Cup to Seed: Does specialty coffee help or hurt farmers?

November 6, 2008 – 3:59 pm

Note: This is a bloggy draft. It encapsulates the arguments put forth at last weekend’s staggeringly comprehensive Coffee Conference, on the moral, economic and social aspects of our second-largest commodity. It is likely to evolve. For now, it represents a series of unusual and unanswered questions for specialty coffee and the market as a whole. Feedback welcome. Related discussion here.

Carlos Roberto Sáenz remembers an incident, as a 10-year-old, when trucks carrying roughly 50 masked gunmen pulled up to his family’s third-generation coffee farm in the middle of Guatemala’s bloody, 36-year civil war. The visit made palpable a threat that anyone farming coffee in those days already knew — the farm could go away at any moment, burned to the ground, the farmers kidnapped, more of Guatemala’s storied plantations left smoldering. Nothing calamitous happened that day, though Sáenz’s family continued to pay arbitrary and exorbitant taxes in an effort to purchase their relative stability until the war ended in 1996.
 
Sáenz is now the fourth-generation operator of Finca Las Brisas, and has himself decimated what the armed band left untouched, torching acres of coffee plants and the environmentally ideal shade trees that covered them. It was a desperate effort to climb out of debt and sustain what’s left of a family and national legacy. The move clearly haunts Sáenz. But so do his farming loans, some of which carry interest rates of as high as 24 percent.
 
PowerPoint photos of his now-sparse landscapes flipped before a silent group of academics, economists and coffee industry stalwarts last weekend, to the soundtrack of a doleful Enya tune. Sáenz, in a speech jolting for both its dire assesment and matter-of-fact tone, explained how he has diversified to cattle and rubber trees, started offering coffee tours, explored hydroelectricity using local river water — anything to augment a shrinking revenue stream.
 
He also bought a small roaster, and began making money in way almost unheard-of until recently: by selling the stuff to locals, roasted and bagged and not at all the leftover dregs of the crop that they’re used to. Many coffee farmers have never tasted their product. Sáenz is being forced to take control of the entire coffee-making process, or give it up entirely.
 
Sáenz gives a double-barreled reason for this agonizing wane in his livelihood: the global fall-off in green coffee prices — which economists say was comparable to Great Depression rates as recently as 2004 — and the rise of higher-altitude coffee farms that cater to specialty coffee buyers, who pay a premium for crops that deliver exceptional quality and taste.

He can do little about either trend. The historically low market prices, in his view, are the fault of cheaply produced coffee in Brazil and Vietnam. And although much of Guatemala offers ideal mountain growing conditions, Sáenz’s farm isn’t as well situated as those where hard-bean crops develop more slowly and offer the subtle, fruited flavors so prized by American coffee snobs. He’s pursuing quality, Sáenz says, but there’s only so much he can do.

Playing with fire
Sáenz’s story, presented at Miami University’s conference on the “moral, economic and social life of coffee” last weekend, underscores some grave economic questions facing the coffee industry at large and the specialty market in particular, which has of late trumpeted a direct-trade coffee buying model that proponents say is the key to more fairly compensating farmers.
 
However, the picture that emerged from economic data, trade history, industry test cases and farmer accounts was of a specialty market whose strategy of cultivating sustainably good coffee is at best extremely limited and at worst perversely detrimental to the very slice of the coffee industry it aims to help: farmers.

Saenz’s predicament is echoed around the coffee-producing world, where growers are feeding a Starbucks-driven caffeine frenzy in consuming countries while getting prices so low they can barely stay afloat. Kennedy T. K. Gitonga, a research officer and economist in Kenya, said the average age of coffee farmers in his country, one of east Africa’s most successful and innovative exporters, is now 56, because the younger generation sees no future in it.

From a high of 3 million bags a year in the 1970s, Kenya now produces 850,000 a year, though the name Kenya AA may be more familiar now than it ever has been.

In Burundi, 67 percent of coffee farmers fall below the poverty line — defined as income of less than $1 per day — and fully half of all coffee-dependent households fail to see any profit, though in many cases they continue because coffee farming opens the door to things they need, like regular cash and fertilizer, said Quentin Wodon, a World Bank economist who specializes in coffee.

Wodon, a fast-talking Frenchman with a wealth of data on the tip of his tongue, dismisses high-end specialty coffee as a niche that offers a select few farmers unusual prices but that has no effect on the poverty of farmers overall.

Ernest Carman, a Costa Rican farmer, said the price he gets per 100 pounds of coffee has remained unmoved for years, though the cost of labor and pest control has skyrocketed. Even Price Peterson, whose fabled Panamanian farm produces the most expensive specialty coffee in the world at prices that exceed $100 a pound — unroasted — told conference attendees that in order to stay alive farmers have two options: find ways to grow cheaper, or shoot for the heady prices specialty buyers can bring.

