High coffee prices leave bitter taste in mouths of impoverished farmers

The price of a bag of coffee has barely changed in the past five years at the supermarket checkouts of developed countries.

The price of a bag of coffee has barely changed in the past five years at the supermarket checkouts of developed countries. While this may please wealthy consumers, coffee farmers in the Third World are experiencing lifetime lows for their crops, whose price has plummeted by half over the past three years.

Those of the world's 25 million coffee farmers who do resist the lure of drug cultivation or emigration face an impoverished existence in which their crops make a loss, they can't afford meat or fish, and have to see their children grow up with no schooling.

From the highlands of east Africa to the small family farms of central America where growers have been cultivating the crop for generations, farmers can now expect to receive on average only 9p for a kilogram of unprocessed green coffee beans, less than their production costs.

By the time the coffee reaches Britain's high street, it is sold for far more, both in supermarkets and in the booming coffee houses. Hundreds of coffee bars have sprung up in Britain during the past five years and customers entering the trendy cafés of Starbucks will hand over £2.35 for a large takeaway latte.

A kilo of coffee grown in the developing world sells for the equivalent of £17.11 in Britain, a mark-up that yesterday led Oxfam to accuse the big four coffee roasting companies of making fat profits while "presiding over misery".

The crisis has been triggered by worldwide overproduction that has sent the price paid to producers crashing through the floor, creating a stockpile of 40 million bags and threatening to destabilise coffee producing regions.

In Peru and Colombia farmers are being tempted into replacing their now worthless crop with the lucrative coca, raw material for cocaine.

Meanwhile Uganda now earns more money in cash sent home by emigrants than it does from coffee exports, prompting warnings that if the West wants to cut the number of economic migrants it has to be prepared to pay a fair price for their home-grown crops.

Consumers in the developed world are also losing, because although the price of retail coffee remains relatively stable, the quality of instant, ground or roast coffee is falling as farmers see little point in lavishing care and attention on useless crops.

The International Coffee Organisation (ICO), which hosts a meeting of producing and consuming countries in London next week, says that some of the coffee sold in British supermarkets contains material that "is not recognisable as coffee".

Oxfam launches its "Coffee Rescue Plan" today ahead of next week's meeting hoping to put pressure on the four big coffee roasters – Sara Lee, Nestlé, Procter & Gamble and Kraft – to intervene to shore up the price paid to farmers.

The charity believes that if the companies can be persuaded to co-operate on paying farmers a price above their production costs, it can go some way to solving the crisis. It is also calling for an unprecedented destruction of five million bags of coffee stocks, paid for by the companies and Western aid, and for an agreement between them to trade only in beans that meet quality standards set by the ICO.

Persuading multinational companies to pay more to suppliers voluntarily, destroy cheap raw materials and co-operate with competitors might seem like whistling in the wind, but the charity believes it is in the companies' own interest.

It is hoping that once consumers realise that they are buying a product that leaves its original suppliers in ruin while providing coffee roasters with profit margins of up to 26 per cent, they will put pressure on the multinationals to pay a decent price to farmers. Sophia Tichell, a senior policy adviser at Oxfam, said: "The fact that they were not prepared to do anything about the end of the supply chain ... seems remarkably shortsighted because there is plenty of evidence that consumers are interested even if companies are not."

Some roasters are prepared to listen. Nestlé said yesterday it would support a return to a similar agreement to the 1962 International Coffee Agreement. That was the basis of a system of quotas designed to prevent overproduction and keep prices stable, until it broke down in 1989, leading to the withdrawal of the United States.

Nestlé said it favoured a return to the price bands of the old agreement to prevent constant low prices being interrupted only by freak peaks such as those in 1994 and 1997, which were caused by frost ruining the Brazilian crop. Some blame those price surges for the present overproduction as people dash to exploit the peaks, while others say the fundamental causes are Vietnam's entry into the market and a huge growth in production in Brazil. Whatever the causes, 8 per cent more coffee is being produced than consumed. Supply is growing at more than 2 per cent a year, while demand grows at less than 1.5 per cent.

Although Nestlé has backed Oxfam's solution, it is unique among the big four in that low prices damage its competitiveness. Its concentration on instant coffee means that its manufacturing costs are much higher than competitors so when commodity prices fall, it has less scope to cut its prices.

