World Coffee Market – the Impact of Speculation

July 16, 2008
Understanding the intricacies of the world coffee market is no easy task. Throughout history, coffee farming families have been at the mercy of the world market prices, largely dictated by climatic issues, supply and demand and the ever-hungry profiteers who have long negotiated for prices that fatten their wallets. To understand how the conventional world market work, check out this piece from coffeeresearch.org.
      This year, the world coffee market saw more volatility than in years past due to increased speculation by  a new wave of traders. According to a recent article by Sam Kornell called ‘Commodity Speculation: Gambling with the futures of farming families’ in CoffeeTalk magazine,”Commodity speculation (including coffee) in the United States changed fundamentally . . due to a rather obscure piece of legislation written by Republican Senator Phil Gramm that substantially relaxed, and in many cases eliminated completey, federal regulation of futures trading in American commodity markets. Gramm essentially managed to turn American commodities markets into a kind of  financial Wild West”.
     From 1936 to 2000, the year when Gramm slipped the controversial legislation through by attaching it to a 11,000 page omnibus Senate appropriation bill, speculation in the commodities (sugar, cocoa, coffee) markets was limited to experienced investment firms whose trading practices were regulated by Congress. After 2000 world commodity markets were opened to the whims of day-traders and less experienced and unregulated investors.
     Couple this with last year’s purchase of the New York Board of Trade (NYBOT which housed the arabica coffee trading system in addition to cotton, sugar and other commodities) by the Intercontinental Commodities Exchange (ICE), a British electronic energy marketplace. Sam Kornell writes, “The sale of NYBOT to the ICE made it even easier for non-commercial investors to get in – in a big way – on the commodities futures action. For one thing, the ICE and other electronic markets are harder to regulate, and they make investment in commodities contracts relatively easy”.
     Add to this falling stock market prices and the devaluation of the US dollar and the result is a very tenuous situation for coffee farmers and buyers. While market prices have escalated tremendously – a good thing for farmers – the uncertainty of the future weighs heavily on the mind of our partners in the field. They’ve watched the cycles come and go and they worry that, while their cost of goods continue to sky-rocket, the market will once again bottom out as it does time and time again.
To read the full article Commodity Speculation: Gambling with the Futures of Farming Families by Sam Kornell in Coffee Talk click here: http://www.coffeetalk.com/images/CTJun08web.pdf

 
The next installment of this newsletter will include a piece about how Higher Grounds Trading (in conjunction with our importing co-op, Cooperative Coffees, is bucking the conventional trading system). We trade directly with our partner farmers, negotiating prices far above fair trade minimums via transparent and friendly conversations with our producer partners.  Suspenseful, I know . . .

 

 

 


The Grassroots take on NAFTA

June 17, 2008

By Chris Treter

We’re 14 years into NAFTA and many throughout the U.S. don’t know what the North American Free TradeManifestation at the Other Campaign in Chiapas, Mexico Agreement (NAFTA) is or have forgotten its’ significance. That isn’t true south of the border where the gap between the rich and poor continue to grow at an alarming rate.

Meanwhile, 2008 sees the governments of Canada, the United States, and Mexico working on the Security and Prosperity Partnership. However, from the looks of the advisory board which include the CEO of Walmart and 28 big businesses, security and prosperity for all in North American seem to be far from its objectives.

In multiple visits to Mexico in the past decade we’ve
been witnesses to the lasting negative impacts of neoliberal economic policies manifested within NAFTA. From increased migration in southern corn and coffee growing communities to diminishing mom and pop shops being replaced with big box stores, cultural assimilation is on the move and the grassroots are fighting back. Check out “Reclaiming Corn and Culture” in YES! Magazine by Wendy Call to learn more about the role coffee cooperative are playing to support community sustainability.


At last! Fill up your gas tank with spent Coffee Grounds

May 16, 2008
Now this is what we’ve all been waiting for. Our love of great coffee may someday fuel our addiction to cars!
Cafe Racer Touted as a “carbon negative” vehicle, the 1975 GMC pick-up known as the Cafe Racer is fueled by spent coffee grounds (or most trash) through a process known as gasification.
 

