Every time I visit a coffee village I hear the same question: why is the price of coffee to us farmers so low? Why is there no relation between the costs of production and a reasonable (if any) profit and the price we get for our beans? These questions apply to 99% of the coffee in the world, fortunately not ours. But here is the answer, from my perch atop a waterfall in northern Peru:
In New York City, half an earth away from the coffeelands, a room full of overcaffeinated young men (who’d probably never heard of Yirgacheffe or Atsabe) are shouting themselves hoarse bidding down the lifeblood of rural coffee farmers. In the middle of this room is the circular trading floor of the New York Board of Trade (NYBOT), known to its denizens as “The Ring.” Here, investment houses, banks, financial speculators and large coffee companies bid on the future price of coffee. For the companies, the goal is to insure a future supply at a known price – a necessary planning tool for a business based on an agricultural commodity. But for the rest of the frenzied traders the point is to make a profit on the “float” between what they pay for coffee futures and what they hope to sell them for later. For two centuries, coffee had been a dull commodity, traded on a somnambulant market. Yet somewhere in the last decade, it had morphed from a morning brew into a raging speculative commodity on the trading floor.
In this wired world, these Lords of the Ring are supplied with up-to-the-minute financial, political, meteorological and other data from an army of consultants. An early frost in Brazil? The flowers necessary for the budding coffee fruit to develop could wither and die, shrinking the coming harvest. Supply down, price up; bid two cents more for March deliveries. A rumored peace deal in Colombia? Easier deliveries in three months; hold off and let the price drop. The rumors and intelligence are translated into Buy and Sell orders, little slips of paper carried across the floor by the Runners, the traders-in-training. Their street clothes covered in tunics carrying the colors of their houses, the Runners grab the slips from the phone and computer banks owned by the Lords and race them down to their warriors in the Ring, who scream out their offers to buy for a penny more or sell for a penny less. These players make the prices rise and fall in an incestuous system unrelated to the true cost of growing and processing the crop, and with no consideration at all for the needs of the growers to feed their families and keep their kids in school. As one trader told me:
“Traders are not guys with moral fiber when it comes to the conditions of the farmer’s lives. We’re seeing money and we’re making money."
It always amazes (and angers) me that when the market price determined by the Lords of the Ring goes up, roasters and retailers are quick to raise their prices to the consumer. “We have to charge the replacement value of the coffee” one broker told me. But when the world prices go down, these same brokers and buyers never drop their prices.
To me, Fair Trade is not just a formula to keep the price at a level sufficient for the farmers to rely on to improve their lives, it is a deeper commitment to social change that challenges the basic assumptions about the market and the human relations that lie beneath the surface.
While I sat above that waterfall, the market price dropped below 60 cents per pound - the price it costs a farmer to grow and harvest the coffee. From that day forward, each pound produced would drive the farmer who grew it deeper into debt and bewildered despair. For half a decade to come, farm families would suffer malnutrition and infant mortality would soar. At the same time, corporate profits were about to rise to historic heights, as the Lords of the Ring made their killing.