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The Third World & the politics of coffee production
If you've bought a cup of coffee lately, you probably wouldn't be surprised to hear that the big coffee corporations who dominate the market are making record profits. It seems there's a Starbucks in every shopping area and the cost of a cup of coffee is almost the equivalent of a day's wage for a worker in the Third World.
At the end of April, Starbucks announced a 40 percent increase over last year in net earnings for its most recent six-month period. The company will also be increasing the number of new stores in 2001 from 1,100 to 1,200. Nestle, the world's number one food producer and a major coffee marketer (Nescafe), announced back in February a “22 percent surge in 2000 net profit.” Nestle's chief executive commented “Nestle has achieved record levels of growth and profits. We are now harvesting the results of our relentless push for continuous improvement.” Nestle said it expects even higher sales and profits in 2001.
But while coffee profits are soaring, the price of coffee beans being paid to coffee farmers in the Third World has actually fallen to record lows in recent months. While the big coffee corporations like Nestle are making windfall profits and the price of a cappuccino edges close to $3, the price being paid to Third World farmers for coffee beans has dramatically fallen over the last four years to only about 50 cents a pound—a third of what was paid in 1997.
The world coffee market is dominated by a few multinationals based in the imperialist countries, who buy raw beans from coffee growers and sell them to coffee roasters. Yet virtually all coffee is produced in the Third World by some 20 million coffee growers, farmers, and workers. Coffee farms there range in size from less than five acres to large industrialized estates of thousands of acres. But more than half of the world's coffee production comes from traditional small holdings of less than 12.5 acres. Coffee production remains extremely labor intensive and most coffee is still hand picked. The recent price drops are having a devastating impact on millions of these small farmers and coffee workers.
In May 2001, Oxfam (a British non-governmental development agency) issued a press release stating that, unless there is an increase in the price of coffee beans paid to farmers, this latest crisis will “consign millions of poor coffee farmers and their families to extreme poverty, with devastating consequences for health, education, and social stability.” The International Coffee Organization recently issued a report that predicts a continuing “over-supply” situation through 2002 and little reason to expect any significant price increase in that time. In Guatemala, the revenues received for annual coffee exports have dropped almost in half over the last four years, and rural unemployment has reached almost 40 percent, largely due to the drop in coffee bean prices. In Ethiopia, where coffee amounts to 64 percent of the country's exports, it was reported in 1999 that the value of coffee exports had declined 38 percent compared to the same 9-month period the year before. In March 2000, Zimbabwe reported a 50 percent decline in annual revenues from coffee sales. Uganda reported a 32 percent drop.
The countries that grow coffee beans are among the poorest in the world. Many are heavily dependent on the global coffee trade, which amounts to over 10 percent of the export earnings of 17 coffee-producing countries—in Uganda and Burundi it is over 70 percent. Coffee workers in these countries earn around $3 a day and live in utter poverty, without plumbing, electricity, medical care, or nutritious food. According to “Colombia, quakes and coffee,” from Global Express online, “most of the 20 million people who produce [coffee] live in extreme poverty. Says one coffee farmer, Gregorio Gomez, ‘The cafeteleros, the coffee farmers, were poor when we started growing coffee 40 years ago, and we are just as poor now. That has not changed at all'.”
Only four corporations—Proctor and Gamble, Philip Morris, Sara Lee, and Nestle—account for about 60 percent of U.S. retail coffee sales and almost 40 percent of worldwide sales. These corporate giants are becoming even more dominant, joining other industries in the merger and acquisition frenzy of the last decade. In December 1999, Sara Lee announced that it had purchased Hills Brothers, MJB, and Chase and Sanborn coffee companies from Nestle. Sara Lee's holdings already included Superior Coffee and Chock Full o' Nuts (which Sara Lee had just acquired in June 1999).
The coffee industry is divided into several branches of activity: growers, exporters/importers, shippers, roasters, and retailers. Only about 8 percent of the price of coffee in a U.S. supermarket goes to farm labor, and another 5 percent goes to the grower. But 67 percent goes to the company that does the roasting, grinding, packaging and shipment, and 11 percent goes to the retail store.
The big coffee corporations are able to maintain high retail prices of coffee despite the huge drop in the price of the beans through a near-monopoly of the supply-end activities, and because so much of the price charged to consumers is beyond the actual costs of growing the coffee. The imperialist countries are the leading consumers of coffee. The U.S., Germany, France, and Japan buy over half of the world's supply of coffee. Meanwhile, coffee is produced entirely in tropical Third World countries, with two-thirds of the beans coming from South and Central America.
Global Coffee Market
The history of coffee is the story of yet another capitalist industry founded on the blood of slaves, dependent on the sweat of millions of workers, dominated by a few imperialist countries and huge corporations, and subject to the anarchic fluctuations and devastation of the capitalist market.
By around the end of the 17th century, coffee-drinking was big in Europe, but coffee had not yet been extensively cultivated by the imperialist powers and it was still considered an “exotic” drink—because it came from non-European countries. But around the early 1700s coffee cultivation began to take off under the control of a few imperialist countries, mainly the French in Haiti, the Dutch in Java, the Portuguese in Brazil, and the British in Ceylon.
