Have you ever wondered why your morning coffee costs so much more than what farmers earn? Recent years have seen coffee prices soar due to unfavorable weather and supply shortages in top producers like Brazil, India, and Vietnam. However, despite the rising costs, coffee farmers receive a meager portion of the profits, highlighting a significant imbalance in the global coffee trade.
Coffee has been a cornerstone of international trade since the 1950s, once ranking just behind oil in terms of global trade volume. Today, it's considered a strategic commodity by many governments. Yet, the trade dynamics between the Global North and South reveal a stark contrast.
Countries in the Global South primarily export low-value-added unprocessed coffee, such as raw beans and dried coffee, with nations like Brazil, Colombia, Vietnam, Indonesia, and Ethiopia dominating the market with a combined 70% share. In contrast, the Global North controls the export of higher value-added processed coffee, including roasted beans and instant coffee, with Switzerland, Germany, Italy, France, and the Netherlands holding about 70% of this market. This divide is further emphasized by the dominance of major companies like Nestle, Starbucks, and JDE Peet, which collectively account for nearly 78% of the sector's top revenues.
The price disparity is glaring: processed coffee averages $14.30 per kilogram, while unprocessed coffee is just $2.40. Over the decades, the share of the market's value captured by producer countries has dwindled from one-third in 1992 to less than 10% in 2002. As a result, coffee farmers receive a mere 1% or less of the final retail price of a cup of coffee, and about 6% of the price for a package sold in the Global North.
One solution might be for producers in the Global South to develop their processing capabilities to increase the value of their exports. However, high tariffs imposed by developed countries on processed coffee—ranging from 7.5% to 20% in regions like the European Union, the United States, and Japan—create formidable barriers. While developing nations impose more balanced tariffs on both processed and unprocessed coffee, developed countries' trade policies continue to discourage value addition in exporting nations.
Despite advice from multilateral banks and research organizations urging developing countries to enhance their export value, the current trade landscape poses significant challenges. Addressing these barriers is crucial for ensuring fair compensation for coffee farmers and creating a more equitable global coffee market.
Reference(s):
cgtn.com
