coffee; A Dark History' by Antony Wild is published by 4th Estate