The tropical climate in these regions was perfect for coffee cultivation. The intensive labor required to grow, harvest, and process coffee in the colonies of the “New World” initially came from imported African slaves and from the native population, coerced into forced labor. In fact, slaves were also initially imported to the Caribbean to harvest sugar, which made coffee palatable to many consumers.
French colonialists were among the first to cultivate coffee using slaves in the Caribbean, just as they had done to cultivate sugar. Importing 30,000 African slaves a year from about 1730, “French Haiti” became the world's leading coffee exporter, supplying half the world's coffee by 1791, using half a million slaves. However, conditions on the coffee plantations, as on any other plantation, were so brutal that the entire population of Haitian slaves revolted in what is known as the Haitian Revolt in 1793. Most plantations were burned to the ground and the owners killed.
Brazil had officially become an “independent” country when it broke with colonial rule in the 1820s, but it still relied on slaves to work the fazendas, or plantations. Like France, Brazilian capitalists continued to import tens of thousands of African slaves a year, so many that by the end of the 1820s, well over a million slaves labored in Brazil, composing almost a third of the population. Although the import of slaves technically became illegal in 1831, the number of slaves being imported every year was still in the tens of thousands by around 1850, and slavery was still legal. By this time Brazil had become the world's largest coffee grower, producing half of the world's supply of coffee.
Once slave importation became illegal, plantation owners did what they could to import slaves illegally. But they also began to look into new sources of cheap labor to work the coffee fields. The scheme they developed over the last half of the 19th century was the import of colonos, or poor European immigrants. At first these immigrants had to incur a debt for the cost of their transportation to Brazil, and it was illegal for a colono to move off the plantation until the debt was repaid. This amounted to debt peonage. In 1884, the government agreed to pay for the transportation costs for colonos. Still, working conditions were so bad that most plantations maintained a small army of armed guards. Eventually, many coffee farmers concluded that the colono system produced coffee even more cheaply than slavery and advocated the abolition of slavery. In 1888, slavery was finally ended in Brazil.
By the end of the 19th century, Brazil controlled three-fourths or more of the global production of coffee. While Brazil was dramatically expanding its coffee production in the 19th century, countries in Central America also began to grow the plant. Like Brazil, Guatemala declared independence in the 1820s. But, unlike Brazil, Guatemalan capitalists didn't rely on imported slaves to get their coffee production going. Rather, they relied on forced labor and debt peonage of the Mayans and the theft of common lands. In 1873, any land not planted in coffee, sugar, cacao, or pasture was declared “idle” and confiscated by the state for sale. The land was then sold at a price that was cheap to the capitalist but well beyond the reach of a peasant, and a large army enforced this system of coerced labor.
As a world market for coffee began to mature it wasn't long before capitalist production resulted in “boom-and-crashes” in coffee prices. The Dutch had already begun coffee cultivation in their colonies in the “Far East” in the early 1700s. After the Haitian revolt the Dutch began cultivating java beans in the East Indies, again with enslaved laborers. Prices had stabilized in the early 1800s at around 16 to 20 cents a pound, but then lurched up to 30 cents a pound as coffee demand in the U.S. and Europe rose. This stimulated more cultivation in new areas, such as Brazil. In 1823, prices shot up even further when war between France and Spain appeared imminent. Then, just as the first major Brazilian harvest was becoming available, the war did not materialize and the price of coffee collapsed, causing extensive business failures in Europe.
In the book Uncommon Grounds, Mark Pendergrast concludes: “The modern era had commenced. Henceforth coffee's price would swing wildly due to speculation, politics, weather, and the hazards of war.”
Coffee has become the second most traded commodity in the world, behind petroleum. A recurring theme in the history of the coffee market, wild swings in price give rise to periods of frantic trading and “boom-and-crash” fluctuations in the world coffee market—allowing some to make millions, while others are crushed. When prices rise, land is opened up for coffee cultivation. This has repeatedly led to overproduction crises and to subsequent crashes in coffee prices—like what is happening now. Commenting on this persistent trend, Mark Pendergrast says: “The coffee market has always been volatile. Rumors of Brazilian frosts cause price hikes, while surprisingly large harvests produce dreadful declines, along with misery for farmers and laborers. Market forces, complicated by nature and human greed, have resulted in extended cycles of boom and bust that continue to this day. Since coffee trees take four or five years to mature, the general pattern has been for plantation owners to clear new lands and plant more trees during times of rising prices. Then when supply exceeds demand and prices fall, the farmers are stuck with too much coffee. Unlike wheat or corn, coffee grows on a perennial plant, and a coffee farm involves a major commitment of capital that cannot be easily switched to another crop. Thus, for another few years, a glut ensues.”
