Wednesday, September 28, 2005

Coffee Economics

Impinging on my desire to screw over small farmers in Latin America, the only coffee beans I can buy at the Swarthmore Co-op are "fair trade" beans. Thus, while I hand grind my beans, I have plenty of time to contemplate the message on the "fair trade" bag (this is Equal Exchange coffee). It claims that "much of world's coffee is grown by small farmers." Why is this? Why is coffee a product that does not admit of plantations? We don't have "fair trade" oranges because oranges are grown in plantations, so there aren't producers being screwed, rather, we screw workers. To improve conditions of the workers we would have to boycott the producers, rather than just bypass the middlemen. Why is coffee produced by individual producers who have their product purchased by a middleman and then marketed, whereas other products (cocoa beans, maybe? most fruits...) have plantations that hire workers?

Understanding why would provide an interesting data point in the debates about English economic history and the putting-out system that Marglin's "What Do Bosses Do?" raise. From whence does the industrial structure arise? Is there something unique about coffee that makes it different from all other commodities? Like: you need unique knowledge of the teroir that only an individual can know? But even, say, oranges vary based on which side of the tree they were grown on, let alone which patch of soil. So that can't be it. Or, to put it another way, who benefits from having the middleman structure who wouldn't also benefit from having plantations? That is, you figure that the middlemen would own the plantations. Is it that coffee is a uniquely risky product even compared to other things like, say, oranges, which can be wiped out in a single frost? So that this is a risk shift? But that seems implausible.

Maybe this structure is true of chocolate as well. And so there is something about being a highly valuable bean that does it. I sort of suspect, though, that this has everything to do with a bit of political history in Latin America of which I am ignorant.

5 Comments:

Blogger Siel said...

Well -- I can't give you the world history of how small coffee farmers came to be, but I do get the sense from my fair trade coffee research that the small coffee farmers who exist today tend to be farmers who, for the most part, grow their own stuff to eat, then also devote a part of their farm to coffee, which they sell as a cash crop to buy stuff like toothpaste. Very different from, say, how tea's produced -- that stuff mainly comes from large estates with hired workers.

I totally agree about being ignorant about the political history in Latin America. Not meaning that I think you're especially ignorant, but that the "western" world in general is ignorant, including myself. I dunno -- I'm interested in this bean theory -- the cocoa bean is also product that's being fair trade certified -- but to be honest, your post reminds me about how unaware I am of world history in general

2:52 AM  
Blogger Isaac said...

Okay, so coffee is produced on the side as a cash crop. But that still doesn't answer why someone doesn't find it profitable to set up a coffee plantation...Hmmm....

2:48 PM  
Anonymous James McBride said...

Hey Isaac...this is James, Henry's friend. Do you remember me? We met once, briefly. I've never posted, but I read your blog fairly regularly, and wanted to add my bit of surface knowledge of Latin American politics to your post.

First of all, I think it is largely a matter of the political situation. Before the Mexican Revolution (most of my knowledge is about Mexico) much of the economy was either foreign investment or vast, centralized cropland, the haciendas, the forces of centralization being the basically free-market economy that allowed business people to focus on maximizing profits. The Revolution was in large part a reaction to the circumstances like you describe in orange field (except much worse) wherein the plantations were staffed by poor day laborers. After the Revolution, a nominally socialist revolution, the state began redistributing lands, breaking up the haciendas' monopolies and subsidizing small farmers by granting them cheap access to the more expensive means of production. (The process of finalizing coffee is particularly expensive) This continued in larger or smaller measure basically until the mid 1980's when the coffee subsidizing infrastructure was sold to the private sector in response to an economic crisis, as well as with the implementation of NAFTA.

So now, in the past decade, the small farmers have been dissapearing, and the centralized haciendas have been making a comeback, which is the impetus for the fair trade movement.

Another part to your question might be semantics. Who knows what the label actually means when it says 'much' of the world coffee is grown by small producers. 10%? 20%? Whatever it is, I wouldn't imagine it would be more than half, and at the moment the number is falling.

7:28 AM  
Blogger Isaac said...

James:
Interesting. And I do indeed remember you.

9:20 PM  
Anonymous Brooke said...

Actually, currently in Mexico the small farmers (those with less than 10 acres) make up over 90% of coffee producers (about 259,300 people) and they produce almost 1/3 of Mexico’s coffee. The amount of small farmers is growing, too, because coffee is a shade grown plant and can be grown with other fruit producing trees, like bananas. The problem with large haciendas in Mexico, unlike in the United States, is that labor is ridiculously cheap. There is always someone willing to take your job, so you take whatever the employer will pay you, and if you get hurt you are out of a job. The government is so corrupt that there is little hope that their intervention would help the situation either. An outside group would not have much success because to do business in Mexico the people have to know and trust you. This trust is important because the government cannot be trusted to uphold contracts. Also, The middlemen are usually people they know and have known for a long time, like a village chief. So instead, these small farmers pop up and attempt to scrape a living, but they are currently losing money to actually grow the coffee. They need the money however, and usually someone in their family is sending back money from the United States for at least part of the year. I too know mostly about Mexico, but I believe that most of the Latin American countries have similar situations. Over 25 million people depend on coffee making it the second-most-valuable commodity exported by developing countries, after oil. Prices have been falling rapidly (over 70% since 1997) and since the Vietnamese trade embargo was lifted.

I am working on a paper about organic coffee in Mexico, but I find the whole situation dismally convoluted.

12:09 PM  

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