Coffee Crisis

Coffee Crisis

The Wall Street Journal, Boston Globe , and the Economist as well as many other media outlets of record were all in consensus when they declared the onset of coffee crisis in October 2001; farmgate prices had sharply dropped reaching a thirty-year low of $0.39 per pound in This price was below the cost of coffee production at the time, listed at USD 0.60 per pound.(Economist 2001) Price declines are not such an uncommon occurrence, but what is more troubling is that the cash market for coffee suffers from high price volatility. For a more detailed look please see Appendix 1: Cash Price Variation. Coffee producers , who are mainly located in developing countries , are highly vulnerable to price risk in the cash market , yet their profits in relation to their risk exposure has been steadily declining. In a 2001 study conducted by the European Fair Trade Association (EFTA)- an organization that promotes the sale of products that ensure price security for marginalized commodity producers- the general finding was a declining share of trade revenues from coffee remained in the coffee producing countries. Although the international coffee market has grown from $30 billion annually in the 1980s to $55 billion in 2001, in aggregate coffee producers have seen their share drop from $10 billion to $7 billion in 2001 (Renkema 59).

From the perspective of the small producer, their received cash prices have not always been this volatile and had been stable up until 1989 ;although the data does not fully support this. Please see Appendix 2) Measures of Volatility. A price regime devised in 1962 by the International Coffee Association setup an agreement between coffee producing countries and coffee consuming countries....

... middle of paper ...

...//www.nybot.org>

Pennings, Joost M.E. Research in Agricultural Futures Markets: Past Present and Future. Presentation Paper: Wageningen Agricultural University: Netherlands. 8 June 2001.

Renkema, David. (2001).¡± Chapter 4:Coffee:The Speculator¡¯s Plaything¡± Fair Trade Yearbook..European Fair Trade Association: Amsterdam.

World Bank International Task Force on Commodity Risk Management in Developing Countries. ¡°Dealing With Commodity Price Volatility In Developing Countries: A Proposal For A Market-Based Approach.¡± Discussion Paper for the Roundtable on Commodity Risk Management in Developing Countries. World Bank. Washington, DC: 24 September 1999.

United Nation Commission on Trade and Development (UNCTAD) Secretariat. ¡°Farmers and Farmers Associations In Developing Countries And Their Use of Modern Financial Instruments. Geneva: 10 January 2002.