CHAPTER SIX
Coffee and the non-developmental state
In 1993, just four years after the end of the ICA, over a dozen coffee exporting countries, accounting for 70 percent of global supply, formed the Association of Coffee-Producing Countries (ACPC): a cartel designed to regulate supply and halt rapidly declining coffee bean prices. Three of these countries – El Salvador, Costa Rica, and India – had previously opposed the ICA, thinking its collapse would lead to better, not worse, coffee incomes for their farmers. After some success in propping up prices for a few years, the ACPC proved unable to deal with the lack of compliance among some members and the growth of supply from non-members, in particular Vietnam, and was disbanded in 2001 at the height of the global coffee crises. Whereas previous, successful attempts at supply management in the twentieth century resulted in a consensus among state officials around the benefits of using coffee statecraft to attain higher coffee prices, the end of the ICA followed by the failure of the ACPC had the opposite effect, turning many of those previously in favor of collective supply management toward accepting the necessity of “free trade.”
Mauricio Galindo, current head of operations of the ICO, was directly involved in the ACPC and has experienced declining support for supply management first hand. During an interview in his office at the ICO headquarters in London in March 2013, Galindo highlighted the key dynamics of supply and demand in the global coffee market, before explaining how far the ICO now was from the quota system of the past. Changing geopolitics meant that a quota system was no longer politically feasible and, argued Galindo, markets had ultimately proven to be more economically efficient and transparent than state price regulations. The new role of the ICO would be “to help the market manage supply with a long-term view, with a sustainable view.” When I pressed him a bit further about the extent to which governments still have power to manage coffee markets, Galindo replied: “Let’s face it, ultimately governments do hold the last card. It’s a tough one, it’s an extreme one, it’s the one you’d never want to flag. But let’s face it, in the end, if your government is against you, it doesn’t matter who you are … they can kick you out.”1
Galindo’s observation reveals that the turn away from state social regulation of coffee markets since the late 1980s is fundamentally not about the decline of state power but about political choices. It reflects the current international consensus among the leaders of the most powerful states around: first, a general refusal to use the tools of statecraft to carry out more radical or robust forms of social regulation, agrarian reform, and human development in the coffee sector; second, a rejection of cooperative behavior among otherwise competing capitalist states on such things as prices, labor rights, and environmental standards in favor of cooperative behavior (through organizations like the WTO) on liberalizing investment and trade and protecting intellectual property; and third, a denial around the continued and pervasive role played by the state in the global coffee market. Competing capitalist states continue to respond to the perceived needs of their territorial and capitalist logics in varied ways, only in a manner that has mostly abandoned the vision of the “developmental state” in favor of a non-developmental state that perpetually denies the ability of the state to act in the broader social interest.
As a result, while a great deal has changed in the coffee industry over the past few decades, many of the overarching patterns described in the previous chapters remain generally the same. Extreme market volatility remains the norm within the industry. Corporate oligarchy remains the dominant feature of the global coffee chain, with Northern-based corporate roasters enhancing their position through ownership of their own trading companies, expanded direct private contracts with giant Southern coffee plantations, and the development of special relationships with major retail supermarket chains. Small coffee farmers and rural workers continue to eke out a precarious existence, highly vulnerable to global market swings and climatic conditions that large-scale coffee plantations and Northern transnational roasters can much more easily adjust to and profit from. The geopolitics of coffee statecraft continues to play a central role in setting the conditions under which these uneven and unjust economic, social, and political outcomes occur and persist, which frequently give rise to diverse forms of social protest, rebellion, and resistance from below. At the same time, long historical patterns within the industry have been impacted by important emerging trends, including the cost-price squeeze, the financialization of coffee, the intensification of environmental crises, and the “rise of the South.”
The cost-price squeeze
One important new dynamic in the global coffee industry has been the increasing pervasiveness of the “cost-price squeeze” – when the prices paid for coffee beans are not keeping up with the ever-rising costs associated with growing them. Over the past half-century, TNCs have not only expanded their “downstream” control of processing, retailing, and distributing coffee, but also expanded their “upstream” dominance through the growth of the agro-input industry, which, as Tony Weis has documented, has broken open the traditional “closed-loop agro-ecosystem,” where the majority of inputs (such as seed and fertilizer) were attained on-farm or locally. Instead, farming is being transformed into a transnational “through-flow system” where genetically modified seeds and chemical fertilizers, pesticides and insecticides are increasingly purchased from TNCs. Add to this extremely high oil prices, which drive up the costs of transportation and the use of farm machinery, and you have a process that is financially burdensome for medium and small farmers who, once on the corporate treadmill, must continue to purchase costly inputs to remain competitive, leading to growing debt and frequent crises.2
The social impact associated with the cost-price squeeze was powerfully demonstrated in February 2013 with the start of a major coffee strike in Colombia, one of the world’s top coffee exporters with over 560,000 coffee growers, most of whom are small or medium-sized farmers. Coffee farmers organized a massive strike, blockading major highways and roads, demanding an increase in government subsidies and other supports. Despite relatively high coffee prices at the time, farmers were in crisis due to the rising costs of fertilizer and other imported inputs, made worse by the high currency exchange rate of the Colombian peso. The government initially resisted the farmers’ demands, sending out thousands of police to suppress the protestors, tragically killing one and injuring many more. But the strike caused major economic chaos and social instability, threatening both the territorial and capitalist logics of the state. In March, the government gave in, agreeing to $444 million in new spending to boost direct subsidies to farmers, provide new credit, and support the purchase of agro-inputs, along with forgiving all interest and payments associated with 2013 loans to coffee growers from the publicly owned bank, Banco Agrario, which accounts for 90 percent of all national coffee loans. In this instance, coffee’s long history of social crisis and social struggle is combined with the new dynamics of an intensified cost-price squeeze.
