[Imc-newsroom] WSJ on coffee crisis (finally) (fwd)

[Molly Stentz]

this could be a source for a news hour headline..
-molly

-- 

---------- Forwarded message ----------
Date: Fri, 12 Jul 2002 17:01:32 -0700
From: Deborah James <deborah at globalexchange.org>
To: Post Fairtrade <Fairtradelist at globalexchange.org>
Subject: WSJ on coffee crisis (finally)

Dear Fair Traders,

Please take a moment to read the following two articles about the coffee
crisis, from the Wall Street Journal and the Washington Post, no less.
Both examine the relationship between the crisis and political and social
instability in Nicaragua. And show that the industry IS paying attention to
the crisis.

If these articles leave you outraged, please call Folgers right away
800-937-9745 and demand Fair Trade!

********************************************************************

The Wall Street Journal

Coffee-bean oversupply deepens Latin America's woes
Monday, July 8, 2002
Peter Fritsch
Associated Press

LA DALIA, Nicaragua -- Antonio Luna thought he had seen the worst life had
to offer during the 1980s, when his village in Nicaragua's coffee-rich
northern highlands sat in the crossfire of a guerrilla war between
U.S.-backed "contra" rebels and the Marxist Sandinista government.

That was before this May, when his family's home became a plastic tarp
pitched along the roadside here. Huddled with about 3,000 other unemployed
coffee pickers, Mr. Luna is a hungry refugee from a potentially more
devastating conflict than any he has known before: a global brawl over the
$55 billion coffee market. The fight has left the world awash in java and
has driven inflation-adjusted prices for beans to their lowest levels in
more than a century.

"We've had no work since February and are here begging for our lives," says
Mr. Luna, a listless 33-year-old, surrounded by a group of visibly
malnourished, unshod children. They are living on wild bananas and the
charity of passersby. "At least during the war there was food," he says.

In lush coffee-growing regions from Central America to Africa, the collapse
of world coffee prices is contributing to societal meltdowns affecting an
estimated 125 million people. In former Cold War proxy battlefields such as
Nicaragua, the result is a combustible brew of unemployment, hunger and
migration. In countries such as Uganda and Burundi, which get 70 percent of
their export earnings from coffee, the severe price drop has blunted
benefits from international debt relief.

The oversupply of beans driving the crisis won't ease quickly because so
many small growers see few alternative crops that are profitable and legal.

In the U.S. and the rest of the developed world, the price of coffee on
supermarket shelves has fallen -- but considerably less than the price paid
to growers. That translates into record sales and profits for some of the
corporations that process and market coffee, according to industry
officials. Four giants -- Procter & Gamble Co., Philip Morris Cos.'s Kraft
Foods Inc., Sara Lee Corp. and Nestle SA of Switzerland -- control about 40
percent of the world's coffee. They buy it in bulk and then roast, grind and
blend it into brands such as Kraft's Maxwell House and P&G's Folgers.

The low bean prices fueling corporate profits are "causing entire rural
communities to disappear and forcing desperate peasants into everything from
crime and illicit crops to illegal migration," says Nestor Osorio, a
Colombian who heads the International Coffee Organization in London, which
represents producing nations. He predicts more tragedies like that which
befell 14 out-of-work coffee pickers from Mexico's Veracruz state. They died
of dehydration in Arizona in May 2001 while trying to cross the Sonoran
desert to a new life in the U.S.

Until the 1990s, the desire for international security made propping up
coffee prices a crucial instrument of U.S. foreign policy toward places such
as Nicaragua, where coffee supports more than 40 percent of the rural labor
force. The world's most-traded commodity after oil, coffee was seen during
World War II as key to thwarting the spread of fascism among German
immigrants in countries such as Guatemala. During the Cold War, coffee
wasn't only a morning pick-me-up but a bulwark against Communism.

At the time of the 1962 Cuban missile crisis, Sen. Hubert H. Humphrey told
Congress that ensuring healthy coffee prices for Latin American campesinos
"is a matter of life and death. ... Castroism will spread like a plague
through Latin America unless something is done about the prices of raw
materials produced there."

That year, 66 coffee-importing and -exporting countries created the
International Coffee Agreement. The deal imposed strict limits on each
exporting nation. Actively promoted by the U.S., the world's largest coffee
consumer, the agreement artificially propped up prices for nearly three
decades. But when the Berlin Wall collapsed in 1989, so did the coffee deal.

