UC Santa Cruz Reprint Series
Title Confronting the Coffee Crisis: Can Fair Trade, Organic, and Specialty Coffees Reduce Small-Scale Farmer Vulnerability in Northern Nicaragua?
Permalink https://escholarship.org/uc/item/0xn3f86t
Author Bacon, Chris
Publication Date 2004-10-01
Peer reviewed
eScholarship.org Powered by the California Digital Library University of California World Development Vol. 33, No. 3, pp. 497–511, 2005 Ó 2004 Elsevier Ltd. All rights reserved Printed in Great Britain www.elsevier.com/locate/worlddev 0305-750X/$ - see front matter doi:10.1016/j.worlddev.2004.10.002 Confronting the Coffee Crisis: Can Fair Trade, Organic, and Specialty Coffees Reduce Small-Scale Farmer Vulnerability in Northern Nicaragua?
CHRISTOPHER BACON * University of California, Santa Cruz, USA
Summary. — This paper links changing global coffee markets to opportunities and vulnerabilities for sustaining small-scale farmer livelihoods in northern Nicaragua. Changing governance struc- tures, corporate concentration, oversupply, interchangeable commodity grade beans, and low farm gate prices characterize the crisis in conventional coffee markets. In contrast, certified Fair Trade and organic are two alternative forms of specialty coffee trade and production that may offer opportunities for small-scale producers. A research team surveyed 228 farmers to measure the im- pact of sales on organic and Fair Trade markets. The results suggest that participation in organic and Fair Trade networks reduces farmers’ livelihood vulnerability. Ó 2004 Elsevier Ltd. All rights reserved.
Key words — coffee, Central America, Nicaragua, vulnerability, Fair Trade, livelihood
1. INTRODUCTION and eco-labeled (i.e., organic, bird-friendly, and Fair Trade) coffees (Goodman, 1999; Rice, Activist pressure and the expanding specialty coffee market have provoked a small, but grow- ing, percentage of those that daily drink 2.28 * billion cups of coffee to remember the 20–25 Pedro Haslam, Byron Corrales, Nick Hoskyns, and million families that produce and process this Paul Katzeff are coffee and development professionals valuable bean (Conroy, 2001; Dicum & Luttin- who taught me through experience the meaning of ger, 1999). Small-scale family farms produce quality coffee, Fair Trade, and small-scale farmer co- over 70% of the world’s coffee in 85 Latin operatives in northern Nicaragua. Henry Mendoza and American, Asian, and African countries I worked with a group of 16 agricultural technicians to (Oxfam, 2001). Most coffee producers live in help design, field-test, and conduct the survey. Nichola´s poverty and manage agroecosystems in some Arro´liga at GeOdigital did an excellent job managing of the world’s most culturally and biologically the mountains of data created by these surveys. This arti- diverse regions. cle benefited from ideas and commentary from Daniel Changing patterns in global coffee commod- Press, Jonathan Fox, Roberto Sanchez-Rodriguez, Ern- ity chains including the disintegration of the esto Mendez, Stephen Gliessman, and David Goodman. international coffee agreement in 1989, market Many thanks to the three anonymous reviewers for their liberalization, corporate consolidation, increas- useful comments. Funding to cover my expen- ses came ing production, and a worldwide coffee glut from The Switzer Foundation, The Center for Global have plunged commodity prices to their lowest Conflict and Cooperation International Field Disserta- levels in a century (Ponte, 2002a, 2002b). How- tion Scholarship, PASA-DANIDA, and the Department ever, increasing consumer awareness regarding of Environmental Studies at the University of Califor- issues of quality, taste, health, and environment nia, Santa Cruz. Final revision accepted: October 11, have created a growing demand for specialty 2004. 497 498 WORLD DEVELOPMENT
2001). Specialty and eco-labeled coffees offer continue, and prices may remain low for the price premiums. The volumes of coffee moved coming years (CEPAL, 2002). The disintegra- through specialty, organic, and Fair Trade tion of the International Coffee Agreement commodity chains remain relatively small and (ICA) and market liberalization contributed must be set within the context of changing glo- to increasing global coffee production. The bal coffee markets. increasing coffee supply led to rising inventories During the last four years, green coffee prices in consumer countries and coincided with slug- have fallen from US$1.20/lb to between gish demand and market concentration in the US$0.45 and 0.75/lb. Low prices continue to roasting and trading industries (Ponte, devastate rural economies and threaten the 2002a). 1 Among the consequences are shifts biodiversity associated with traditional coffee in power to the roasting and retailing end of production (CEPAL, 2002; IADB, 2002). Per- the commodity chain and falling prices paid manent employment in Central America’s cof- to producers (Talbot, 1997). fee sector has fallen by more than 50% and The ICA was a set of international agree- seasonal employment by 21% (IADB, 2002). ments that set production and consumption In Matagalpa, Nicaragua, falling coffee prices quotas and governed quality standards for have accelerated migration to urban poverty most of the coffee industry from 1962 to 1989. belts. A walk through a coffee farming commu- A combination of processes, including (i) nity in Coto Brus, Costa Rica, reveals eroded increasing fragmentation in the geographies hillsides where farmers recently replaced coffee of production and consumption, (ii) shifting agroforestry systems with treeless cattle pas- geopolitical conditions as the United States tures. Since the 1999–2000 harvest the value perceived less of a threat from the Latin Amer- of Central American coffee exports has fallen ican left, and the (iii) changing development from US$1.678 billion to US$938 million in models as Indonesia and Brazil moved away 2000–01 and an estimated US$700 million for from import substitution toward export led the 2001–02 harvest (IADB, 2002). Declining growth contributed to the disintegration of export revenues have created debt that exceeds the agreement (Ponte, 2002b). Free from inter- US$100 million. As debt in the coffee sector in- national quotas, green coffee prices initially fell, creases, banks have foreclosed on farms and ex- briefly rebounded during 1994–98, then plum- port companies (Dı´az, 2001). meted before rebounding slightly in early 2004. This paper examines how changes in the glo- The two primary coffee varieties are arabicas bal coffee market and falling coffee commodity and robustas. Farmers in Latin America, Ethi- prices affect small-scale farmers’ livelihood vul- opia, and Kenya have historically cultivated nerability in northern Nicaragua. Section 2 is most of the arabica beans that are generally a synopsis of the changing tendencies in the considered of higher quality and sold to spe- global coffee trade. Section 3 briefly reviews cialty markets at slightly higher prices than theories linking price shocks to livelihood vul- robustas. Brazil, Vietnam, and