‘What is gasification? Gasification is the general term used for processes where heat is used to transform solid biomass into a “natural gas like” flammable fuel. Through gasification, we can take nearly any solid biomass waste and convert it into a clean burning, carbon neutral, gaseous fuel. Whether starting with wood scraps or coffee grounds, municipal trash or junk tires, the end product is a flexible gaseous fuel you can burn in your gasoline engine, cooking stove, heating furnace and/or flamethrower.’ (click here for more info on the Cafe Racer)


Catholic Relief Services Economic Justice Consulation Report Back

March 7, 2008

By Jody Treter

 

I’m writing from the Baltimore airport, headed home from two days of meetings convened by Catholic Relief Services (CRS) to share ideas and get feedback from stakeholders about the next decade of CRS’s fair trade program. CRS Fair Trade logoThe added bonus of the trip was that I got to spend some time with my good buddy and fellow bean activist, Chris O’Brien, who also attended the first day of the meetings. CRS invited Chris to present on the difficult-to-tackle topic “Where is Responsible Consumption Headed?” and he wowed the meeting particpants with his comprehensive understanding of “green” purchasing (as many of you may know, Chris O head’s up the Responsible Purchasing Network). CRS prepped us for the visioning session with several other short presentations including the history of CRS and their FT program, a snapshot of the FT movement today and an argument for why it might be a good approach to open CRS’s FT program to more mainstream partners for greater market impact.

Among faith-based development organizations, CRS is a leader. It’s newly finished LEED-certified building is the first sign that, indeed, CRS is walking their talk. In the world of Fair Trade, CRS began it’s work with the Work of Human Hands craft project in 1995. In 2003, CRS launched it’s Fair Trade Program which became the umbrella for several other initiatives including the Work of Human Hands, plus the FT Coffee and Chocolate Programs. The Coffee Progam, an ambitious and forward-thinking partnership between marginlized farmers in Nicaragua and 100% fair trade coffee companies in the United States, is a new twist on interfaith coffee projects. While the Presbyterians, Lutherans and others have programs that partner exclusively with Equal Exchange, CRS boldly created the first “localized” program encouraging dioceses and parishes to support their nearest CRS Coffee Roasting Partner, of which there are twelve in the States. This model serves to “share the wealth” amongst several roasters plus it better leverages the FT movement.

Now four years into their FT program, CRS leaders are carrying out the due diligence necessary to create a well-informed blueprint for the next ten years. This is no easy task. The goal is clear – how does the CRS FT program serve the overarching CRS mission to alleviate suffering and create dignified livelihoods for the poorest of the poor? Our contribution, as stakeholders of the CRS Fair Trade, is to assist in the creation of long-term strategies to this end.

CRS offered three ideas to help generate conversation around strategies for the future:

  1. Revisit the strict adherence to the Gold Standard for Partners (ie – can CRS’s impact be greater if it broadens it’s partnership criteria?). The small working group I joined focused on this issue and offered up a hybrid solution. First, it’s important to maintain (and even actively improve) the Gold Standard of Fair Trade (often referred to as the 100%ers or Alternative Trade Organizations b/c their business models are fully committed to the principles of fair trade). The partners who meet “Gold Standard” criteria should be distinguished from others as the preferential partners. But, when these partners can’t meet the need of a potential customer (ie – a large institution wants to purchase individual pods for coffee makers), CRS directs the customers to “silver” level partners and, finally, “bronze” level partners. The discussions were much richer but this is the core of our group’s proposal.
  2. Shifting from a “product” focus to “points of engagements”. My opinion is that the CRS FT message will have the greated impace if both a “product” focus plus a “points of engagement” strategy are employed. For example, CRS may choose to sponsor an up-and-coming Skateboarder to engage Youth on their own turf – a point of engagement – but, when a church calls to ask about where to purchase office supplies or coffee or chocolate, CRS should remain an authority (termed “trust provider”) by offering a list of products from their program partners.
  3. From advertising to advocacy: Economic Justice beyond consumption. This piece wasn’t taken on by a working group because meeting attendees felt like this issue would be covered under the other two topics. Economic Justice is the over-riding theme of the CRS FT program and should continue to be so. In the end, Fair Trade is just one tool in the greater struggle for dignity and sustainability within economic justice. So, perhaps, the CRS FT program should consider changing their name to the CRS “Economic Justice Program” and create a more comprehensive approach that includes 1. the promotion of authentic “gold standard” fair trade partners; 2. engaging companies that are slowly coming into the fold of fair trade and economic justice; 3. identifying and pursuing points of engagements for CRS constituents.

Kudos to CRS FT for lining up an impressive roster of movers and shakers for the visioning session! I’ve been impressed time and time again with CRS’s commitment to the involvement of their stakeholders and the time they take to nurture relationships. Representing the Fair Trade movement was Carmen Iezzi, ED of the Fair Trade Federation; Serena Sato of SERVV; Kimberly Easson of TransFair USA; Joe Falcone of Counter Sourcing Fair Trade Apparel; Allen Thayer of Handcrafting Justice/Fair Trade Uniforms. Rick Peyser joined from Green Mountain Roasters and many CRS staff/volunteers from several different departments attended including Abby Causey, a CRS FT ambassador from Virginia Beach; Lara Puglielli, who was instrumental in the birth of the CRS fair trade coffee program in Nicaragua; Chuck Paquette, Foundation and Corporate Relations at CRS; Barbara Myers, Senior Director of US Operations; Sarah Ford, Senior Technical Advisor for Partnerships; Shaun Ferris, Technical Advisor on Agro-Enterprise; Brian Backe, Director of Domestic Programs Support Unit; Juan Molina, CRS-US Southwest; Thomas Awiapo, CRS-Ghana; and last but not least were the tireless CRS Fair Trade Champions, Jackie DeCarlo and Katy Cantrell.