Coffee and Dictatorships
After World War II, coffee roasting was concentrated in the hands of a few major corporations. In Latin America, where Brazil had emerged as the dominant coffee producer in the world and Colombia had become the second largest producer, the U.S. was concerned about maintaining its client dictatorships and its uncontested dominance of the hemisphere. The U.S. staged a coup in Gutatemala in 1954 to overthrow Jacobo Arbenz and supported a brutal military dictatorship in Brazil in the 1960s. And in Nicaragua, the U.S.-supported dictator Somoza held power for decades—the Somoza family had built a dynasty based largely on massive coffee plantations. The U.S was also active in Africa, which had become a coffee-growing region. In 1961, the CIA helped assassinate Patrice Lumumba in the Congo, a coffee-producing country, and installed the dictator Mobutu.
Coffee prices rose somewhat after World War II, hitting a high point in 1955. But after that, prices crashed yet again. In 1962, the U.S. supported the establishment of the International Coffee Agreement. A corporate executive with General Foods expressed the capitalist concerns behind this agreement: “You would have a crisis on your hands if this income [to Latin American countries] was stopped.... Really it was quite simple. Politically, the countries would have been quite helpless. From a security standpoint of the United States, if Latin America had gone down the drain and the Communists taken over, they would have been right at our back door. And this would have been an uncomfortable and unhealthy situation for the United States.”
The International Coffee Organization, or ICO, charged with implementing the agreement was essentially a global cartel (an association of large global producers), which assigned coffee quotas to both producing and consuming countries. Under the ICO, prices remained relatively stable for almost 25 years. But toward the end of the 1980s the agreement began to break down. A global glut of coffee had developed and many countries had become dissatisfied with the quotas assigned to them by the ICO. In order to meet explosive debt payments, these Third World countries needed to expand production even more, and had begun to sell much of their product outside the ICO at low prices. Prices steeply declined after the mid-1980s and, in 1989, the ICO fell apart. In addition, the Soviet Union had collapsed, and the U.S. faced new economic necessities as well as new freedom to operate and expand. Prices continued to crash, causing incomes in coffee-dependent countries to drop by billions within a few months. Prices fell in the early 1990s to nearly as low as the current prices.
The collapse of the ICO, the crash in coffee prices from the mid-1980s to early 1990s, and an International Monetary Fund (IMF)-imposed Structural Adjustment Program (SAP) were significant factors that gave rise to the civil war in Rwanda, which broke out in 1990. Coffee was cultivated by about 70 percent of rural households in Rwanda, and Rwanda earns nearly half of its export earnings from coffee, making it the fourth most coffee-dependent country in the world.
With the collapse in coffee prices, Rwanda's export earnings declined by 50 percent between 1987 and 1991. Famines erupted throughout the countryside. To make matters worse, the IMF imposed an SAP on the country in 1990. The Rwandan currency was devalued in 1990. Real earnings by coffee farmers dramatically dropped as the SAP resulted in soaring domestic prices—while requiring a freeze on the price of coffee beans sold by farmers. A second currency devaluation in 1992 led to further escalation in the price of fuel and other consumer essentials, and coffee production fell by another 25 percent in a single year.
In his book The Globalization of Poverty, Michel Chossudovsky notes: “Not only were cash revenues from coffee insufficient to buy food, the prices of farm inputs had soared and money earnings from coffee were grossly insufficient. The crisis of the coffee economy backlashed on the production of traditional food staples leading to a substantial drop in the production of cassava, beans, and sorghum. The system of savings and loan cooperatives which provided credit to small farmers had also disintegrated. Moreover, heavily subsidized cheap food imports from the rich countries were entering Rwanda with the effect of destabilizing local markets.”
The worldwide coffee glut finally subsided a bit toward the mid-1990s, and a Brazilian frost helped to increase prices. Shortly after the frost, however, prices began to steeply fall yet again. Ironically, the most recent price collapse in the coffee market came about partly as a result of Vietnam becoming the second largest producer of coffee beans in the world, displacing Colombia, which had held that position for decades.
At around the same time that the ICA fell apart, Vietnam received huge loans from the World Bank and the Asian Development Bank to plant coffee trees bearing the low-quality robusta coffee bean. (Arabica beans are considered higher quality beans and are more expensive.) As the Vietnamese-produced robusta beans began to enter the world market in a big way in the late 1990s the price of coffee beans began to collapse yet again. Vietnamese exports of coffee beans has tripled in the last five years, which also corresponds to the period of the most recent price crash in the global coffee market.
Farmers in countries like Guatemala, where workers get only $3 a day, can't compete with coffee producers in Vietnam who pay workers only around $1 a day. Even Brazil is planning to import coffee from Vietnam to take advantage of its lower prices. Nevertheless, despite a 64 percent increase in coffee export volume, the Vietnamese ministry of trade announced in October 2000 that the total coffee export value actually declined by $80 million for the 1999-2000 crop compared to the prior year.
An analyst at the World Bank, describing the “huge success” of Vietnam and defending the brutal workings of the “free market,” said, “It is a continuous process. It occurs in all countries—the more efficient, lower cost producers expand their production, and the higher cost, less efficient producers decide that it is no longer what they want to do.”
According to one doctor in Guatemala, “What's happening is a catastrophe. There's always been poverty and temporary unemployment, but I've never seen real hunger like I do now—people who have literally nothing to eat but tortillas.” Z
Leonard Innes is part of a Revolutionary Worker newspaper writing group in the San Francisco Bay Area.