John Talbot’s path-breaking work on coffee and the ICA, drawing on a global value chain approach, more effectively gets at the capitalist drives underpinning the global coffee industry. Whereas conventional economic trade theory tends to assume that trade participants are independent from one another, connected by only isolated economic transactions, the global value chain approach points out that officially independent firms are linked through informal institutional frameworks coordinated by “lead firms” that “govern” the commodity chain based on their economic dominance over such things as market access and information. Using this approach, Talbot has effectively demonstrated how “collective action” among producing states was able to provide higher and more stable prices than was the case before or after the ICA.11
The argument I provide here around coffee statecraft draws on Talbot’s insights, while making divergences from the global value chain approach, which has been criticized for an overemphasis on economic agents, in particular transnational corporations (TNCs), at the cost of downplaying the significance of other actors, such as states, social movements, and international regimes.12 The state, in particular, is not just one player among others fighting for its share of the wealth, but is central to creating and reproducing the very social relations that underpin the entire global coffee chain. Much global value chain work tends to make too firm a distinction between when a chain is dominated by economic and when by political governance, whereas both are always present.
Building on and departing from these works, I argue that the complex relationship between the modern state and the global coffee market can be further understood through the idea of “coffee statecraft” – a term drawn from Peter Gowan’s insightful use of “economic statecraft.” Of particular importance is David Harvey’s understanding of the geostrategic interests of capitalist states being primarily driven by two logics, a “territorial logic” and a “capital logic,” intertwined in a relationship that can be compatible, competing, or contradictory, depending on the specific context. The “territorial logic” involves the considerations of political leaders as they seek power for their state over other states. For coffee exporting countries, this includes defending and promoting the interests of their national coffee sector, essential for the state in providing revenue (through tariffs and other forms of taxation), employment, economic and social stability, and institutional legitimacy. The coffee sector, in turn, exercises influence over state priorities depending on their overall economic weight, control of major media and information outlets, and direct influence over government through political contributions, donations, and bribes. Importantly, territorial logic is not confined to direct political or military activities, but also entails Gowan’s notion of “economic statecraft”: the strategic use of market management by capitalist states to gain advantage or power over others.13
The “capital logic,” in contrast, involves state action to develop, protect, and reproduce on a global scale a capitalist economy, based on specific social relations and commodity production. This includes protecting private property, managing class conflict (through coercion or social reform), defending the interests of capital at home and abroad, and, as Ellen Meiksins Wood has argued, ensuring the artificial separation between the economic and political realms required for the capitalist economy to function.14 State and state policy makers in the modern world are far from autonomous, but rather must constantly respond to the imperatives of the economic system upon which the state is built. This means that the capitalist state must work to ensure the relatively smooth functioning of the capitalist economy – which is never guaranteed. It also means that the state must disproportionately respond to the needs of dominant classes – local and transnational capital that possess immense economic power well beyond that of mere “special interest groups.”
The relationship between the “territorial” and “capital” logics can be relatively harmonious or conflict-ridden, depending on the particular context. As we will see in the chapters that follow, the history of coffee is replete with examples of coffee states employing authoritarian violence to defend highly unequal distributions of land and resources in the interests of domestic agrarian elites and transnational companies (the capital logic), only to be confronted by social protest, social revolution, and civil war from below (significantly disrupting the territorial logic). In other cases, states have been able to more effectively manage the competing logics, as has been the case in Costa Rica, where short-term pain imposed on the agro-industrial elite (through taxation and other forms of state management) ultimately resulted in a highly efficient coffee economy and significant social welfare gains for broad sectors in society.
The coffee market
On this framework, this book sets out to demonstrate how coffee statecraft plays a key role in driving the global coffee industry. States not only intervene in markets more than we might think but set the very context in which markets operate: enforcing private property; managing (or mismanaging) social conflict and political stability; providing countless rules and regulations concerning everything from legal contracts, domestic currency, foreign exchange, and international treaties to labor rights and family law; and constructing a wide range of public infrastructure, from roads and telephone lines to schools and water systems. States and markets in a capitalist economy are inextricably intertwined. This book seeks to reassert the centrality of states to the global coffee economy, while not losing sight of the fact that global markets underpin major economic imperatives and private institutions (such as the TNC) that can be more powerful than individual states, depending on the state in question – Burundi is obviously much less able to impact global markets and giant transnational companies than is the United States or Brazil. Two characteristics of the global market, in particular, have been particularly dominant in the coffee world and are widely discussed and debated: extreme market volatility, and intense corporate oligopoly.