Not surprisingly Nestlé wants a return to price bands only if the other companies join up – but they are not playing ball. Sara Lee gave the idea short shrift, saying any price guarantee was simply a "very shortsighted solution which is no more than an incentive to overproduce". A spokeswoman for Kraft said the company wanted to achieve stable prices for farmers, and would help by trying to stimulate demand while investing in agricultural development programmes. But she ruled out any attempt to manage the market, saying "history had shown" they were not sustainable.

While applauding Oxfam's idealism, the ICO's executive director, Nestor Osorio, said yesterday that the chances of next week's meeting approving any form of price management or of members agreeing to the destruction of five million coffee bags was virtually nil.

Instead he is hoping roaster companies will agree to trade only in coffee that passes the ICO quality standards, which is intended to reduce supply and stimulate demand by offering a better-tasting brew.

Mr Osorio said that was a more realistic way of changing a situation in which coffee- producing countries earned about $5.5bn from a market worth $70bn.

The third-world growers

'Prices have fallen so much it's hardly worth harvesting'

By Maja Wallengren in Yupiltepeque, Guatemala

The tearful eyes of Maria Yanes show her desperation and despair. Struggling to compose herself, she looks to the sky for a miracle and says a silent prayer. "I just don't know what to do," says Maria who was widowed three months ago, with six young children to care for.

"The coffee I have is not worth much and even if I harvest what little cherries the trees produce, it will not pay me much because the price has fallen so much."

Three years of declining coffee prices are taking a toll on Latin America's small coffee-growing communities such as the one in Yupiltepeque in the remote highlands of southern Guatemala, north of the border with El Salvador. With less than half a hectare of coffee, in a good harvest Maria Yanes could pick more than 10 quintals (46kg bags) of raw coffee "cherries" (each containing two beans) for which she would be paid up to £12 per bag, enough to get by with her small corn crop.

But when prices in international coffee markets plummeted to historic lows last year, the price paid by the local middlemen fell to just £3.40 per bag.

"If I am lucky I may be able to get a total of 400 quetzales (£35) this year but I don't expect a big harvest, because with the prices so low I haven't been able to maintain the field or buy fertiliser," she says.

In nearby El Sillion, another coffee producer, Eliza Santos, 31, is mourning the loss of her 18-month-old son Eric, who died of malnutrition two months ago. "The coffee pays very little. He was sick since December but the journey to the hospital is expensive." The one-way ticket to the hospital cost almost as much as a bag of coffee cherries.

Osmin Mabas in the neighbouring community of Las Brisas is slightly better off. With 4.2 hectares of coffee in previous years he built a wet mill to process the coffee.

Selling dried processed beans gives him a higher premium from the middlemen. In good years he got £67.50 a bag. Last year he got £23.30.

Guatemalan coffee exports in the almost-completed 2001-02 harvest cycle have fallen by 28 per cent. Most of Guatemala's coffee exports are shipped to the United States, Japan and Germany, while 24,500 bags, about 1 per cent, have been exported to the UK so far this year.

The mutlinationals

Procter & Gamble

HQ: Cincinnati

Chief executive officer: Alan Lafley

Salary: $1.1m plus share options and $297,000 bonuses

Global sales: $39.2bn

Profits: $2.92bn

Coffee brands: Folgers, Millstone.

Markets more than 250 brands to five billion consumers.

Nestlé

HQ: Vevey, Switzerland

CEO: Peter Brabeck-Letmathe

Salary: $275,000 plus bonuses and share options. Package has been estimated at $3.3m

Global sales: $50.2bn

Profits: $3.96bn

Coffee brands: Nescafé, Gold Blend. 3,900 cups of Nescafé drunk every second worldwide.

Sara Lee

HQ: Chicago

CEO: Steven McMillan

Salary: $1m plus $1.3m bonus, plus other benefits

Global sales: $17.7bn

Profits: $2.27bn

Coffee brands: Douwe Egberts, Maison du Café, União.

Sells products in 180 countries worldwide.

Kraft

HQ: Northfield, Illinois

CEO: Roger Deromedi

Salary: $850,000 plus $950,000 bonus and share options

Global sales: $33.9bn

Profit: $4.88bn

Coffee brands: Maxwell House,Jacobs, Café Hag, Carte Noire.

Products bought by 99.6 per cent of United States households.