Given all the quality benchmarks a farmer can pursue — proper picking, attentive processing and careful shipping — the one thing that still stands in the way of specialty coffee, Peterson said, is altitude.

On its face, this appears to rule out the great, struggling middle of coffee farmers, the Saenzes, who can neither produce high-altitude gems nor the cheap industrial commodity of the vast lowlands of Vietnam.

This may seem ideal, from a specialty standpoint. If there’s less middle-grade coffee, then the choice between specialty and commodity brew becomes more obvious, no? What’s at stake, however, is the balance of trade at large. You should care, said Stuart McCook, a coffee historian at Ontario’s University of Guelph, because specialty coffee is relatively small — 20 percent is a generous figure — and because low-grade, anonymously sourced coffee sustains millions of people and entire economies. In that sense, it also sustains specialty coffee.

Does trickle-down work?
McCook suggests that the “seductive trajectory” of the American coffee story is part of the problem, because it’s deceptive about the past and unrealistic about the future. The commonly told story arc has commodity-grade Folgers giving way to status-conscious Starbucks and then to responsible, high-quality estate brews, and assumes by implication that someday soon most coffee will be sustainable and “good.” A look at history suggests this is unlikely. McCook charted the spectacular rise of low-grade, or robusta, coffee (from zero percent of the trade in 1900 to 35 percent now) and compared it to a high-end movement dependent on a more finicky arabica coffee plant known for “chronic overproduction” and catastrophic disease. Such a market, by implication, is unlikely to put much of a dent in the broad patterns of societal consumption.

Indeed, one of the most powerful and dangerous pieces of propaganda for capitalists is the notion that a thing can start out as a rare luxury and move toward a democratically consumed “good” item, said Bruce Robbins, a literature professor at Columbia University who made few friends at the Miami conference by referring to the specialty pursuit of coffee as “pathological” and a “fetish.”

His point, however, bears scrutiny if for no other reason than it describes exactly what champions of the specialty coffee establishment see as their great social mission: find great, rare coffee where it exists, pay the farmer a premium and then sell the delicious taste married to an estate brand, creating a luxury market along the way that will revolutionize the masses the way high gravity beer and single-origin chocolate have changed consumption in those sectors.

This is trickle-down economics, whereby the dramatically higher prices paid by a few (customers) to a few (farmers) is assumed to have a broader effect on the market overall. The more customers willing to pay $4 for a cup of Panama Carmen estate, the more farmers can get in on those kinds of deals.

There could hardly be a more difficult time to defend trickle-down economics, given the economic impotence of the Bush Administration tax cuts and the origins of the current financial crisis. But if you were to defend such a maligned economic approach at a time of widespread unpopularity, you’d want George Howell on your team.

Howell is a storied figure and ripe for parody. He is slightly stooped and gregarious. Unlike many in the specialty business, he says he does drink poor coffee while traveling, masked heavily with cream and sugar. In speeches, he is so effusive in his promotion of “transparently” stunning coffees and his derision of lesser varieties that his hand-waving, sing-song delivery can sometimes seem gleefully condescending. (Kopi Luwak, the expensive coffee famous for its sojourn through the digestive tract of the Asian palm civet, is coffee “from assholes for assholes.” Barista competitions, where competitors are judged on the taste of their espresso beverages, are actually obscuring excellent coffee by promoting the latte “craze,” according to Howell.)

Howell presumably got rich by selling a highly successful Boston chain of coffee shops to Starbucks in 1994. He helped found the Cup of Excellence competitions that reward farmers in producing nations for high quality through competitive coffee auctions. He has pioneered lighter coffee roasts to uncover layers of flavor and is pushing to eliminate the traditional but disastrously porous jute coffee bags for green product traveling to the States. His contributions to the high-end market are virtually unparalleled.

Howell’s fundamental belief, as expressed at the Miami conference, is that a “luxury” coffee market analogous to that of top-shelf wine is “the answer” to the question of economic sustainability. “This is the answer!” he said repeatedly. To visualize this, Howell presented a slide show that included the simple animation of an arrow with a large, pyramid-like head. At the bottom of this pyramid is the wide base of commercial-grade coffee, with various strains of specialty coffee in the middle. At the top of the pyramid, at the point of the arrow, is luxury coffee — a tiny percentage of the whole but vital, he argues, to changing coffee’s economics. Without this point, the arrow doesn’t pierce the target.

Geoff Watts, a globetrotting coffee buyer for Intelligentsia Coffee and Tea in Chicago, espoused something similar in a presentation that highlighted his company’s widely recognized model for working directly with farmers. By creating a retail market for exquisite, accessible coffees — and charging more for the drinks — such buyers are able to pass more money through to the farmer.

