More Fair Trade Hype From Starbucks

South China Morning Post
June 24, 2003

Jake van der Kamp jakeva@scmp.com

LET US PUT the sad story of the plight of coffee growers into perspective, just so that you know what you are looking at when Starbucks this week offers "fair trade" coffee as its "coffee of the week".

    The roots of this story lie in Vietnam, where government officials decided in the late 1980s that the way to make their economy grow and to generate foreign exchange at the same time was to become one of the world's biggest coffee producers.

    They succeeded. Vietnam has become the world's second-largest producer after Brazil. As the first chart shows, coffee production in Vietnam rose 20-fold between 1989 and 2001. For contrast, along the bottom of the chart you can see the record of production in Indonesia, previously the Asian country with which you would associate coffee, hence the older colloquial term "java" for coffee.

    The second chart shows you what happens when governments get into a market for reasons of national policy and pay no regard to supply and demand balances. From a peak of more than US$ 3 in 1997, coffee prices fell to 40 cents a pound by late 2001 and coffee growers were reduced to poverty.

    The Vietnamese government has now belatedly learned its lesson. Vietnam is to take 20 per cent or 100,000 hectares of its coffee plantations out of production. That production had begun to slump anyway last year and the result has already become apparent in the market. The price of coffee has risen back to about 60 cents a pound.

    But you may have noticed throughout the period of slumping coffee prices that the price you paid for a cup of coffee has not come down much. Prices in the supermarket and at the coffee counter are controlled by four big roasters, Kraft, NestlE, Proctor & Gamble and Sara Lee. The roasters paid the growers less and the difference went to their shareholders.

    This finally induced several socially active groups led by Oxfam International to launch campaigns urging the roasters to pay the growers enough to allow them a decent living and to urge consumers to buy coffee for which the growers had been paid more. Some of these initiatives have also emphasised organic growing of coffee.

    Oxfam has now finally succeeded in getting Starbucks to participate in this movement in Hong Kong. The Oxfam coffee, bought from a Tanzanian co-operative at three times the market rate, is to be featured as Starbucks' "coffee of the day" in all its 36 outlets here at no increase in price.

    And Starbucks has naturally set the bow to the violin to get all the marketing benefit it can from this with much talk of helping farmers and their families through a fair price. It did well out of this newspaper yesterday, for instance, with a big picture on page three of our City section featuring the Starbucks logo.

    But now the question, just how much of Starbucks' worldwide coffee sales comes from such fair trade coffee? According to the United States-based Organic Consumers Association, that figure is still less than 1 per cent and, while Starbucks makes much of its partnership with Oxfam to bring fair trade coffee to the market, that 1 per cent, which is not denied by Starbucks, tells the story.

    Oxfam has been helped in getting its fair trade campaign to the attention of consumers, but for Starbucks, it just looks like marketing hype aimed at socially conscious customers who may be induced by this to drink more coffee at Starbucks outlets. It may help a few impoverished coffee growers but only a few.

    And this brings us back to where we started. The basic problem is that there has been far too much coffee production in recent years, largely as a result of Vietnam's big coffee production drive but also because of government support measures for this industry elsewhere.

    It will not do to pin the blame only on the big roasters and coffee chains. They undoubtedly took advantage of this market distortion but they did not create it. The only way to bring prices for coffee growers back up to a decent level is to restore the balance of supply and demand in this market by taking more acreage out of coffee cultivation.

    I congratulate Oxfam on its fair trade campaign but I think it is barking up the wrong tree. I also think it should be aware of the danger that it may do its intended beneficiaries, those growers, a disservice by diverting our attention from the real cause of their troubles.