Uganda pro- nerability and then applies this framework to duce most of the world’s robusta coffees. Two a farmer typology revealing the consequences tendencies are eliminating the previous compet- of the coffee crisis. Section 4 presents the results itive advantages held by countries producing of research that investigated the hypothesis that arabica coffee varieties. In the last 10 years, farmers selling Fair Trade and organic coffees Brazil more than doubled its production of ara- are less vulnerable than those linked only to bic coffees and now produces close to half of conventional coffee markets. In the final sec- the world’s arabica coffee. Furthermore, many tion, I discuss strategies to reduce vulnerability roasting companies can substitute between ro- without reproducing the same structures that busta and arabica beans in their blends; thus, created the coffee crisis. the price differential between robusta and arab- ica coffees is rarely more than 10 cents/lb. The price reported below is for other milds, arabica 2. CHANGING STRUCTURES IN THE beans grown outside of Colombia Figure 1. GLOBAL COFFEE MARKET The disintegration of the ICA coincided with geopolitical shifts, including the fall of the So- Booms and busts punctuate international viet Union and the state’s declining role in com- commodity price histories. The driving forces merce. As many national agricultural ministries behind the current four-year decline in green dramatically decreased their role in coordinat- coffee commodity prices suggest this cycle will ing coffee production, commercialization, and CONFRONTING THE COFFEE CRISIS 499
250.00
200.00
150.00
100.00 Price US$ per 100 lbs
50.00
0.00 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Years
Figure 1. International coffee prices. Sources: Average yearly prices for arabica coffee beans (other milds) from International Coffee Organization (2003). quality control, governments lost international 1999). These dominant trends mask the growth negotiating power. Producers and exporters and emergence of specialty and certified coffees. gained flexibility and more direct market ac- cess. Large-scale transnational trade and roast- (a) The rise of specialty coffee ing companies were quick to enter the spaces opened by the retreating state. The combina- The North American specialty coffee market tion of market liberalization and increased annually grows 5–10%, and it reached an esti- coffee production coincides with high rates mated retail value of $7.8 billion by 2001. This of transnational corporate concentration. By rapid growth contrasts to slow demand growth 1998, Philip Morris, Nestle´, Sara Lee, Proctor for bulk commercial grade coffees. Unheard of and Gamble and Tchibo controlled 69% of 30 years ago, the specialty or gourmet market the roasted and instant coffee market (van segment represents 17% of US coffee imports Dijik, van Doesburg, Heijbroek, Wazir, & by volume and 40% of the retail market by Wolff, 1998, cited from Ponte, 2002a). Eight value (Giovannucci, 2001). The United States transnational export–import companies control purchases one quarter of internationally traded 56% of the coffee trade (van Dijik et al., 1998; coffee in the world (Giovannucci, 2001). cited from Ponte, 2002a). In 1982, a handful of small-scale coffee roast- The changing structure of the global coffee ing companies joined together to form the Spe- commodity chain has led to declining prices cialty Coffee Association of America (SCAA). paid to producers. Since the fall of the ICA The mission of the SCAA is to promote high producers’ share of the final retail price has quality gourmet coffee and sustainability fallen from 20% to 13% (Talbot, 1997). Histor- (SCAA, 2002). The SCAA’s 2600+ members ically, coffee producing countries in Latin are primarily small-scale roasting companies, America, Asia, and Africa captured close to traders, and sellers of coffee-related accessories, 55% of the coffee dollar, significantly more than but the membership also includes larger com- many other tropical export crops, such as bana- panies (Starbucks and Folgers), farmer organi- nas and cacao. However, power shifts and pro- zations, and producing country representatives. duction trends in the coffee commodity chains Commercial grade coffees do not have equally have decreased producing countries’ share to strict quality requirements, are commonly sold an estimated 22% (Talbot, 1997). These are in tin coffee cans, and often cost the consumer the trends in the conventional green coffee mar- half the price. In addition to claims to superior ket which in 1999–2000 moved an estimated taste, specialty coffee companies celebrate 102.5 million 60 kg sacks of coffee with a the craftsmanship of coffee roasting and wholesale value of US$14 billion (SCAA, preparation; they employ more specialized 500 WORLD DEVELOPMENT roasting processes, focus on product freshness from eliminating synthetic pesticides and fertil- and use large marketing expenditures to differ- izers. Coffee covers an estimated 2.8 million entiate their product from the bulk commercial hectares in Mexico, Colombia, Central Amer- grade coffees. The specialty roasters depend on ica, and the Caribbean. While some of this cof- a higher quality coffee bean and are generally fee is produced without shade trees, farmers willing to pay producers price premiums for grow more than 60% under the shade of native better beans. and exotic trees. These shade coffee landscapes conserve biodiversity, soil, and water (Mendez, (b) Eco-labels and alternative coffee markets 2004; Perfecto, Rice, Greenberg, & Vand der Voort, 1996). Small-scale specialty roasting companies pio- In contrast to organic certification, which is a neered the introduction of organic and Fair set of standards that regulates inputs and prac- Trade coffees into the United States and helped tices in the production process, Fair Trade certi- the specialty coffee market become the most ac- fies the trade process. 3 Fair Trade supporters tive space for eco-labeling in the food sector. believe that trade has the potential to either Nearly all eco-labeled coffees are also consid- exploit or empower producers in the global ered specialty coffee. The North American re- South. Fair Trade advocates refute the basic tail market for certified organic, Fair Trade, Neoliberal assumption that expanded trade will and shade grown coffee is approximately increase social and environmental benefits for US$188 million. The estimated worldwide retail everybody, and assert that North–South trade value of these coffees is roughly US$530 million relations are plagued by power inequalities (Giovannucci, 2001). Despite their relatively and exploitation. Four international Fair Trade small market share, coffee roasters and retailers associations define Fair Trade as follows: ‘‘Fair anticipate rapid and sustained growth for certi- Trade is a trading partnership based on dia- fied coffees. logue, transparency and respect, that seeks Certified organic coffee currently accounts greater equity in international trade. It contri- for 3–5% of the US specialty coffee retail mar- butes to sustainable development by offering ket and remains the most widely recognized better trading conditions to, and securing the eco-label (Giovannucci, 2001). Most consumers rights of, marginalized producers and work- in the United States and Europe recognize the ers—especially in the South. Fair Trade organi- organic label from its widespread usage on zations (backed by consumers) are engaged fresh fruits and vegetables. The International actively in supporting producers, awareness Trade Center estimated the worldwide retail raising, and in campaigning for changes in the market value of all organic food and beverage rules and practice of conventional international products at US$21 billion in 2001 (Interna- trade (IFAT, 2004).’’ tional Trade Center, 2002). Price premiums, Fair Trade markets find their roots in more and 10–20% growth rates in retail markets, than 50 years of alternative trade relationships. have contributed to an increasing number of Long before certification existed, churches, acres entering certified organic production. disaster relief organizations, and solidarity In workshops, Nicaraguan farmers often list groups had formed more direct trade relation- the following among their motivations for mov- ships with refugees and marginalized groups. ing toward certified organic production: It is They paid producers better prices, offered mar- safer for their families and children without ket access, and provided technical assistance. agrochemicals on the farm, it lowers expendi- These Northern organizations distributed Fair tures for synthetic inputs, it is better for the Trade crafts and foods through religious and environment, and it helps protect the water. solidarity networks. However, the volumes In Latin America, thousands of coffee, cocoa, of Fairly Traded goods remained small and vegetables, and fruits farmers have solicited the development impact limited. In 1988, a and received organic certification. 2 Mexico ex- church-based NGO in the Netherlands teamed ported the first organic coffee and remains a up with a Mexican smallholder coffee coopera- pioneer in the organic industry (Nigh, 1997). tive to launch the Max Havaalar Fair Trade While health remains consumers’ primary moti- product certification (IFAT, 2004). The certifi- vation for purchasing organic products, devel- cation started a Fair Trade mainstreaming pro- opment agencies, environmental activists, and cess that permitted wider participation by many farmers’ associations also support the industry actors. This initiative grew quickly; certification for the ecological benefits gained Northern countries formed national Fair Trade CONFRONTING THE COFFEE CRISIS 501 labeling organizations, and more Southern pro- the Latin American and Caribbean regions ducer groups accessed these networks. In 1997, experienced at least 38 major natural disasters these organizations joined to form Fair Trade and over 40 episodes when the GDP per capita Labeling Organizations International (FLO-I), fell by 4% or more (IADB, 2000). Scholars and which promotes Fair Trade, establishes stan- development professionals have considered dards, and coordinates an international Fair these phenomena in a special issue of World Trade product monitoring and certification sys- Development that examined the interplay be- tem. This system now includes hundreds of tween household vulnerability, coping strate- companies, and more than 800,000 producers gies, economic crises, natural disasters, and in over 40 countries are involved in Fair Trade household well-being (Skoufias, 2003). networks (FLO, 2003). The livelihood vulnerability framework offers The Fair Trade standards stipulate that trad- a common approach for both economic crisis ers pay a price that covers the costs of sustain- and natural disasters (Combes & Guillaumont, able production and livelihoods, provide a 2002; Moser, 1998). This approach examines premium for social development, sign contracts causes, impacts on household well-being and that encourage long-term planning and stabil- mechanisms to cope with and buffer damage ity, and help provide preharvest credit (FLO, (Blaikie, Cannon, Davis, & Wisner, 1994; 2003). In the case of both coffee and cocoa, Skoufias, 2003). Vulnerability contains an only small-scale producer organizations are external source of stress or shock and an inter- eligible for certification. However, the FLO’s nal component describing the exposure and re- certification organization also certifies large sponse to this shock as it is interpreted through agricultural businesses producing bananas, the socioecological relationships that shape an tea, and fruit. Certification standards vary be- individuals or group’s livelihood assets. These tween crop and social organization (large farm descriptions of livelihood vulnerability respond or cooperative), but they all share minimum to critiques of a narrow focus on income-based standards for social and economic development definitions of poverty and draw from Sen’s pio- supplanted by antiexploitation clauses. The neering work on assets, entitlements and fam- expanding list of Fair Trade certified products ines (Moser, 1998; Reardon & Vosti, 1995; includes coffee, cocoa, tea, fruits, wine, sugar, Scoones, 1998; Sen, 1981, 1997; Shankland, honey, bananas, rice, crafts, and some textiles 2000). (EFTA, 2003). Coffee was the first certified Fair Livelihood refers to the means of gaining Trade product and remains ‘‘the backbone’’ of a living, including the tangible and intangible the system, accounting for the majority of the assets that support an existence (Chambers & Fair Trade retail sales (Raynolds, 2002b). Ana- Conway, 1992). Bebbington added a cultural lysts estimate that roughly 1–2% of the global component to the material and economic focus coffee trade is certified Fair Trade (Oxfam, behind livelihood assets, simply defining liveli- 2001). A livelihood vulnerability framework hoods as the way people make a living and will help understand how participation in Fair how they make it meaningful (Bebbington, Trade and organic coffee networks impacts vul- 2000). The addition of meaning into the defini- nerability to the coffee crisis. tion of livelihoods provides a theoretical space for including farmer perceptions and narra- tives, and an entry point for beginning to 3. LIVELIHOOD VULNERABILITY, understand the subjective feelings of well-being FARMER TYPOLOGY AND THE COFFEE and empowerment. In this way, livelihood vul- CRISIS IN NORTHERN NICARAGUA nerability = livelihoods (material and intangi- ble assets) + (exposure to) a stress or shock. (a) Livelihood vulnerability framework When vulnerable livelihood assets are ex- posed to a stress, the stress can diminish the as- The regional impact of the coffee crisis can be set’s productivity or quality and/or limit access; considered an example of the frequent eco- the consequences are declining resource flows nomic crises that affect the global South. These to the households. Intangible assets, such as economy-wide shocks