Ken Davids, a longtime coffee author and reviewer of high-end offerings, bolstered the general argument by telling attendees that “prestige” coffee is the goal, the trigger for an economic tide that raises all boats.

This logic is so simple, so graspable and so commonly cited by advocates of sustainable agriculture, that it’s become sort of an article of faith. It’s also makes for compelling narrative, offering American coffee junkies the guilt-assuaging option of buying coffee that’s “fair” in both senses of the term — it’s equitable, and a beautiful thing to drink. However, advocates often use terms like “allow” — as in, “Charging more only allows us at the Organic Coffee Cartel to give back more.” And yet, how many will do this?

The approach doesn’t sit well with Wodon, whose job it is to study ways of lifting coffee farmers from extreme poverty in a country that produces no specialty product to speak of. The excitement generated by high-end direct trade can be good, he told Howell, but it has no impact on stricken Burundians whose livelihoods can be lifted through the smart development of less-than-stellar coffee.

Howell responded that the Burundian farmers are “burdens” that need to be made “contributors” — a classic argument of trickle-down economists and proponents of regulated capitalism. Wodon was incredulous. There were scowls all around.

Lower prices vs. higher prices
Perhaps the most devastating critique of the specialty coffee model came from Manoel Correa do Lago, a Rio de Janeiro exporter and economist whose droning, heavily accented argument and yellowed overhead transparencies must have passed right by many conference attendees who dozed off or left the room in the thick of the afternoon. The economists, in general, seemed to provoke little interest.

The crux of farmers’ well-being, Correa do Lago says, is consumer demand. Coffee farmers in Brazil can — and have — made extraordinary gains in productivity, he said, but if consumer demand doesn’t increase along with more efficient production, then farmers don’t see any benefit. Instead, wealth is transferred to consumers by way of oversupply and lower prices.

The way to benefit broad swaths of coffee farmers — and thus make the market as a whole more sustainable — is to increase consumer demand. This, of course, isn’t done by raising the price of a cappuccino; it’s done by lowering it. To that end, Correa do Lago also criticizes coffee industry groups that worry more about how to divide the coffee cake — specialty versus commodity, robusta versus arabica — instead of devoting their muscle to making the entire cake bigger.

I asked Correa do Lago if this is an argument for artificially lowering retail prices. He insists that it isn’t. Instead, he suggests that the open market for coffee be made more transparent. If green coffee prices were widely published the way Americans keep track of their other biggest import — the barrel price of crude oil — then consumers would come to expect a cheaper cup of coffee when those commodity prices tracked lower, and retailers would have to offer those savings the same way public pressure helps push down gasoline prices at the pump.

As it is, commodity coffee giants such as Nestle have the clout and market share to buy huge amounts of green coffee at the going price, then hold steady or increase what it charges consumers even while green prices plummet. This, of course, fattens company profits and could actually be abetted by a specialty coffee sector that’s helping to create the expectation for higher retail prices.

This vast inequality of wealth continues unfettered while direct-trade coffee relationships create the illusion that the industry has “arrived” at fair farmer compensation, Correa do Lago told me. What’s more, he believes that most direct-trade contracts actually provide only minimal gains for individual farmers, year-to-year.

One point he didn’t mention was that if retail prices trend higher, then consumers may be quicker to cut coffee spending when the economy gets tight. Such is our current climate of plummeting consumer spending, which could create even more volatility in demand for vulnerable farmers.

Knowledge first
No one in Miami offered a rebuttal to Correa do Lago’s central claim that these “inefficiencies” could be eliminated if consumers were made smarter and retail prices reflected the cost of green coffee. There was almost universal agreement, however, on part of this key point: Knowledge is power.

Watts, of Intelligentsia, outlined the extraordinary gains in coffee quality when farmers learn for the first time how to taste and discern their own product — an unheard-of development in many producing countries.

Robert Rice, of the Smithsonian Bird Project, explained how coffee studies in Mexico and Jamaica prove that shade-grown coffee reduces the major farming cost of insecticide, since shade trees harbor migratory birds and migratory birds feast on one coffee’s biggest threats, the borer beetle. An Ecuador study, however, showed that too much shade significantly reduces crop production.

Armed with the knowledge that a 40 to 45 percent shade cover marks the “sweet spot,” Rice says, farmers can cut costs and boost production.

It would be hard to find a more powerful example of knowledge-spreading than Rwanda, where a massive effort to rebuild coffee production as an economic catalyst in the wake of genocide focused on degree training for coffee scientists and outreach to farmers. They learn to pay exacting attention to coffee picking, hand sorting, washing, fermentation and tasting in a strategic effort to snag higher market prices, said Abdoul Murekezi, a PhD candidate at Michigan State University who is involved in Rwanda’s PEARL Project.