Thanks much for the provocative discussions and good humor! That’s all for now . . . need to catch my plane.


Fair Trade Towns

February 5, 2008

Posted by Chris O’Brien

Fair Trade TownsIn the past week I’ve chatted with Carmen Iezzi, the director of the Fair Trade Federation (FTF), and Anne Riley, the director of the Fair Trade Resource Network (FTRN). Having formerly served as the director of FTF and worked closely with FTRN, it was great to catch up on all their current projects.

I was particularly excited to learn from Anne about the Fair Trade Towns program because it overlaps with my work at the Responsible Purchasing Network, so Anne and I plotted a bit about how we might work together to co-produce an Responsible Purchasing Guide for fair trade to help complement our series of purchasing guides for institutional buyers with something focused on internationally traded commodities that affect low-income producers.

The Fair Trade Towns initiative helps folks who are interested in working with their local governments to ensure that Fair Trade products are specified in government contracts. A few cities have already issued Fair Trade procurement resolutions, such as San Francisco, New York City, while the little burgs of Media, PA and Brattleboro, VT have both become full-fledged Fair Trade Towns.


Reflections on “Fair to the Last Drop” by Food First

November 18, 2007

Posted by Chris Treter

In “Fair to the Last Drop – The Corporate Challenges to Fair Trade Coffee,” The Institute for Food and Development Policy (AKA Food First) provides us with an excellent indepth study examining the very important debate within the fair trade movement.

Here’s the jist:

Coffee growers are the losers in the global coffee industry, receiving less than 10% of the 80 billion dollar a year business. Following its humble beginnings just 20 years ago within the coffee sector, Fair Trade has quickly developed in part due to a process of mainstreaming.

In the United States, more than 400 coffee roasters are selling certified fair trade coffee. However, only about 20 purchase 100% of their coffee under Fair Trade criteria. Some of the “corporate colonizers” who have joined on, such as Procter and Gamble, Kraft, and Seattle’s Best (owned by Starbucks), only purchase 2 % of their coffee as fair trade although just 5 companies control nearly 70% of the total global coffee market. Between those twenty 100% fair trade coffee roasters and the 380 other roasters who offer a portion of coffee at fair trade prices, lies a growing divide.

Bolivia Pumiri

The mainstreamers – such as Starbuck’s, Procter and Gamble, Kraft, and a host of smaller specialty roasters believe (or at least their purchasing policies and marketing actions lead one to assume) that within the neoliberal economic system lies the ability to adequately transform the lives of coffee growers. Whereas many of the fair trade “movement companies” argue that the neoliberal economic system is at fault for the conditions (extreme poverty, lack of education , access to water, and health care) present in coffee growing communities and therefore a complete shift needs to take place away from the current neoliberal system.

Eric Holt- Gimenez, Ian Bailey, and Devon Sampson do a great job of summing it up when they write:

“The neoliberal position that markets in and of themselves are sufficient to reduce poverty, end hunger, and promote sustainable development, is a notion that has been refuted by two decades of disastrous corporate-led globalization…….. When coffee prices dropped catastrophically in 2001 and 2002, it became clear that Fairtrade price floors provide an essential safety net for farmers.”

However, this “safety net” has served well in the most disastrous of times but does not adequately help farmers lift themselves out of the poverty they find in their everyday lives.

Opposing this notion of fair trade as a “safety net,” many fair trade “movement companies” are taking on something our farming friends south of the border call “solidarity economy.” That is, a more holistic approach to fair trade that incorporates community development, partnership, shared risk, activism and education by walking hand in hand with the growers and their local political and economic struggle. Price is but a piece of the tasty pie that is a deeper version of conventional fair trade.

In the report, the author’s ask a series of important questions:

“Is the goal to help as many peasant farmers as possible by selling as much Fairtrade coffee as possible? Or is the goal to transform coffee’s historically unfair market structures? Are markets the engine for social change or are social movements the force to change markets?”

For the mainstreamers, “Fairtrade is not a social movement or a business ethic, but rather a public relations opportunity and a profitable niche. They take advantage of the “halo effect”—the tendency for the good feelings around one product to reflect well on the entire brand (Nestle, 2002).”

But the holistic approach of fair trade “movement companies” seems to be making a positive impact –

“At the very least, there appears to be a mutually beneficial relation between higher premiums and the extensive social and political work carried out by farmers’ movements. Under these circumstances, it is difficult to imagine Fair Trade even taking root without building upon the historical agrarian struggles for land reform, cooperative organizations, and peasant and indigenous rights………… none of this is reflected in corporate marketing of Fairtrade, where development claims are politically sanitized for mass consumption.”