The financialization of coffee
A second intensifying trend in the global coffee industry in recent years has been the financialization of the global coffee chain, part and parcel of the wider financialization of the entire global food system.3 The coffee market, due to its volatility and unpredictability, has long been the target of financial speculation. In 1881, the New York Coffee Exchange was incorporated after a disastrous attempt by the three largest US coffee importers, known as the “Trinity,” to corner the US market resulted in their bankruptcy, sparking chaos for the entire industry. It was argued that the Exchange would provide risk assurance against price volatility by providing a forum for buyers to contract with a seller to purchase a certain amount of coffee at an agreed time in the future at a guaranteed price; “real” coffee companies would use the contracts as hedges against price changes, while speculators would provide liquidity. Over time, the Exchange has served merely to escalate price instability as speculators have so
ught to profit by gambling on or manipulating coffee prices through strategically buying and selling with the immense financial resources at their disposal. From the 1960s to the 1980s, the ICA managed to temper speculative activity in the coffee market by providing more stable prices year after year, which limited opportunities for speculative gains. The ICA’s collapse in 1989 ushered in a renewed intensification of speculation and a boom in futures contracts.
More recently, coffee speculation has intensified even further as part of a wider turn toward global commodity speculation. In the wake of the global financial crisis beginning in 2008, after which rich governments bailed out their financial sectors to the tune of trillions of dollars, food commodities in general have become major targets of speculation for the world’s largest investment banks: chief among them US-based Goldman Sachs, Morgan Stanley, Citibank, and JP Morgan; British-based Barclays and HSBC; and German-based Deutsche Bank. These activities have driven up prices for most major commodities, increasing corporate profits at the expense of intensifying hunger among the world’s poor who cannot afford to meet their basic food needs. According to some estimates, speculative financial investment now controls more than 60 percent of food markets, compared to only 12 percent in 1996.
Food speculation has been allowed to grow, largely unchecked, because it benefits powerful financial companies whose interests are deeply interwoven with the territorial and capitalist logics of the world’s richest nations. Peter Gowan, whose notion of “economic statecraft” inspires the use of “coffee statecraft” here, has effectively argued that the nature of the current, highly unpredictable and unstable, global financial architecture emerged historically out of political decisions made by the United States and its allies. Gowan argues that in the 1970s the US government initiated a “Dollar–Wall Street Regime (DWSR)” in response to its declining position in international trade: abandoning dollar–gold convertibility in 1971, allowing it to freely determine the price of the dollar, now entrenched as the international currency, in its own interests; and abolishing its capital controls unilaterally in 1974, sparking an inflow of foreign investment into Wall Street and helping to finance the United States’ growing trade deficit. Throughout the 1980s and 1990s, states in the North and the South were compelled to remove their own capital controls to remain attractive to investors, initiating a process of “competitive deregulation” and significantly bolstering the power of financial capital and speculators.4 The recent turn toward intensified coffee speculation is just part of a wider political process based on the further expansion of a chaotic global financial system, one in which powerful, Northern-based investment banks are playing an ever more important role in driving global commodity prices.
The potential pitfalls for the coffee industry of the rapid growth of financial speculation lie in the tendency of financial capital to greatly intensify both price booms and busts when they occur. So far, intensified speculation since 2008 likely helped to further drive up coffee prices until 2011. Prices have since declined and, although markets are extremely difficult to predict, the long history of coffee would suggest that the threat of a bust is ever present. Should this bust occur, the impact of greatly heightened speculation could be disastrous as investors pull out money and further drive down prices, having a devastating impact for the most vulnerable in the global coffee market – rural workers and small farmers – who would face layoffs and bankruptcies, while the biggest corporate players – financial banks or coffee companies – would likely survive and possibly even thrive.
