US coffee groups dispute Oxfam on poor farmers

September 26, 2002

NEW YORK, Sept 26 (Reuters) - One week after British charity Oxfam criticized the coffee industry for making hefty profits while failing to help coffee farmers devasted by depressed bean prices, the leading U.S. coffee groups said they don't see eye-to-eye with Oxfam how to tackle the problem.

Oxfam claims that 25 million coffee farmers are in dire straights, struggling to survive as global coffee prices remain mired below their cost of growing and harvesting the crop. "It is critical to the NCA to have a sustainable industry and we believe in the efforts that everyone is making, but it's not helpful to spend efforts on solutions that will not make a difference," said Robert Nelson, president and chief executive officer of the National Coffee Association of U.S.A. (NCA) Part of Oxfam's approach to the crisis calls on the major coffee roasters, who are part of the NCA membership, to pay farmers a price above the cost of production, purchase at least 2 percent of Fair Trade certified coffee, and to respect the rights of migrant workers.

One response to the poverty crisis, brought on as coffee futures in New York and London headed to 30-year lows late last year, has been to promote Fair Trade coffee, so called because it pays farmers a fair price for beans and allows them to adequately feed and educate their families. "Fair Trade coffee is one component as we address the crisis, but as we look at cause-related coffees, it is important to recognize that the market is very small in the U.S.

Even major increases in those niches won't really impact prices," said Nelson. Nelson explained that Fair Trade coffee has been promoted in Europe for about a dozen years but it remains a very small portion of the their overall market. "Our (annual consumption trend) study shows about 2 percent of American consumers are purchasing Fair Trade and 7 percent were aware of Fair Trade in 2002," Nelson said. The Specialty Coffee Association of America (SCAA) represents some 2,500 company roasters and retailers of specialty or gourmet coffee who typically pay above the depressed benchmark futures price for their beans. "The problem we have today is a problem of structural oversupply," said SCAA Executive Director Ted Lingle. "The Oxfam report clearly points out the niche market isn't enough to solve the problem."

However, he added, "The report is fair in criticizing the industry's response to the problem. We could be doing more." DO THE NUMBERS While some casual observers of the coffee market buy into the romantic notion that the majority of coffee produced is from small landholders or farmers, experts say the larger plantations account for more than 50 percent of global output. This means that most of the workers who harvest beans do not qualify for Fair Trade status because they are not small cooperatives.

Paul Rice, CEO of TransFair USA, the Oakland, California-based nonprofit certification organization of Fair Trade products, says he has been listening to the coffee industry. "We want to make it work for the industry. You can't ignore their needs. We can develop certifications for estates and large farms," said Rice in a phone interview Thursday. U.S. coffee roastings run around 18 million 60-kg bags per year and the big roasters - Kraft Foods Inc. (KFT), Procter & Gamble (PG), Sara Lee Corp. (SLE), Nestle (NESZn), and Starbucks Corp. (SBUX) - represent approximately 60 to 70 percent, or 11 to 13 million bags.

If the major roasters make 2.0 percent of their purchases Fair Trade certified, it would be 250,000 bags, or 33 million lbs of coffee. With a preliminary figure of 200 million lbs of Fair Trade certified coffee produced in 2001/02, up from 170 million lbs in 2000/01, there doesn't appear to be a problem of sourcing. Worldwide sales of Fair Trade coffee were 40 million lbs last year, according to Rice. This means that the remaining 130 million lbs were sold at slumping market prices, with no premium going to the poor farmers. "We have an imbalance on the other side.

We need to pump up demand," Rice admitted. Rice also said he disagreed with Lingle's assertion that the Fair Trade model cannot ramp up enough to alter prices. "We're ready to extend the model. The question is whether the industry is ready to step up to the plate and buy," Rice said. The NCA takes the position that a rise in overall coffee consumption will improve prices. One dour coffee trader suggested that, "Twenty-five million coffee farmers around the world facing financial ruin might not be enough to turn the market around."