In the end, the authors argue that, “The future of Fairtrade hinges on the degree to which it can bring producers, consumers and roaster-distributors not just into its market, but into the growing social movements for agrarian change.”

I couldn’t agree more. Fair trade is not just a price paid to an importer, certification acquired from a third party, and a label adhered to one’s package of coffee. But rather fair trade should be the quest to seek out long term relationships with partner growers that reflect transparency, long-term commitment and support for the development of coffee growing communities and its coffee producing infrastructure. Some organizations are already walking down this path.

In addition to Higher Grounds Trading Co., check out these other pioneering fair trade “movement companies” working in the vein reflected in this article. Cafe Rebelion, Dean’s Beans, Thanksgiving Coffee, Cafe Campesino, Just Coffee, and a host of other companies in Cooperative Coffees are striving to pay higher than the fair trade minimum while working with growers in the field in a host of innovative ways.


Third Wavers, Decommodification of Coffee

November 11, 2007

posted by Jody Treter

There is a new generation of specialty coffee roasters, baristas and enthusiasts who are undeniably leading the revolution of the coffee industry these days. This culture of coffee afficianados is often referred to as the “Third Wave of Coffee”. The notion of the “Third Wave of Coffee” was coined by Trish Skeie in March of 2005 during an interview on NPR’s All Things Considered, which aired from the United States National Barista Championships in Seattle.

Trish has been a student of the coffee industry for twenty years and currently serves in the industry as ‘Director of Coffee’ at Zoka Coffee Roaster & Tea Co. based in Seattle, Washington. (note – Zoka was just named “Macro Roaster of the Year” by Roast Magazine).

Her theory goes like this. The “First Wave of Coffee” was the post-World War II era, a time when coffee was simply consumed, not enjoyed. The war forced the production of quick, easy foods and instant coffee reigned supreme. The “Second Wave of Coffee” started in the late 1960’s with the birth of companies like Pete’s and then Starbucks. Specialty grade Arabica coffees began replacing lower grade Robustas as cutting-edge roasters and baristas gained appreciation for the nuances of different roasts and origins.

Fast forward to 2007 and we find ourselves here in the “Third Wave of Coffee”. According to Trish, it’s the evolution of coffee drinkers toward a deeper appreciation for the uniqueness of different coffees. Today it is quite common for customers to ask for a certain country of origin (Ethiopian, Sumtran, etc) when ordering their coffee. Here at our Coffee Bar, many of our customers know the name of the farming co-op that grows their favorite coffee along with the roast profile and other unique attributes of the bean.

Speciatly roasters around the country have become skilled at evoking favorable characteristics of beans and bartistas have become artists at pouring and brewing. These are “The Third Wavers”.

But, what has the “Third Wave” done for small-scale coffee producers and the trading of coffee as a whole? This question gets at the very essence of why we (Higher Grounds Trading Co.) are in business today.

When we started Higher Grounds TC we didn’t know anything about this theory of the “Third Wave of Coffee”. What we knew, after spending many months in Chiapas, Mexico in 2001 and 2002 witnessing one of the most dramatic falls of world coffee prices ever, is that the small scale coffee farmers weren’t making it. In the third quarter of 2001, Starbucks celebrated a remarkable increase in profits to the tune of 34%. In Chiapas Mexico, some 30,000 people (mostly of indigenous decent) were preparing to leave their homes in search of work in Mexico City or the United States. A study by Luis Navarro from the Interhemispheric Resource Center indicates that the coffee crisis was driving this mass emigration.

Whether or not you buy into Trish’s theory of the “Third Wave” of coffee, the Specialty coffee industry is in a process of change. In terms of trading practices, one laudable step in this evolution has been the “decommodification” of coffee. Rather than pegging prices to a wildly fluctuating world market, buyers are going direct to the source (farming co-ops and/or plantations) and setting prices based on quality of coffee, cost of living, etc .

It is clear that many farmers are finally getting the respect and dignity they deserve; roasters are getting the excellent beans and knowledge they seek; consumers are reaping the benefits in the final cup. In terms of impact, there is much to be learned about (and from) the players in the burgeoning Specialty Coffee industry. With regard to trade practice and company policy, what benchmarks are worth emulating that will benefit the farmers over the long term?

If you want to delve a bit deeper into coffee pricing, check out the New York Board of Trade Coffee Price Charts (data from 1970 – today). It’s based on one hundred pounds so simply divide the number you see to the right by 10. For example, 120.00 is actually $1.20/lb. Remember, these prices are the market rates. These are not the prices coffee farmers are receiving. Note that the real prices in the 70s reached almost $3.00/lb. A good price these days is $1.20.