have many possible trig- kin and friendship networks, are often the most ger events, including hurricanes, earthquakes, important relationships that households mobi- rapid devaluations, recessions, market shifts, lize to reduce vulnerability. Household liveli- declining terms of trade, and commodity price hood projects that are exposed to a stress will crashes (Skoufias, 2003). From 1980 to 1999 likely reallocate their assets to cope with the 502 WORLD DEVELOPMENT declining quality of life (Skoufias, 2003). Previ- agro industrial plantations maintain a per- ous studies have documented a wide variety of manent labor force. Most large-scale and the coping mechanisms to reduce damages and sur- agroindustrial plantations have integrated pro- vive crises; many of these mechanisms such as cessing facilities on the farm, occasionally pulling children out of school to avoid expenses exporting their own coffee (Table 1). These can diminish long-term development potential farms usually provide living quarters and food and maintain households in a ‘‘poverty trap’’ to farm worker families. Rural landless workers (Skoufias, 2003; Varangis, Siegel, Giovannucci, continue to live in extreme poverty. During the & Lewin, 2003). Other common coping mecha- coffee harvest, the large plantations employ and nisms include migration, increased borrowing, house hundreds, sometimes thousands of coffee crop substitution, and decreasing inputs. pickers. Households will decide to reallocate their assets Like most countries in Central America, Nic- according to their perceptions and capabilities. aragua’s coffee farm ownership is highly con- centrated. In Central America, the largest (b) A farmer typology for the Central American plantations and agroexport businesses account and Nicaraguan coffee sector for 3.5% of the farms, 48.6% of the total land in coffee production, and an estimated 57.8% Different farmers produce coffee in different of the region’s coffee production (CEPAL, ways, under different agroecological conditions, 2002). During the 2000–01 coffee harvest in and in a variety of positions vis-a`-vis the com- Nicaragua, 404 (2.4%) of the country’s largest mercialization chains leading to the market. farms accounted almost 25% of the land in cof- Farm size provides a good general indicator fee production and roughly 52% of the produc- to describe the different forms of coffee produc- tion (UNICAFE, 2001). tion and commercialization (CEPAL, 2002). An estimated 85% or 250,000 of Central Amer- ica’s coffee farmers are micro and small-scale (c) The coffee crisis in Nicaragua producers. The family is the primary source of labor on these farms. These households often It is difficult to isolate the impacts of the cof- produce corn and beans and/or work off the fee crisis from the series of negative shocks farm. In contrast to the microproducers, most (Hurricane Mitch, drought, declining commod- small-scale farmers employ day laborers during ity prices) that continue to affect Central Amer- the coffee harvest. The small-scale farmers I ica (Varangis et al., 2003; Wisner, 2001). In surveyed in Nicaragua grow more than half of Nicaragua, the 1999–2001 droughts added fur- the food they eat. These farmers intercrop ba- ther stress to low coffee prices. In the tropical nanas, oranges, mangos, and trees for firewood dry regions, including the northern depart- and construction within their coffee parcels. ments of Estelı´, Madriz, and Nueva Segovia, Households measure annual yields in coffee the farmers did not harvest their subsistence and associated crops. Medium, large and the crops. In focus groups, small-scale farmers told
Table 1. Typology of coffee producers in Nicaragua Farm size (ha) Micro Small-scale Medium Large Agro-industry Total/average <3.5 3.5 < 14 14 < 35 35 < 70 >70 Average productivity (qq/ha)a 2.51 5.55 11.00 19.91 29.87 16.62 Number of producers 41,698 5,204 732 245 159 48,038 Total area (sq ha) 36,000 45,000 14,000 8,000 5,000 108,000 Production in (qq)a 263,000 599,000 284,000 394,000 260,000 1,800,000 % of total farms 86.8 10.83 1.52 0.51 0.33 100 % of total surface area 33.25 41.83 13.11 7.09 4.72 100 % of production by group 14.6 33.3 15.8 21.9 14.4 100 Manzana (mz) = 0.7 ha Quintal (qq) = 100 lb or 46k Source: CEPAL (2002); adapted from UNICAFE database. Estimated total harvest levels for 2000–01. a Average productivity statistics were generated from previous studies, not from the 2000–01 harvest. CONFRONTING THE COFFEE CRISIS 503 us how they lived off mangos, yucca, bananas, structural problems underpinning the crisis and the other subsistence crops that they inter- (Varangis et al., 2003). However, after five crop with their coffee. years of protests and three years since signing People’s vulnerability to the falling prices de- an agreement with the government, the rural pends upon their location in the coffee com- landless workers union recently won titles for modity chain and their access to assets such more than 2,000 ha of land for some 3,000 rural as land, credit, employment, and social net- workers. works. The coffee crisis is felt by most of the country’s estimated 45,334 micro and small- scale farmers. These smallholder households 4. THE IMPACT OF ORGANIC, FAIR sell coffee as their primary source of cash in- TRADE AND SPECIALTY COFFEE come. Farmers talk about pulling their children out of school, migration, and increased heath (a) Study design and methods problems. The microproducers often work as day laborers on large plantations because their The research I conducted in Nicaragua small parcels and current management prac- started after 15 months accompanying a coffee tices are not sufficient to support the family. quality improvement project with coffee coop- In the late 1990s coffee annually contributed eratives. I developed a set of indicators combin- US$140 million to the national economy and ing my research interests with criteria suggested provided an equivalent of 280,000 permanent by the cooperatives’ administrative directors agricultural jobs (Bandan˜a & Allgood, 2001; and elected leadership. After designing and CEPAL, 2002). Researchers estimate that Nic- fieldtesting a survey, we scheduled a training araguan laborers have lost over 4.5 million days workshop attended by the cooperatives’ agri- of work during the first two years of the coffee cultural extension agents. Following the train- crisis (CEPAL, 2002). The rural landless coffee ing, extension agents decided to either workers are more vulnerable than smallholders. perform a complete census or I randomly se- The large plantations that employ these work- lected 12–15 farmers from their cooperatives’ ers have high monetary costs of production membership lists. The larger unions of cooper- (US$0.74–1.08/lb) due to dense cropping pat- atives designated a representative first level terns, dependence on paid labor, and intensive cooperative from which farmers were randomly chemical inputs. 