In its place arose a new ideology of free trade, championed by the U.S. Many
producing nations ended coffee-buying and stockpiling programs that
controlled supply. That enabled Procter & Gamble, Nestle and other large
foreign buyers to purchase directly from relatively small growers, giving
the buyers more muscle to negotiate favorable prices. The result:
free-for-all coffee exports and a production boom that continues to generate
more beans than the world needs.

Brazil and Vietnam, which emerged as a coffee-growing giant in the last five
years, have flooded the market in a battle for dominance. That has left the
global market with an annual coffee excess of almost two billion pounds.

At the end of the 1980s, coffee-exporting nations received about $10 billion
of a $30 billion annual retail market. Today, the total market has nearly
doubled, but with big buyers able to play growers against each other,
exporting countries receive less than $6 billion, according to the
International Coffee Organization.

Coffee prices on New York's Coffee, Sugar and Cocoa Exchange -- which
provides the industry with its benchmark for beans -- currently hover around
50 cents a pound, down more than 80 percent from their brief peak of $3.15
in May 1997. But production costs in Central America are about 80 cents a
pound. That adds up to insolvency for many farmers.

"On my farm, I usually have about 100 permanent workers, but now I have just
20," says Jose Angel Buitrago, who has grown coffee in Matagalpa, Nicaragua,
for 30 years. "I'm out of money, and in the next few weeks I'll have to let
them go, too. They'll end up on the highway begging for food." When they
have work, coffee pickers earn less than $2 a day in most of Central
America. Mr. Buitrago is lucky to have held out this long. Neighboring
farmers have already abandoned the business, leaving their land overgrown
with weeds.

The social impact on countries still emerging from the debt crises and wars
of the 1980s and 1990s is profound. In Central America and Mexico -- where
some of the world's highest-quality coffee is grown -- the World Bank
estimates that 600,000 permanent and temporary coffee workers have lost
their jobs in the past two years alone. Relief agencies estimate more than
1.5 million peasants in the region lack food.

In Guatemala, where a 36-year civil war with rural guerrillas ended in 1996,
relief workers say about 6,000 children of out-of-work field hands face
starvation -- a situation exacerbated by a fierce drought. U.S. government
officials say struggling coffee growers in Colombia who had resisted the
drug trade are now turning to heroin poppies for a living.

The collapse of coffee prices has been a boon for the big companies that
process the beans and sell the final product. While prices paid to growers
have tumbled more than 80 percent since 1997, average retail prices for
ground roast coffee in U.S. cities have fallen only 27 percent, according to
the U.S. Bureau of Labor Statistics. Accordingly, the price differential
between international wholesale and U.S. supermarket prices ballooned to
$2.54 in May, compared with $1.50 five years ago.

Increasingly, big corporate buyers are substituting less expensive "robusta"
coffee from Vietnam and Brazil for the higher-quality "arabica" variety
commonly grown on the cloud-wreathed mountain slopes of Central America. "Up
to 75 percent of a typical can of coffee is now made up of the cheap stuff,
which they then cut with Central American or Colombian (arabica) beans so
your coffee doesn't taste like a shoe," says Eric Poncon, director in
Nicaragua of ECOM Group. ECOM, a major coffee trader and unit of Brazil's
Esteve SA, does business with Kraft and the other big coffee sellers.

Some of the industry's leaders have taken note of the widening gap between
the haves and have-nots. In March, Howard Schultz, chairman of Starbucks
Corp., urged fellow coffee executives in a speech at the National Coffee
Association's annual meeting to "share the blanket" of prosperity with
growers. The Swiss Coffee Federation has called for an "ethical coffee tax"
of more than one cent per pound to be invested in community programs in the
developing world -- a proposal the industry hasn't rushed to embrace.

Human-rights advocates and others in the so-called fair-trade movement have
pressured big companies to pay coffee prices that will sustain poorer
growers. Some upscale coffeehouse chains, including Starbucks, now pay a
premium for quality coffee. But bigger buyers typically don't.

Rather than pay above-market prices for coffee, says P&G spokeswoman Tonia
Hyatt, the maker of Folgers prefers to provide community aid. She says the
company's offices in Mexico, Brazil and Venezuela contributed a combined $10
million last year for things such as community health centers and schools.
"We care very much and want everyone in coffee to have a sustainable
business along the whole line," she says.

