On the hillsides of Riosucio in the Caldas State of Colombia, 62-year-old Edwardo Antonio is one of over 400 Fairtrade coffee farmers. Owning three hectares of land, Antonio used to make a nominal income working as a labourer on large coffee plantations. In the early 1990s, his community of mostly indigenous farmers was given the opportunity to work for themselves and taught how to grow and process world-class coffee sought after by buyers such as Starbucks and Equal Exchange.
“For the first time, we had the opportunity to better our lives and do things such as improve our greenhouse and borrow money to buy land, machinery to peel coffee and (buy) livestock,” he says.
Business was good until 2006 when the co-operative began to feel the impact of the economic downturn. Despite steady demand for Fairtrade coffee, his co-operative Asprocafe began to struggle to make a profit. Over the past three years, the peso-dollar exchange has been volatile, with one dollar ranging from 1,600 to 2,300 pesos. As the third-largest coffee producer behind only Brazil and Vietnam, more than 76 per cent of Colombia’s coffee is produced by small-holder farmers like Antonio. With over four million coffee farmers (10 per cent of the population), Colombia exports nearly 12 million 60 kilogramme bags per year; just over one million bags consist of specialised coffees such as organic and Fairtrade.
The 30-cents bonus farmers receive for growing Fairtrade-certified coffee was enough for the Asprocafe farmers to meet their own needs and also invest in community projects. Each farmer puts in 10 cents of their premium earned per pound into a fund that provides money for school lunches, scholarships, community loans and environmental education.
Asprocafe also uses money from the fund to provide farmers’ bonuses to grow trees organically. Since it takes nearly three years to do that, such bonuses are vital to farmers to make up for lost income.
“We are worried about lending money so freely now, after seeing how the economy was affected in the United States, when so many borrowers suddenly couldn’t pay back (their loans),” says Antonio.
Since 1992, their community has earned $800,000 from Fairtrade coffee exports. But when the economic downturn hit, Asprocafe began using its savings and is now being forced to cut many of its social programmes.
“To really understand the effect of the exchange rate on local coffee prices you have to take into account the way the local market works,” says Giancarlo Ghiretti, Director of Virmax Cafe.
Virmax Cafe works with more than 5,000 small coffee growers, marketing and exporting their coffee to roasters worldwide. The organisation is at the forefront of the high quality ‘specialty’ market for Colombian coffees.
“Our coffees are priced based on their quality and growers receive large premiums (40 to 55 per cent higher than the internal market for blends and more than 100 per cent higher for micro-lots), which they can invest in improving their farms and the quality of their coffee,” says Ghiretti.
Colombia, unlike other countries, has a transparent local pricing system whereby local prices are calculated daily based on the International Coffee Organisation (ICO) Colombian Mild Arabicas daily weighted average taking into account factors which include the IntercontinentalExchange (ICE) daily settlement, freight prices, maritime insurance, importers fees and the daily official exchange rate. As such, coffee growers are subject to the volatility of both the ICE market (assuming that the other factors in the ICO price stay the same) and the exchange rate.
Colombia is the only country in the world with a National Federation of Coffee Growers (NFC) that pays a subsidy when international prices are low and provides social services and infrastructure improvements in coffee-growing regions. To fund this work, it taxes exports heavily when international prices are high. The Federation, which exports about 2.5 million bags of coffee per year, has also created a Coffee Fund Guarantee programme to underwrite loans to growers from private banks, so helping to remove one of the major obstacles in improving production as small farmers often encounter difficulties in presenting collateral when seeking loans.
The Colombian government recently signed a new agreement to include an income-stabilising provision, guaranteeing a fixed price of 474,400 pesos ($199.22) per 124 kg bag to growers. The price is assumed to cover the coffee production costs and is a noticeable addition to the current coffee policy.
Corporate responsibility versus ‘greenwashing’
Starbucks sees its commitment to Fairtrade as not only fulfilling customer demand but also in holding true to its mission of environmental leadership and providing ethically-sourced coffee. As the largest purchaser of Fairtrade coffee globally, it launched a multi-million dollar ad campaign promoting its ethical values.
“There needs to be a lot of education and awareness around it. Europe is much more aware of Fairtrade. In the UK we offer a Fairtrade drip coffee daily - but not in the US (as) there just is not the same demand,” says Cindy Hoots, a programme manager in Starbucks Corporate Social Responsibility Division.
The coffee giant recently began serving 100 per cent Fairtrade coffee in all of its espresso drinks in the UK and Ireland. Much of the Fairtrade coffee it buys gets mixed in with conventionally grown coffee. Hoots says the company spends around two million dollars in licensing fees per year, which allows Transfair USA, a third-party certifier of Fairtrade products, wiggle room to work with smaller companies that may not be able to afford to pay their licensing fees upfront.
Asprocafe is trying to tap into the success of Colombian coffee brand Juan Valdez, created by the NFC in 2002, that has helped position the quality recognition of Colombian coffee worldwide with its 130 locations and also in helping to create a high-end market locally. Asprocafe is currently developing its own high-end brand to enter into the Colombian market as well.
“We have to do different things to earn money and also grow crops other than coffee beans like blackberries and bamboo. Times are bad,” says Antonio.
However Ghiretti cautions farmers, “Other products do not have the same infrastructure, even if farmers want to diversify they would have difficulties accessing markets for their ‘diversified’ production and therefore it would be hard for them to turn their products into cash. This means that any efforts to diversify will most likely be lost.”
Instead he recommends that farmers learn to track their day-to-day expenses and group together in the thousands to have more negotiating leverage with the multinational buyers.
“The tracking of day-to-day expenditure is directly related to their true cost of production, which ideally can lead to more open negotiations that can be profitable for the growers,” adds Ghiretti.
The impact of new government measures and negotiations with coffee buyers remains to be seen. But experiencing economic uncertainty makes it hard for everyone to be hopeful.
“If nothing works, some of us will have to just go back to working for someone else on a big farm,” says Antonio.