4 In 2001, the banks stopped sampled. offering credit for coffee and foreclosed on The survey primarily contained structured debt-ridden farms. closed ended interview questions and a walking In the mountains north of Matagalpa, banks assessment of the farmer’s principal coffee par- and plantation owners stopped paying and cel. While the extension agents conducted the later stopped feeding their workers. Hungry survey, I followed up with multiple visits to and without work, thousands of families each research site. During these visits, I evalu- marched down from their individual parcels ated data quality and ensured comparative and large plantations. People grouped together methods. I also worked with a gender specialist along roadsides and in public parks where they to conduct 10 focus groups separated by sex. I lived in miserable conditions surviving on food drew focus group participants from the same donations. They demanded food, work, health list of farmers that participated in the sample care, and land (Calero, 2001; Gonzalez, 2001). and used these results to help triangulate re- I interviewed one woman who had camped by sponses given in the surveys. Finally, I inter- the road for the last three days with her chil- viewed the cooperatives’ elected leadership dren, and she stretched out the palm of her cal- and professional staff and reviewed the cooper- loused hands and said, ‘‘You see these hands. atives’ internal documents regarding coffee These hands are for working not for receiving sales. donations.’’ The aid agencies have responded The 228 farmers that participated in this with food for work programs, providing pack- survey are from a diverse social and ecological ages of donated rice, beans, sugar, and oil to terrain. The social landscape includes first plantation owners who can supplement their level cooperatives (20–50 members) and regio- lower wages with food and entice the rural nal cooperative unions (1500+ members). laborers back for this season’s crop. As a recent Although the distribution of farm sizes in this World Bank study notes the Central American sample resembles the percentages described in governments have largely failed to address the Table 2, this sample differs from the national 504 WORLD DEVELOPMENT
Table 2. ANOVA results comparing altitude and certification with price as dependent variablea DF Sum of squares Mean square F-value P-value Lambda Power Certification 1 1640169.310 1640169.310 78.945 <0.0001 78.945 1.000 Altitude 1 21131.332 21131.332 1.017 0.3144 1.017 0.162 Certification & altitude 1 34775.200 34775.200 1.674 0.1972 1.674 0.237 Residual 209 4342184.525 20776.003 Source: Participatory survey 2001. a The average prices received at the farm gate were calculated by multiplying the (volume sold to each market)(by price for that market) + (volume market 2)(price sold to market 2) = (total revenue)/total volume sold, these average totals were calculated for all farms. census because 180 farmers sold coffee to or- In the focus groups, we asked, ‘‘What does ganic, Fair Trade, or bird friendly markets. coffee mean in your daily life?’’ A male coffee farmer in Estelı´ said, ‘‘Coffee is the hope of a (b) Findings better future;’’ a female coffee farmer in Mata- galpa said, ‘‘It provides sustenance to our fam- The question of how coffee fits into farmer ily,’’ another woman from Jinotega said, livelihood projects in northern Nicaragua ‘‘Coffee gives value to our land;’’ and two precedes a discussion of the impact of partici- men from Madriz said that coffee is, ‘‘The best pation in alternative and conventional mar- crop to improve our lives and find an equilib- kets. 5 Farming is part of a dynamic and rium with the environment.’’ These quotes sug- mutually constructed relationship between gest some of the cultural values associated with households and agroecosystems (Gliessman, coffee cultivation. Coffee dollars build houses, 1998). Households engage their farms for mul- send children to school, and provide hope for tiple purposes few of which are captured in a the future. single survey. Despite dependence on an export What are the determinants of prices paid at commodity for currency, a strong subsistence the farm gate?The general assumption underly- ethic survives among many small-scale Nicara- ing coffee quality improvement projects is that guan coffee farmers. Sixty-one percent of the higher quality coffee receives a better price. surveyed farmers grow half of more of the food Higher quality is sold quicker and earns higher they eat. Many coffee farmers also produce corn, yields when the coffee is processed from the beans, bananas, fruits, chayote, and yucca. The parchment to exportable green beans. The re- list of foods purchased off-farm, generally in- sults of a professional coffee tasting and the cluded salt, sugar, oil, and meat. In the focus number of physical defects are the best quality groups, we asked how men and women allocate measures; however, altitude is an easily accessi- the total harvest of different crops. Both men ble and commonly used proxy indicator. A sys- and women allocate the first 80–90% of their tematic comparison of price and altitude corn and beans for household consumption, reveals a statistically insignificant correlation and they sell the surplus. Milk and cheese were between altitude and price. I used the average sometimes divided evenly between resources for prices in local currency to run a two-way the household and those for sale. In contrast, ANOVA comparing the impact of altitude farmers sold 80–90% of the coffee harvest, gen- and certification on coffee prices. The results erally keeping only the lowest quality beans for support the conclusion that access to certified their own consumption. markets leads to significantly higher prices paid Although coffee is exotic to Nicaragua, for to farmers. Certification has a greater influence many farmers, this seed now contains a differ- on price than altitude (quality). These relation- ent story. Coffee agroecosystems and farm ships between price, quality, certification, and households coevolved as coffee slowly wove cooperative membership merit further research. its way into the culture and landscape. 