Kraft, Sara Lee and Nestle say they, too, go out of their way to help small
growers. Sara Lee says it tries to buy at least 10 percent of its coffee
from small planters and cooperatives. Nestle buys 13 percent directly from
farmers, "ensuring that they receive the full value of their crop," says
spokesman Francois-Xavier Perroud. But he adds that increasing demand for
coffee "is the best way to ensure a long-term future for the farmers." Kraft
has helped educate Peruvian growers, among other programs, but it, too,
believes that its "most important contribution" is to promote demand, says
spokeswoman Patricia J. Riso.

Coffee consumption in the U.S. is growing by about 1 percent a year, but
that offers no panacea. Per capita consumption in the U.S. is about 20
gallons a year, down from about 37 gallons in 1970.

Sara Lee's coffee-and-tea division had sales of $2.9 billion last year and
income "after accounting for non-recurring items" of $495 million -- its
best financial results in at least five years, says spokesman Joost J. den
Haan. P&G'S coffee business, with about $1 billion in annual sales, had "a
record year" in 2001, according to the company's annual report. P&G declines
to comment on coffee profitability, as do Nestle and Kraft. But Nestle did
say that coffee sales by volume hit a record in 2001.

To farmer Buenaventura Gutierrez, sitting in the dusty headquarters of the
Nicaraguan Coffee Growers Union in downtown Jinotega, corporate talk of
sustaining small planters sounds hollow. "In two or three years, most of our
industry will be gone," he predicts. "This is dangerous because we are still
coming out of a revolutionary, guerrilla environment in this part of
Nicaragua."

No one believes Nicaraguans are inclined to take up arms again. But the
coffee crisis is complicating a fragile political situation and eroding
confidence in the free market.

Coffee-related protests and the restructuring of coffee debt have become
daily thorns in the side of the new administration of Nicaraguan President
Enrique Bolanos. In the impoverished countryside, frustration is keeping
alive the political hopes of former President Arnoldo Aleman and former
Sandinista leader Daniel Ortega.

The rehabilitation of coffee fields after the devastation of war and
Sandinista mismanagement was a pillar of the government of Violeta Chamorro,
who defeated Mr. Ortega at the polls in 1990. "We all just wanted to forget
politics and get back to work," recalls coffee grower Miguel Gomez, a former
Sandinista official.

In the 1990s, some plantation owners who hadn't been in the coffee business
took advantage of loan programs offered by the government and a regional
development bank. "Though coffee has been in Nicaragua for well over a
century, a lot of the businesses are relatively new, with very small capital
bases and lots of debt," says Julio Solorzano, a coffee grower and special
adviser to the Ministry of Agriculture.

The borrowing continued through the mid-1990s as frosts affecting Brazil's
huge crop helped boost international prices temporarily. By 2000,
Nicaragua's 32,000 farms had boosted coffee crops back to 1979 levels. But
by then, falling prices had rendered grower debt, estimated at $100 million,
more difficult to pay off. While the cash-strapped government is trying to
help growers postpone repayment of some of what they owe, there is little
money to help starving field hands, officials say.

Mr. Solorzano, one of the struggling growers, struck a deal with his
remaining workers: They get paid two weeks salary for every three weeks they
actually work. His employees, rather than lose their jobs, agreed to let him
try and make up the difference at some point in the future.

Other farmers talk of switching crops. They are discouraged, however, by the
experience of farmers who have grown peanuts and sesame. Those growers now
find themselves on the verge of bankruptcy after trying to compete against
U.S. farmers receiving generous subsidies from Washington.

With a lack of competitive alternative crops, "the only viable
diversification alternative for workers is mass migration," says Mr. Poncon,
the coffee trader. An estimated 400,000 Nicaraguans now live in Costa Rica,
many of them recent arrivals. They scrounge for work in competition with
Costa Ricans unhappy to be their hosts.

The coffee crisis has prompted some fanciful proposed solutions. In Mexico,
state oil company Petroleos Mexicanos has been looking at the possibility of
using excess coffee to absorb oil spills. Other ideas include using coffee
as animal feed and as fuel. International charity Oxfam has suggested a mass
destruction program funded by a windfall tax on the big international
companies -- an approach the companies reject.

The answer for a handful of Nicaragua's best-run farms is selling to the
so-called specialty coffee market, which pays a premium for top-quality
branded coffee. But this niche market is small -- about $100 million a year
-- and the high-end brands have a hard time winning supermarket shelf space
when pitted against powerful marketers such as Procter & Gamble.