Market volatility and the coffee rollercoaster
Coffee’s trade and production pattern strongly exemplifies one of the key problems facing most tropical commodity industries: price volatility and declining terms of trade compared to manufactured goods. This leads to intense cycles of boom and bust, causing periodic crises for small farmers and rural workers. Conventional trade economists have tended to view these cycles as distortions in the market, which is assumed to move toward equilibrium if left unhindered. They are, however, systemic to most commodity trading due to the need for individual farmers to produce goods for the market without certainty that buyers will exist to purchase them, or that competitors will not absorb the demand that they thought existed earlier.15
The global coffee market has been particularly subject to the “commodity problem” due to the specific nature of coffee cultivation, especially for the most popular Arabica beans. Unlike many other crops, such as wheat and corn, Arabica beans are grown on perennial plants that take three to five years to mature and require a major commitment of capital. During the boom, prices are artificially high as new trees mature, leading farmers to plant even more trees in expectation of continued high prices. This sets the stage for an eventual glut in supply and a bust in prices, by which time farmers are unable to easily switch to other commodities due to relatively large amounts of fixed capital they have invested in the coffee trees.16 This extreme boom and bust cycle has made the global coffee chain the frequent target of an array of state and non-state-led development initiatives (perhaps more than any other global commodity) as well as the site of intense levels of corporate concentration and control.
Corporate oligopoly and coffee giants
A process of intense corporate oligopoly has mirrored market volatility in the coffee chain. Unpredictable market patterns make it very difficult for smaller companies to survive while giving incentives to larger companies to grow ever bigger, enhancing their ability to profit despite market downturns. Northern-based transnational coffee retailers and roasters at the top o
f the global coffee chain have the ability to manipulate global prices in their favor, artificially increasing the gap between the relatively low “farm gate” price paid to farmers for unprocessed green beans and the higher prices paid for roasted beans on retail markets. Coffee giants possess significant advantages over smaller competitors due to their economies of scale, massive marketing budgets and “brand power,” access to new technologies and innovations, and political influence, required for promoting domestic and international policies favorable to corporate interests.
Far from a world of free trade, the unstable and competitive nature of the global coffee market has resulted in a long historical process of bankruptcies, mergers, and acquisitions that has eroded competition and shifted volatility into the hands of the poorest and most vulnerable workers and farmers. During hundreds of years of colonialism and slavery beginning in the fifteenth century (discussed in chapter 2), the global coffee trade was created and expanded by large colonial companies granted official trade monopolies by their imperialist home states in Europe. Starting in the nineteenth century, these companies were broken up in favor of private corporations that gained ever more control over the import, processing, and distribution of coffee. Throughout the twentieth century, corporations used their economic power to expand coffee consumption by ensuring a steady supply of cheap coffee beans and conducting multimillion-dollar marketing campaigns designed to persuade people to drink more and more coffee. The high costs of these efforts spurred further corporate concentration: in 1915, there were over 3,500 roasters in the United States; by 1965, there were only 240, and the top eight accounted for 75 percent of all coffee sales.17
Today, the global coffee chain is dominated by immense trading companies that frequently trade in multiple commodities; oligopolistic supermarket chains that dominate access to major consumer markets; and, above all, transnational roasters that coordinate the processing and distribution of the finished product. Roasters have been consolidating their control over the global industry, especially since the 1990s, developing special relationships with major retail supermarket chains, taking ownership of their own trading companies, and developing direct arrangements with enormous Southern coffee plantations based on private contracts. Five roasters now dominate the global coffee chain, accounting for nearly half of the world’s supply of green beans: Kraft Foods Group buys just over 13 percent of the world’s total, followed by Nestlé (13 percent), Sara Lee (10 percent), Procter & Gamble (4 percent), and Tchibo (4 percent). The largest companies control multiple coffee brands, manage countless products beyond coffee, and possess immense economic weight. Nestlé, for example, is the world’s largest food company, with combined assets in 2012 worth over $122 billion, roughly equivalent to the GDP of the world’s second largest coffee exporter, Vietnam, and its 88 million inhabitants.18
Trends toward corporate oligarchy have been partially diverted since the early 1980s with a boom in specialty coffee sales, which now account for over one third of the US coffee market, the largest single coffee market in the world. This has spurred the growth of small, independent coffee houses, so that there are currently around 1,200 roasters in the United States. The historical pattern toward corporate concentration, however, is increasingly apparent within the specialty coffee industry. Starbucks Coffee Company, the largest specialty roaster in the world, began with a single store in 1971 and now operates over 19,000 stores in 62 countries. Starbucks’ net revenue in 2013 for its “Americas” segment (including stores in the United States, Canada, and Latin America) was equivalent to around one-third of the retail value of the entire US coffee market.19
The flip side of corporate concentration and power at the top of the coffee chain is the vulnerability and lack of power experienced by the majority of the world’s coffee growing families in the South. To highly varying degrees depending on the country in question, coffee growing is dominated by powerful classes of plantation owners and agro-processing elites that possess extensive transportation and processing infrastructure; employ low-paid, highly vulnerable workers; have considerable political influence over local and national states; and utilize their economies of scale to make profits even under price conditions that would otherwise be highly destructive. The vast majority of the world’s coffee, however, comes from small farmers who lack market power, sufficient resources, or significant political influence, and seldom have viable “exit strategies” into other livelihood options. They are highly vulnerable to the demands of the global market and the coffee giants that dominate processing, shipping, and distribution at the international, national, and local level. This extremely uneven process – a world apart from a neutral exchange between willing and autonomous market agents – ensures great wealth for a few and relative poverty for the majority.