6 The cooperative is the primary intervening Twenty-six percent of those in the sample are variable affecting prices received at the farm third or fourth generation coffee farmers, 49% gate. Small-scale farmers, not organized into a are second generation, and 35% reported that cooperative or a marketing association, do they are the first to cultivate coffee in their fam- not produce the volumes of coffee necessary ilies. to fill a container (275 sacks) and access the cer- CONFRONTING THE COFFEE CRISIS 505 tified markets or sign contracts with importers. US$0.56/lb. In comparison, farmers selling to The export cooperative manages external rela- conventional markets averaged US$0.40/lb. tionships that move coffee to certified markets Many of these average farm gate prices are and organizes an internal price structure that below smallholders’ estimated monetary pro- determines prices received at the farm gate. duction costs, which are between US$0.49 and All cooperatives that commercialize coffee 0.79/lb. 8 The consequences of low farm gate penalize farmers for defects, but none that I prices are further exacerbated by long delays observed provides clear incentives for high between depositing the dehulled coffee beans quality coffee. As coffee roasters increase their at the processing and export plant and receiving push for higher quality and cooperatives in- the final payment. Most cooperatives pay farm- crease their knowledge and infrastructure for ers in stages: first as credit for the harvest and measuring quality, an incentive system will wet-milling, next a payment when they bring likely emerge. the wet coffee parchment to the dry processing The cooperatives allocate a portion of the facility, and a final adjustment when all has higher prices offered by Fair Trade and organic been exported and actual prices are calculated. markets to invest in productive infrastructure, A few export cooperatives treat farmers and pay debts, provide credit, provide technical cooperatives as clients who own the inventory, assistance, cover administrative and certifica- and thus bear the risk, until the importer buys tion costs, and to fund housing and education the coffee. If their coffee does not sell, the farm- projects in farmer communities. Two coopera- ers receive no payment. Farmers waited an tives in this study used up to half of the Fair average of 73 days before receiving the full pay- Trade and/or organic premiums to pay out- ment for their organic coffee. Farmers generally standing debt. These practices result in lower sell some of their coffee to low-paying middle- coffee prices to producers. Table 3 summarizes men to satisfy the immediate need for cash as the average prices received at the farm gate they wait for higher prices in the specialty mar- for sales through different commodity chains. kets. Most farmers sell their coffee to multiple These smaller producer cooperatives have markets. Nicaraguan cooperatives linked to or- joined together to form unions of cooperatives ganic and Fair Trade markets sell up to 60% of that can manage the economies of scale, pool their coffee through conventional markets. the resources, and export coffee. Export coop- Thus, the average price for all the coffee sold eratives need access to larger credit lines to by the farmer may be significantly less than pay the farmers before their physical product prices paid in the different alternative markets. is actually exported. Banks, roasting compa- For example, although the 11 cooperative nies, and importers are increasingly reluctant members received US$1.09/lb for the portion to provide this credit to these cooperatives. of their coffee sold directly to the roaster, the Even well established export cooperatives with average price for all their coffee was US$0.58/ over US$300,000 in working capital must rely lb. 7 Thirteen members of a cooperative linked on a handful of foundations and one roasting to organic and Fair Trade markets averaged company for preharvest financing.
Table 3. Average prices reported at the farm gate for the 2000–01 harvest Where did you sell the coffee?Price paid per How long until How many farmers pound green coffeea you were fullya paid? sold to each market? Cooperative-direct to roaster US$1.09 (0.04)/lb 33 (6.1) days 11 Cooperative-Fair Tradeb US$0.84 (0.07)/lb 41 (86.6) days 36 Cooperative-organicb US$0.63 (0.11)/lb 73 (78.4) days 61 Cooperative-conventional US$0.41 (0.04)/lb 46 (62.9) days 84 Agroexport company US$0.39 (0.04)/lb 24 (50.3) days 51 Local middleman US$0.37 (0.02)/lb 9 (27.3) days 72 Source: Participatory farmer survey conducted from July to August 2001. a Numbers in parentheses are standard deviations. b Although, some coffee was certified as both Fair Trade and organic, most farmers understood and thus reported that they were commercializing either Fair Trade or organic. They did not give a single price for both certifications. 506 WORLD DEVELOPMENT
(c) Vulnerability and changes to the enough to offset the many other conditions that quality of life have provoked a perceived decline in the qual- ity of one’s life. Farmers selling to a cooperative connected only to conventional markets are four times more likely to perceive a risk of losing the title 5. LEARNING FROM ALTERNATIVES to their land due to low coffee prices than mem- TO REDUCE VULNERABILITY bers of cooperatives connected to alternative coffee markets. In the survey, 224 farmers an- What can the livelihood vulnerability frame- swered the following questions: ‘‘Is there a risk work reveal about the coffee crisis?In contrast you will loose your farm this year?If there is a to the narrowly focused income-based ap- risk, why?’’ Of the 180 farmers who commer- proaches to poverty, the livelihood approach cialized a portion of their coffee to organic, Fair provides a more detailed description that ex- Trade, or roaster-direct market channels, eight plores how people make a living and how they farmers perceived a risk that they could lose make it meaningful. It provides a theoretical their farm this year due to low coffee prices. space for incorporating the multiple household Eight of the 44 farmers who belong to cooper- and collective coping strategies, including sub- atives selling only to conventional markets also sistence production, kinship networks, barter, indicated a risk of losing their farm due to bank migrations, increased labor time, political foreclosures and low coffee prices. 9 mobilization, and protest. Linking vulnerability When I asked leaders from each cooperative to livelihood projects and trade networks be- to design project evaluation indicators, they gins to suggest why some households are more suggested I consider health, environment, edu- vulnerable than others. The approach will lead cation, and community development in addition to an integrated response to the coffee crisis to coffee price and quality. Measuring quality of well beyond the current program of debt relief, life is a difficult task. A small-scale farmer, from quality improvement programs, and food a cooperative in Jinotega, said that, ‘‘Well being donations. is to have health, food, education and tranquil- ity in the family.’’ Farmers articulated the rela- (a) Diversification to reduce vulnerability tionships between low coffee prices and their quality of life in focus groups. Their own words Starting from a livelihood project approach tell the story: A female coffee farmer from Jino- implies interventions working with small-scale tega, explained, ‘‘We can’t buy our clothing, producers and laborers to increase access to shoes... We are surviving off bananas.’’ Two land, build stronger producer organizations, other farmers added, ‘‘[We give] insufficient participate in alternative markets, increase management and attention to our coffee planta- government investments in rural health and tion.’’ and that there is ‘‘Deterioration [of the education, and diversify production and com- relationships] in our family.’’ 