The U.S. National Coffee Association is hoping to stimulate more consumption
by focusing "on more scientific research on the health benefits of coffee,"
says Robert F. Nelson, the trade group's president. "There's a lot of bad
science out there," he says.


********************************************************************

Out-Of-Work Nicaraguan Coffee Workers Beg for Help

By Ivan Castro
Reuters
Wednesday, June 12, 2002

MATAGALPA, Nicaragua‹Thousands of unemployed Nicaraguan coffee workers,
struggling to find a way to survive the third year of a global coffee
crisis are again lining the nation's highways to beg for help.

A crisis of low international coffee prices has left hundreds of thousands
of workers without work. Now, like last year, they are abandoning the fields
to mount protests along stretches of highway. Some have spent the last month
on the roadsides.

"We beg for money in the street from buses passing by, and with what we
collect, we buy rice for everyone to eat," said 38-year-old Felipa Jarquin
as she stirred her cup of coffee, hoping its grounds might predict a
brighter future.

Coffee prices have plummeted since 1999, and with production costs in
Central America now nearly double what the beans fetch on international
markets, farmers can no longer afford to pay workers like Jarquin, a veteran
employee at a now bankrupt plantation.

Nearly 3,000 workers have staged daily sit-ins during the past month at
roadside spots on a highway running from Matagalpa to the town of La Dalia,
110 miles (180 km) north of the capital of Managua.

The peasants survive on a diet of fruits, like the bananas they gather from
Matagalpa's green mountains, and the little rice they can buy with money
collected at the protests.

"There is work, but why do the work if the bosses say they cannot pay us?"
said Henry Diaz, a 17-year-old protester.

A BLOW TO HEART OF COFFEE LAND

Nicaragua's northern provinces of Jinotega and Matagalpa are at the center
of the nation's coffee industry, with 56,000 hectares of land producing
about 60 percent of the harvest.

President Enrique Bolanos, who took office in January, has announced plans
to aid 20,000 small coffee producers and to restructure debt held by 2,000
large-scale growers.

But unions complain aid measures for small-scale growers, heavily in debt to
exporters and other financiers, are progressing too slowly. Grower Eduardo
Rizo, the leader of Jinotega's producers' union, said further layoffs are
likely if the government doesn't come through with adequate aid soon.

Conservative estimates put the number of unemployed coffee workers at about
30,000.

"That means that we're talking about 120,000 and 150,000 people who depend
on those jobs and are having problems," he said.

REGIONAL COFFEE CRISIS

While the impact of the coffee crisis on growers is worldwide, it is
particularly pronounced in Central America and Mexico.

Nestor Osorio, executive director of the International Coffee Organization
(ICO), said at a Managua growers meeting this weekend that the coffee crisis
will not be solved unless growers push their governments to put coffee on
the global political agenda.

"In Central America this has turned into a bottleneck in which possible
solutions won't be easy and where assistance from government and from
international organizations and agencies is urgently needed," he said.

Central America contributes about 12 percent of world coffee production, and
the industry is a principal source of revenue and employment in the region.

In 1997 the region had coffee-export revenues of $1.99 billion. That figure
dropped to $985.9 million in 2001, according to estimates from the Economic
Commission for Latin America and the Caribbean (Cepal).

Peasant Jarquin said growers will do what it takes to earn a livelihood,
like hopping over the border to Costa Rica, where there is a shortage of
farm labor.

"But we're going to be denouncing the fact that in our own country, they
don't listen to us and they don't pay attention to us," she added.


-- 
Deborah James, Fair Trade Director
deborah at globalexchange.org
Melissa Schweisguth, Fair Trade Coordinator
melissa at globalexchange.org
Global Exchange
415.255.7296  x245 or x352
415.255.7498  fax
2017 Mission Street #303, San Francisco, CA 94110
http://www.globalexchange.org/coffee
http://www.globalexchange.org/cocoa

Do you support Global Exchange's campaigns for Fair Trade?
Make it possible for us to keep working with farmers to achieve
the economic justice they deserve.  Become a MEMBER of
Global Exchange at http://store.globalexchange.org/joinus.html


_____________________________________________________________________
Global Exchange                         http://www.globalexchange.org
To unsubscribe, email fairtradelist-request at globalexchange.org with
   unsubscribe
in the body of the message.