The wall that coffee built?
By Brian Martell
Guatemala, in the highlands of Huehuetenango, grows some of the best coffees Mesoamerica has to offer. Growing along with the coffee is a palpable tension born of economic desperation by families who are losing their grip on their farms.
Even with the premiums paid for higher-grade coffees that follow the certification regimes of Fairtrade, Organic or Rainforest Alliance, farmers lament that the price they get is still lower than the cost of production. Currently, the price floor for Fairtrade coffee is $1.40/lb. USD, plus a $0.20 premium of which a percentage must be re-invested in the quality of the crop. When the price on the ICE (Intercontinental Exchange) is higher than the floor, that price becomes the default floor, plus another added premium above and beyond the ICE price. The challenge for many smaller farmers is that the market price has been below their production cost since August of 2017 and, barring a natural calamity, shows no signs of rising to those levels soon. Although world demand has grown steadily at about 2%, coffee production has continuously been ahead of demand in what is an inelastic market. Not surprisingly, the gains in production have come from the powerhouse nations who dominate world coffee – in order of sheer volume; they are Brazil, Vietnam and Colombia. To try and counter the effect of the lower market, many farms have been holding out for better differentials (premiums paid for better quality), but they are still facing the same market forces albeit exerted through local competition rather than global.
The net result for many in coffee producing communities it to abandon their farms, but with little other prospects for sustainable work outside of coffee they also face the prospect of abandoning their countries all together. This has been the fate of not only Guatemalan farmers but those from other coffee growing countries in the region, notably Honduras (1st Central American producer). Their bags packed and their determination fixed to seek a better life, they head north, looking to become part of the “American Dream”. Turning on CNN, Fox or the CBC, we witness the human caravans transiting through Mexico that have provoked the reactionary cry north of the Rio Grande “build the wall!” There are some policy think-tanks that have made the direct link to coffee prices and migration patterns in the Americas with the superficial solution of subsidies to keep the farmers on their land (the subsidies coming from the USA; Guatemala and Honduras could ill afford such a programme). The problem with this solution is that an already over supplied coffee market will continue to be over supplied for a far greater period making the producers’ crisis chronic rather than acute.
The aggravating factor to this situation is that coffee farming, like many skills, is learned over the long haul and when the talent is gone; it takes much longer to re-gain it from tabula rasa. So when the market re-bounds, and it will because it always does, countries already in an economically precarious position will be slower to ramp up in gaining much needed cash for their exports. The fundamental talents required to be a good farmer are not surprisingly those required to be a good “anything”. Persistence, hard work, discipline, intelligence and many other attributes we may regard as hallmarks of character are the cornerstones for many successful vocations. When those who have these talents find their industry faltering, they instinctively look for other opportunities; wherever they may be. Just suppose for one moment what would happen if those opportunities existed in their home countries instead of three doors down? What if, instead of supporting subsidies from an outside nation, foreign investment increased for the sole reason that it offered a good ROI? Keeping a specific talent within a country, especially a coffee growing one, improves the odds of quicker capitalization when markets become favourable for farmers. For this to become true, the conditions necessary for opportunities to exist needs to be sown now. Stability and predictable outcomes, however boring, are the fertile grounds of prosperity. Of course getting there will be a complex journey requiring much ingenuity and determination.
The issues faced by coffee producing nations are many, especially those that exist on the margin. And while some may view Matthew 13:12* as prophetic, recent events underline how problems that seem far away or not our concern are much closer to us than they appear. Helping to solve problems half a world away will yield dividends in our own backyard.
* “Whoever has, will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.” – NIV
Brian Martell works at Heritage Coffee as vice-president of sales and has many years of industry experience. Brian has also been the recipient of three prestigious awards: the Don Storey, Stuart Daw, and the Albert DeNovelus Customer Service awards. Questions, comments, feedback, start a dialogue? Email him at email@example.com.