10 Another farmer mercialization channels. Development actors from the department of Madriz said, ‘‘We have can learn from and support local coping mech- a little help, a little room to breath, with the 50% anisms. I asked farmers in the focus group to the coop buys as Fair Trade.’’ identify their activities and strategies to address In conclusion, the evidence from this survey the coffee crisis. Their responses reveal a few suggests that participation in alternative coffee coping mechanisms: ‘‘Planting more bananas trade networks reduces exposure and thus vul- and citrus,’’ ‘‘Redoubling the labor that we nerability to low coffee prices. The farmers put in as a family in order to survive,’’ ‘‘Work linked to cooperatives selling to alternative organically to obtain better prices and lower markets received higher average prices and felt the costs of production, because chemical fertil- more secure in their land tenure. However, 74% izers are very expensive.’’ Diversifying the crops of all surveyed farmers reported a decline in on a farm, such as planting additional fruit their quality of life during the last few years. and/or the continued subsistence cultivation The responses to this question about quality of corn and beans has long been a key strategy of life showed no significant difference between to maintain food sovereignty and manage risk farmers participating in conventional and alter- within the household (Ellis, 1998; Reardon, native trade networks. This finding and the re- 1997). The tendency of small farms to survive sults of the focus groups suggest that income price crashes by exploiting their own labor from coffee sales to alternative markets is not has been documented since Chayanov first CONFRONTING THE COFFEE CRISIS 507 investigated agrarian transitions in the former ducers and their organizations must invest in Soviet Union (Chayanov, 1966 [1925]). The coffee quality improvement infrastructure and third quote represents two reasons—lower training (Table 4). 11 costs and price premiums—for moving toward Although the global demand for Fair Trade organic agriculture. These are only a few cop- labeled products grew by 42% during 2002– ing mechanisms that farmers mobilize to nego- 04, Fair Trade remains a very small market seg- tiate with the coffee crisis, other observed ment of the global market (FLO, 2003). Due to activities include sharing resources through kin- low demand and high quality requirements, ship networks, local migration, and increased many Fair Trade certified cooperatives must barter. sell close to 70% of their coffee into the lower All of these activities may reduce vulnerabil- paying conventional markets. Assuming that ity without reproducing the same structures one accepts Fair Trade as one model that can that created the coffee crisis. Diversification help reduce vulnerability, the next question is beyond coffee is important, and much can be on how to scale up. learned from the failures of previous export- Markets are institutions that reflect the col- oriented diversification projects (Sick, 1997). lective results of socially agreed upon rules However, the following discussion investigates and practices. The North American public is the role of diversifying into alternative coffee increasingly aware of sustainable coffee market- production and trade networks. What interven- ing messages, and mainstream news has cov- tions can help expand coffee production and ered the coffee crisis. Specialty roasting trade models that reduce vulnerability and companies are forming campaign alliances with move toward long-term sustainability? civil society organizations and producer coop- eratives. A few roasting companies, such as (b) Making markets: the promise and peril Equal Exchange, have teamed up with the faith of coffee’s alternative trade and production community (Lutherans, Quakers, Catholics, networks etc.) and civil society organizations (Oxfam) to build campaigns promoting Fair Trade. Stu- Nicaragua has the potential to emerge as a dent activists have recently formed the United world leader in the production and trade of Students for Fair Trade to coordinate a na- specialty, organic, and Fair Trade coffee. In tional student fair trade movement in more the last ten years, cooperatives, technical assis- than 100 universities across the United States. tance organizations, and the donor community People and their organizations are making mar- have worked with Nicaraguan farmers and kets. their organizations to increase participation in Fair Trade and organic certifications are two specialty coffee markets. Although 80% of Nic- examples of attempts to build alternative pro- araguan coffee is potentially specialty coffee, duction and consumption networks. To the ex- only about 10% of the 2000–01 harvest was ex- tent that Fair Trade networks create a working ported as specialty coffee (Bandan˜a & Allgood, model of their principals in practice, they help 2001; USAID, 2002). To increase participation coffee drinkers align their tastes to specialty in the specialty coffee markets, including sales coffee with their social justice values. Seen from into the Fair Trade and organic segments, pro- this perspective, Fair Trade offers a technology
Table 4. Nicaraguan production of specialty, organic and Fair Trade coffee 1987–2007 Period Area in production Farmers Hectares Percentagea Number of farmers Percentagea Pre-1994 420 0.5 156 5.1 1994–2002 6,089 6.7 3,927 12.9 2002–07b 10,959 12.0 7,070 23.3 Source: The Cooperative League of the United States of America (CLUSA) 2002. a Both area and farmer percentage calculations use the data from the 1997–98 harvest. However, as the coffee crisis continues, the national area in coffee production will likely decrease, so these are conservative estimates. It is still unclear what the future holds for the total number of farmers involved in coffee production. b CLUSA technicians derived these projections by multiplying the current numbers by 15% per year for the first four years and 10% for the two final years. 508 WORLD DEVELOPMENT that can help reimbed economic relationships does not also promote consumer education into a set of social values (Polanyi, 1944; Ray- and expand alternative markets, these actors nolds, 2000c). risk pushing too many people toward a small The promise of re-embedding trade into a so- exit (Oxfam, 2002). cial value system is matched by the challenges and contradictions involved in attempts to in- fuse 21st century capitalism with social and 6. CONCLUSIONS ecological justice. In the United States, most Fair Trade and organic products are consid- A few farmers also offered their strategies for ered specialty items and sold at prices signifi- the long-term resolution of the crisis. Byron cantly above their conventional competitors; Corrales says, ‘‘We need to apply agroecologi- this links affluent consumers in the North to cal coffee production practices and sell to a just livelihood struggles in the South. Further re- market.’’ And Jose Saturnino Castro Peralta of search, action, and exploration would investi- the La Providencia Cooperative said, ‘‘We need gate and address these class differences and to maintain and strengthen the cooperative and escape the confines of this market niche. Mar- improve the quality to get better prices.’’ These ket-based approaches accept consumers as quotes represent individual responses to the stakeholders in the international development changing structures of the global coffee markets process and downplay their role of citizens and international development agendas. Eight (Goodman & Goodman, 2001). Certification Nicaraguan cooperatives, that collectively as a tool for producer empowerment is further represent more than 7,000 small-scale farmers challenged by the proliferation of certifications, created a collective response. They formed such as Rainforest Alliance and Utz Kapeh, CAFENICA, the Nicaraguan association of which offer lower social standards than Fair small-scale coffee farmer cooperatives. CAFE- Trade and lower environmental criteria than NICA provides technical assistance helping organic certification. However, in the short member cooperatives coordinate and execute term, many of the questions concern how to their own development projects. It also pro- grow these markets. vides political representation for small-scale Changing markets and power shifts to the producers and coordinates collective marketing roaster and retailer end of the commodity chain strategies. suggest a set of demand side interventions that Alternative models can help reduce liveli- compliment more innovative supply side pro- hood vulnerability to the crisis in conventional jects. Donors such as the US Agency for Inter- coffee markets. As the crisis deepens and alter- national Development, European Union, native models mainstream, they will encounter World Bank, and the Ford Foundation are increasingly large obstacles and contradictions. funding projects to address the coffee crisis. Addressing these issues requires a more diverse, While some foundations have funded innova- committed and critical dialogue that engages tive approaches partnering business and civil historical ideals and existing trading practices. society organizations to expand alternative This dialogue could stimulate Fair Trade praxis markets, most of the multilateral funding re- and the continued evolution of a process in- mains narrowly focused on production prac- tended to increase social justice in our food sys- tices for niche markets. If multilateral funding tems.
NOTES
1. See Ponte (2002a) for a detailed discussion of the 2. Millions of peasant farmers around the world causes, mechanisms, and consequences of the coffee produce food without using synthetic inputs. Thousands crisis. He also provides a good summary of the global of coffee producers continue to manage their coffee trees coffee commodity chain theory. He uses this approach to applying the minimum amount of work and no inputs carefully demonstrate how shifts in consumption pat- from outside the farm. They may simply manually terns and commodity chain governance structures have remove the weeds once or twice per year and harvest the led to declining revenues to producing countries and cherries when they ripen. Although these farmers may increased profits to the international roasting compa- meet the basic requirements for organic certification, the nies. fact that they do not actively manage their farms and CONFRONTING THE COFFEE CRISIS 509 have neither filled out necessary documentation nor 7. The prices in Table 3 are average prices for each solicited third-party inspection legally prohibits them market reported by the farmer. These prices are received from selling certified organic products. Many classify on the farm after deducting costs for dry processing, this as passive organic production. organic certification, debt service, and export; other costs including transportation to market, land, labor, 3. For additional information on the Fair Trade, and capital have not been deducted. consult Raynolds for conceptual frameworks and research into Fair Trade bananas (Raynolds & Murray, 8. See endnote 5. 1998; Raynolds, 1997, 2002a, 2000c). Early work on Fair Trade coffee has been published by Brown (1993); also 9. Land ownership in Nicaragua has been highly see Renard (1999a, 1999b) and Rice (2001). Leclair contested for more than a quarter century. These (2002) provides a more comprehensive summary of the perceptions are not ill founded; CEPAL estimates that alternative trade organizations and the fair trade of between 500 and 3,000 Nicaraguan coffee farms have crafts as well as food products. been lost due to the coffee crisis (CEPAL, 2002). Follow-up research found that members of the coop- 4. Estimates for the costs of production vary widely. erative selling all of their certified organic coffee to Fair Many of the costs incurred on family labor farms do not Trade markets were able to purchase additional land show up in monetary values. It is clear that large technified and the cooperative membership continued to expand, farms have higher dollar expenditures. An internal report while two of 18 members of a cooperative selling to at National Union of Farmers and Ranchers (UNAG) conventional markets sold their land (Bacon, forth- estimates that monetary production costs on large farms coming). are double those on passively managed small-scale farms (Corrales & Solorzano, 2000). 10. This direct translation refers to increased stress, 5. Recent research by Mendez describes the multiple more arguments, and likely more abuse as the poor farm roles that shade trees play in the livelihood strategies of households try to make by with less. One leader of rural small-scale producers in El Salvador (Mendez, 2004). peasants has clearly linked falling coffee crisis to See Bray et al. and Nigh for detailed descriptions of the increased abuse and discrimination against women. social dimensions of organic coffee production in Mex- ico (Nigh, 1997; Herna´ndez Castillo & Nigh, 1998; Bray, 11. Katzeff (2001) and Giovannucci (2001) concur that Plaza Sanchez, & Murphy, 2002). flavor is the most important factor in the specialty coffee roaster’s buying decision. Flavor is identified in coffee 6. In Matagalpa, cooperatives, municipal authorities, tasting laboratories. Eight cooperatives in Nicaragua exporters, and businesses recently sponsored the first fair recently teamed up with Thanksgiving Coffee Company to celebrate the beginning of the coffee harvest. People and used funds from USAID and other donors to build have long celebrated the end of the harvest. All festivities cupping labs as part of the coffee infrastructure con- were canceled during the first three years of the coffee trolled by the cooperatives. The project has led to an crisis. But the recent fair reflects the region’s determina- improved reputation for Nicaraguan coffee, better prices tion to keep planting this once golden bean. Folkloric to the cooperatives, and an estimated 25 containers dances often depict campasino families cultivating corn (valued at more than $1 million) in additional coffee and picking the red coffee cherries. sales (Bacon, 2001; Bacon, forthcoming).
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