Oxfam has noticed that in real terms, the price of buying coffee beans is now lower than at pretty much any time in history, due in large measure to an international glut of coffee beans. Oxfam’s solution? Increase coffee surpluses even more?
The organization is upset that coffee prices have plummeted over the past three years which has seriously undermined the economic position of coffee growers in the developing world. On the other hand, the wholesale cost of coffee isn’t necessarily that large of a factor in the pricing of coffee in the industrial world, so the fall in coffee bean prices essentially means more profits for coffee resellers in places like the United States.
Oxfam’s solution is to set a worldwide floor price on coffee at $1 per pound — which is about double what the going rate of coffee is. But as the British Coffee Association gently puts it, this proposal “fails to address the fundamental economics of the coffee market in the long term.” To put it not so gently, it is the worst possible solution.
Setting a price floor of $1/pound will simply encourage even more farmers in the developing world to grow coffee, which will further exacerbate the existing glut of coffee. At that point either large numbers of farmers will simply have their coffee go unsold (and that would do little to help elevate these people out of poverty), or states will have to step in with programs to buy coffee from farmers and destroy it or pay people to not grow coffee or any number of other measures that countries are inevitably forced to do when they subsidize such industries.
Oxfam’s solution would be worse than the current problem. The low price of coffee is a clear indicator that many farmers involved in its production need to switch to alternative crops, whereas Oxfam would encourage them to keep pounding away at producing a commodity for which there is already a worldwide oversupply.
Source:
Coffee farmers ‘face destitution’. The BBC, May 16, 2001.
Thanks for the awesome article, this is exactly the thing I needed to see
I’m doing a project on an international aid agency. I’ve chosen Oxfam and am wondering if anyone has any information which can help me.
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