Coffee and “free trade”
In seeking to account for uneven development and inequality in the coffee world, much of the popular debate has been framed around issues of “free trade,” with opponents and proponents arguing for or against it. In this book, however, I will argue that there has never been any genuine “free trade” within the coffee industry to speak either in favor of or against – it is, in many ways, a “red herring” in seeking to understand and address poverty and inequality in the coffee world.
The idea of free trade has a long history dating back hundreds of years. Its recent popularity, however, has been driven by the rise of neoliberal policies to hegemonic status among wealthy states and international financial institutions beginning in the 1970s. Neoliberals are opposed to what they see as state “intervention” in the economy, which they feel distorts supply and demand, wrecks the market signals they produce, and leads to inefficiency and waste. Consequently, they call for the state to remove itself from the market and let it operate “freely.” The notion that this can even take place, however, requires a leap of faith far removed from the actual history of capitalism and world trade. Throughout modern history, the capitalist state has played a central role in creating the conditions for a capitalist economy to operate. Moreover, the state has been particularly present among the most successful capitalist economies. It has been widely documented that both rich Northern nations and rapidly growing Southern economies today have all developed with a variety of protective mechanisms in place, including import controls, tariffs, levies, quotas, and preferences designed to protect domestic and promote export industries.
Given the messy history of capitalism and the role of the state, the ideas around removing the state from the market are generally premised on economic formulas and mathematical modeling based on what a free trade world should or could look like. Real world trade is then measured up against these models to determine how various “imperfections” can be eliminated. This approach, grounded in “neoclassical economics,” has long been critiqued for being based on an array of speculative foundations, including the assumption that people are primarily self-centered, individualist, and competitive, and that the market is always moving toward an eventual state of “equilibrium” – as opposed to constant change and frequent chaos.20 Regarding trade specifically, such economic modeling has been used to assert and defend the benefits of “free trade” and the search for “comparative advantage,” while neglecting a variety of real-world factors, including the many ways in which the ideal of comparative advantage is hindered or blocked entirely by imperfect information, the limits of existing technology, geography, historical path dependence, the fixed cost of existing infrastructure, and the skill set of the existing workforce.
Moreover, while free traders want to see politics removed from trade, very often politics has played the key role in formulating and reproducing actual trade patterns. Historically, colonial powers imposed trade relations on subjugated regions through direct political violence to the benefit of imperial states, many of which proclaimed themselves to be “free traders,” and the disadvantage of colonized states in the South. In the contemporary context, politics continues to be a dr
iving force behind trade and trade agreements. This includes the preponderance of “free trade” agreements, which have been widely criticized for being ineffective at evenly eliminating trade barriers while containing components that go well beyond trade, such as extensive protections for intellectual property and corporate investment rights. Well-known economists from different political positions have noticed this discrepancy, calling for genuine multilateral free trade and blaming “ideology” and “politics” for distorting economic policies that are sound in theory.21
And yet, while noting the distorting effects of politics and ideology, economists in general have continued to pursue and promote economic trade theory with these factors left out, or introduced on the sidelines as “imperfections.” Politics and ideology, however, are central to human life and cannot be separated from economics in this way. “Free trade” is in fact central to understanding the global coffee industry, but not from the vantage point of mainstream economics. Rather than being merely an objective technical or policy issue, “free trade” is a complicated political, economic, and ideological “package” rooted in complex social, historical, and cultural forces.22 Politics and ideology are not side issues for free trade, but rather central to it, often more important than the genuine free trade of goods, which generally does not exist in world trade. Addressing this, Jodi Dean has developed the idea of the “free trade fantasy,” reproduced through the efforts of the corporate media and of rich and powerful research centers and “think tanks” that produce “knowledge” biased in favor of the interests of economic and political elites and dominant states. The power of the free trade fantasy, argues Dean, is to “link together a set of often conflicting and contradictory promises for enjoyment and explanations for its lack (for people’s failure to enjoy despite all of the promises that they would).” Despite history and current events revealing major oversights in the expectations of free traders, proponents continue to insist that these instances are mere deviations from how the world should operate, fulfilling what Dean refers to as “the ‘excuses, excuses’ role of fantasy.” The free trade fantasy fills in for the lack of actually existing “free trade.”23
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