Rise in Coffee Price Creates Crisis for Fair Trade Coops
15 March 2006
Guatemalan cooperatives struggle to keep up with local middlemen willing to pay better prices.
by Andrea Perera
When the price of coffee dropped in 2001, everyone knew who was hurting most. Small-scale coffee farmers struggled to make any sort of profit, let alone one that would keep them going until the next growing season.
Back then, it was the fair trade farming cooperatives that saved people. By following the rules of fair trade certification, these coops, many of them Oxfam America partners, offered their farmers a sort of insurance policy. Farmers could count on a guaranteed minimum price, a difference that helped them earn incomes as much as three times more than the local market price. While others struggled to fulfill their basic necessities, fair trade coop members could at least feed their families.
"We changed our lives selling fair trade coffee," said Don Domingo Cholotio Quic, a founder and president of La Voz Coop. "We could support our children and send them to school."
But over time the price began to rise -- and the conversation changed. Many assume that higher prices mean easier times for the coffee farmers. As with most things, however, it isn’t that simple. The coffee crisis continues, except now the coops in places like Guatemala are struggling. There, the local price is higher than the fair trade price. And coops are watching their members sell more and more of their coffee to local middlemen who can pay more, faster.
"Coops provide training, assistance in times of crisis, and higher prices when the world market is depressed," said Seth Petchers, Coffee Program Manager at Oxfam America. "But poor farmers don’t have the luxury of not selling their coffee for the highest price."
If coops are to survive, they will have to become stronger. They will need help building up their cash reserves so that they can consider offering the same or better prices than the coyotes. They'll need to add members and land, and export more coffee.
Case Study: Guatemala
Some of the best coffee in the world comes from the volcanic mountains surrounding Guatemala's Lake Atitlan. That's one reason local middlemen, called "coyotes," are willing to pay a higher price for it. Representing powerhouse importers and roasters, they go where the coffee is. Around Atitlan, that means standing along the roadsides, scales in hand.
The coffee farmers come too, carrying their burlap sacks by pickup truck, burro, or often, on their own backs.
"Some farmers sell to the coyotes because they need the money right then to pay off their debts," said Enma Cristina Herera, a member of La Voz cooperative. "The coops pay three months after they give them the coffee."
Unlike big companies, fair trade coops can't offer money up front because they have limited access to credit. They can’t pay farmers until after they export the coffee to importers and roasters. While coops wait for those payments, they use the money they have to pay off their own debts, which include the costs of administrative salaries and repairing coffee processing equipment.
"Sometimes the coops try to pay as much as the middlemen, but they don't always have the capacity to do it," said Don Angel Mendoza, Internal Control Consultant at CRECER, an organization that works on small business training. One coop “had to use savings to pay farmers. They had a hard time because they could have used the money to buy equipment."
Maintaining their Base
In addition to making up the difference in price, some coops try to appeal to farmers' loyalty. They remind the farmers that they've learned how to produce for the fair trade market largely through the coop's training programs. And after disasters like Hurricane Stan hit last October, the coops were there for their members with food and drinking water.
Then there are the reminders of economic realities within the coffee industry. Coyotes can't be trusted because they often fix their scales so they can buy the coffee for less than it's worth. And when the market cycles down again, the coyotes won't be the ones offering the guaranteed price.
"We are trying to tell them that the last two years have been good for prices. But it won't be like this all the time," said Carlos Reynoso, General Manager of Manos Campesinas coop.
Building Confidence in Coops
To remain competitive, coops will need a combination of small business training and a voice in international forums such as the International Coffee Organization, where both coffee-producing and consuming countries debate the ongoing coffee crisis.
The ICO could create the space for small-scale farmers to ask for: debt refinancing, low interest loans for working capital, long-term capital investment, and access to information and markets. And the ICO could publicly call for a restructuring of the coffee industry so that small-scale farmers have more equal footing with their competitors, mega farms and multinational companies.
In the meantime, coops might have to depend on their members' memories of the 2001 price drop to get them through.
"The coop always supports its members. It’s never failed us," Herera said of La Voz coop. "This is why we have confidence."