Environmental crises
The long history of coffee’s integration into the world system and emergence as a major export crop has brought with it numerous environmental impacts. As discussed in previous chapters, in the nineteenth century Brazil, the world’s leading coffee grower, pioneered “full-sun,” monocrop production, involving removing all forest cover through clear-cutting and then planting coffee trees in rows up and down hills. This method intensifies soil erosion, as well as the depletion of soil nutrients due to the rapid growth of sun-exposed trees, which leads to an escalating reliance on artificial fertilizer. Monocrop production also has the effect of narrowing down genetic stock due to over-reliance on a limited number of high-producing trees. Today, most of the Arabica beans grown in Latin America derive from only two genetic lines, making Arabicas highly susceptible to a variety of environmental threats, in particular coffee leaf rust and the coffee berry borer worm, both of which continue to have highly destructive impacts throughout the industry.
The introduction of new, “Green Revolution,” high-yielding coffee plants and agro-chemicals (pesticides, fertilizers, and insecticides) beginning in the 1970s led to a significant expansion of full-sun, monocrop farming to other regions of the coffee world, and in particular to the most productive and economically efficient coffee countries, beginning with Colombia and Costa Rica and, in more recent years, continuing with other emerging coffee leaders, chief among them Vietnam, which grows nearly all of its coffee full-sun. The turn toward Green Revolution chemicals has not been strictly market-driven and has entailed substantial efforts on the part of state and international agencies, particularly US government agencies and powerful philanthropic organizations such as the Rockefeller Foundation and the Bill & Melinda Gates Foundation. In environmental terms, the result has been an expansion of the destructive patterns associated with full-sun monocropping: increased soil erosion, the destruction of tropical rainforests, and major declines in the biodiversity of trees, birds, animals, and insects. Perhaps most tragically, in many instances vulnerable coffee workers and farmers have been exposed to a variety of chemicals that have been implicated in many illnesses.5
While full-sun cultivation has expanded rapidly, however, traditional methods of “shade-grown” coffee have continued to persist on a significant scale. Growing beans under the shade of the existing forest canopy, with the branches trimmed to allow in sunlight, protecting the soil from nutrition loss and erosion, has remained the cultivation method of choice of many small farmers throughout Central America, Ethiopia, Mexico, and other parts of the coffee world who cannot afford the costly, chemical-intensive, full-sun method. The ecological benefits of shade-grown coffee are substantial when compared to full-sun coffee and have been widely documented. The benefits include greater species diversity (one study in Chiapas, Mexico, discovered 180 species of birds in a shade-grown plantation, second only to the diversity of a natural forest); better soil conservation (a study in Venezuela determined that full-sun fields experienced twice the soil erosion of shade-grown); better pest control (one study in Jamaica found a lack of birds to act as natural predators resulted in a 70 percent increase in infestation of coffee berry borer); and less environmental pollution (nitrogen-fixing shade-grown trees reduce the amount of nitrogen released into the atmosphere and water and, by one estimate, potentially reduce the amount of fertilizer a farmer would have to buy by 25–30 percent).6
The ecological benefits have often been evoked in defense of the superiority of small versus large-scale coffee farming, when measured in a holistic manner. In fact, even in raw economic terms, despite many myths to the contrary, small farmers tend to be as efficient as large-scale farmers in resource utilization and productivity per unit of area. Beyond this, if we adopt a broader notion of “social efficiency” that takes into consideration environmental and social sustainability, small farmers score even better, generally providing more rural employment than large farmers, relying less on environmentally destructive agro-chemical inputs, and managing the local ecosystem in a more sustainable manner, especially in instances where land is organized communally or cooperatively and local cultural values promoting environmental stewardship remain strong.
Consequently, small-farmer, shade-grown coffee has emerged as a central feature of an array of environmentally sustainable coffee projects – bird friendly, rainforest certified, organic – that have sought to codify, enhance, and promote practices that have
long been carried out by coffee farmers. Like fair trade (whose farmers also produce primarily shade-grown beans), these projects have had important impacts and are likely to remain a permanent and growing feature of the global coffee industry. At the same time, the overall reach and breadth have been limited. Organic coffee, for example, has grown rapidly since the early 1980s and continues to do so. And yet, despite this growth, a recent report by the FAO of the UN estimates that certified organic coffee represents only around 2 percent of the EU market and 3 percent of the North American market.7
Addressing the wider environmentally destructive impact of the coffee industry on a global scale will ultimately require going beyond where environmental certification alone can take us. Moreover, the greatest environmental threats to the coffee industry come increasingly from forces outside the industry itself: from the impact of climate change caused by the historically unprecedented pace of greenhouse gas emissions leading to global warming. In this context, coffee’s impact is significant – in particular, through carbon dioxide (CO2) emissions associated with the transportation and processing of coffee and agro-chemicals and through the clear-cutting of forests – but just one piece of a much larger problem. The on-the-ground threats posed by climate change to coffee farmers are in many instances similar to those felt by farmers throughout the world; water shortages, for example, caused by increased temperatures and more erratic weather patterns are emerging as major concerns for farmers and development organizations, which seek to promote “adaptation” through new methods of water conservation.
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