Certifications, Internet access, trade shows and buyer tours help spread the knowledge and eliminate barriers to open trade, said Anne Ottaway, also of PEARL, who adds that the approach has a proven trickle-down effect on the rest of the industry. Without a doubt, this effort has been transformative to coffee farmers and the Rwandan economy. PEARL, however, is heavily subsidized by USAID. And Murekezi is studying household impact on the working poor during the 2001 to 2007 transition from commodity coffee to a more specialty crop. The jury is still out, he said, on whether cooperative coffee production or sales to the traditional market have more of an impact. His conclusions, at least, will further empower Rwandan farmers.

Even Saenz, with his small-time roasting and selling operation, is educating Guatemalan consumers on how their national crop really tastes. Bizarrely, this is a vast frontier in coffee-producing countries and a relic of the coffee trade’s oppressive, colonial roots. Saenz is creating a new market for himself, and though it’s far from clear if this strategy will work for him it raises the prospect that perhaps someday American consumers will have to vie for premium coffee with Guatemalan, Kenyan and Brazilian consumers. This, more than anything, could be what makes coffee prices more “fair.”

Debunking coffee
If anything, the take-away lesson seems to be that the seductive arc of coffee’s legend — the Dark Ages melting into a glorious “good” future — has the potential to blind. Historians tell us there is no endless positive arc of improvement. Economists tell us that the romance of specialty coffee may not only exaggerate its present value but also overstate its future impact.

This intense romanticism is nothing new to coffee and may be why the economists were largely ignored last weekend.

Commenting as an outsider, Robbins, the Columbia literature professor, remarked to conference-goers on what he saw as the uneasy negotiation over what is “good” in a coffee beverage. Goodness, it turns out, is informed by a whole host of deceptive or simply untrue stories about coffee itself.

* America’s first coffee boom, for example, wasn’t sparked by the Boston Tea Party, as many history books have it, but instead was the byproduct of the slave trade, in which empty ships coming from South American had to carry something. In this way, it was actually the rapid expansion of coffee farms in Brazil that pushed down coffee prices and prompted its widespread use even among cowboys and on westward-bound covered wagons, said Steven Topik, a history professor at the University of California-Irvine.

This story is almost never told in the U.S., and it completely reframes coffee’s romantic underpinnings. It makes the “American” coffee story entirely different, and more sordid. It also happens to perfectly support Correa do Lago’s argument, in which lower coffee prices dramatically increase demand for a farmer’s product. This is, truly, a rising tide that lifts all boats.

* Or take espresso bars, the explosive popular edge of the quality movement. Jonathan Morris, a historian at the University of Hertfordshire in England, argues that Italian-invented cappuccinos first arrived in the U.S. as a way to help make Italian-style espresso — i.e. “good” coffee — more accessible to the masses, with all the shiny levers and knobs of the espresso machine and the exotic theater of those handcrafted, milky-sweet beverages. Alas, those cappuccinos never knew when to leave the party, and have became an end consumer product on a mass scale.

The Italians have taken notice, Morris said, and have proposed a bill currently pending in Parliament that would send agents around the world to check and certify if your cappuccinos deserve the Italian seal of approval. Even the government, it would seem, wishes to define “good” coffee, then overly romanticize it.

* One final example comes from Robert Thurston, a history professor at Miami, who strikingly compares the roughly parallel trends in U.S. advertising for soap and coffee from 1880 to 1935.

The contrast is revealing of the weakness for faulty coffee narratives Americans have always had. Soaps ads, it seems, carried an offensive air of whiteness during this era, suggesting the imperial west could export cleansing to more savage countries. Soap was a status symbol of the elite. It was evangelistic, prosaic and sometimes simply racist.

Coffee ads of the same period offered the philosophical opposite: It brought poetic, foreign pleasures into civilization. Coffee didn’t scrub away odors, but rather filled the nostrils with romantic scents. It was loose, and daring to consume. Coffee, in other words, was an exotic import, while soap represented a moralistic export.

Could our weakness for idyllic pseudo-narratives be any clearer?

Juan Valdez speaks
Fittingly, it was Davids, the author and taster, who offered the most incisive take on the foibles of specialty coffee by caricaturing the industry’s win-win optimism as the province of snobs and wannabes who, in search of excellence, get importers to play the game and force coffee farmers to either get rich or get out of the business.

It was a joke, and like all good jokes it hit a nerve. In one of his final slides, Davids flashed one of the hugely successful ads for Colombian coffee featuring the symbolic coffee stud, Juan Valdez. Juan is grinning, next to his donkey, and both are wearing faux-hip shades. The tagline could be modified by one word to fit the specialty coffee industry:

“Will the popularity of Colombian Specialty coffee go to their heads?” It’s possible that it already has.