Coffee prices grind on industry
03-10-2011
In April, the price of Arabica coffee climbed to a 34-year high after a combination of low productivity in Kenya, Brazil, and Colombia and a rise in demand in China and Brazil caused a dramatic undersupply. Investors turned to commodities rather than stocks, which together with a weak dollar spurred the price rise. So what does it mean for the players in the Fair Trade coffee chain?
| From farmers to importers, the coffee industry enjoys benefits and faces challenges with the current state of the market. Oikocredit has 288 cooperative and federation partners, with many involved in coffee production. Though the price of coffee has dropped since its peak in April, it is expected to remain high for the next two years. Consequently, it is vital production increases said Oikocredit deputy regional director Eduard Walkers, based in Costa Rica. |
| Chajul is one of the coffee cooperatives supported by Oikocredit |
“High coffee prices are undoubtedly an incentive to make plantations more productive to maximize output and increase revenues for farmers’ families”, he said. “However, while farmers can benefit from higher prices, they also face the challenges of decreased productivity due to climate change, increased production costs and a pressing need for working capital.”
Oikocredit country manager in Peru, Carina Torres says high prices also have the potential to destabilize coffee cooperatives.
“Coffee cooperatives may see their farmers selling coffee to third parties instead of to them. Private competitors persuade some small farmers to sell with higher prices in the short term, but then farmers do not receive any other benefits or support with these private buyers,” Ms Torres said. The key is for cooperatives to maintain strong ties with members to ensure its supply of produce.
The Fairtrade Labelling Organization has raised the Fair Trade minimum price of Arabica coffee in line with the commodity market increase. However, concerns go beyond the farm gate, with knock on effects already felt by others in the Fair Trade production chain. Fair Trade importers may also experience a lack of working capital to finance coffee producers before their harvest or buy enough to meet their suppliers’ demand.
For Oikocredit, long-term close relationships and financial support for partners engaged in the coffee industry – from producer cooperatives, to Fair Trade importers – are essential for the security of all levels of the supply chain. “Capacity building and practical training will also play a key role, especially in aspects such as risk management and governance,” Mr Walkers said.
