Brewing Misery

Leonard Innes

If you’ve bought a cup
of coffee lately, you probably wouldn’t be surprised to hear that the big
coffee corporations who dominate the market are making record profits. It
seems there’s a Starbucks in every shopping area and the cost of a cup of
coffee is almost the equivalent of a day’s wage for a worker in the Third

At the end of
April, Starbucks announced a 40 percent increase over last year in net
earnings for its most recent six-month period. The company will also be
increasing the number of new stores in 2001 from 1,100 to 1,200. Nestle, the
world’s number one food producer and a major coffee marketer (Nescafe),
announced back in February a “22 percent surge in 2000 net profit.” Nestle’s
chief executive commented “Nestle has achieved record levels of growth and
profits. We are now harvesting the results of our relentless push for
continuous improvement.” Nestle said it expects even higher sales and profits
in 2001.

But while
coffee profits are soaring, the price of coffee beans being paid to coffee
farmers in the Third World has actually fallen to record lows in recent
months. While the big coffee corporations like Nestle are making windfall
profits and the price of a cappuccino edges close to $3, the price being paid
to Third World farmers for coffee beans has dramatically fallen over the last
four years to only about 50 cents a pound—a third of what was paid in 1997.

The world
coffee market is dominated by a few multinationals based in the imperialist
countries, who buy raw beans from coffee growers and sell them to coffee
roasters. Yet virtually all coffee is produced in the Third World by some 20
million coffee growers, farmers, and workers. Coffee farms there range in size
from less than five acres to large industrialized estates of thousands of
acres. But more than half of the world’s coffee production comes from
traditional small holdings of less than 12.5 acres. Coffee production remains
extremely labor intensive and most coffee is still hand picked. The recent
price drops are having a devastating impact on millions of these small farmers
and coffee workers.

In May 2001,
Oxfam (a British non-governmental development agency) issued a press release
stating that, unless there is an increase in the price of coffee beans paid to
farmers, this latest crisis will “consign millions of poor coffee farmers and
their families to extreme poverty, with devastating consequences for health,
education, and social stability.” The International Coffee Organization
recently issued a report that predicts a continuing “over-supply” situation
through 2002 and little reason to expect any significant price increase in
that time. In Guatemala, the revenues received for annual coffee exports have
dropped almost in half over the last four years, and rural unemployment has
reached almost 40 percent, largely due to the drop in coffee bean prices. In
Ethiopia, where coffee amounts to 64 percent of the country’s exports, it was
reported in 1999 that the value of coffee exports had declined 38 percent
compared to the same 9-month period the year before. In March 2000, Zimbabwe
reported a 50 percent decline in annual revenues from coffee sales. Uganda
reported a 32 percent drop.

The countries
that grow coffee beans are among the poorest in the world. Many are heavily
dependent on the global coffee trade, which amounts to over 10 percent of the
export earnings of 17 coffee-producing countries—in Uganda and Burundi it is
over 70 percent. Coffee workers in these countries earn around $3 a day and
live in utter poverty, without plumbing, electricity, medical care, or
nutritious food. According to “Colombia, quakes and coffee,” from Global
Express online, “most of the 20 million people who produce [coffee] live in
extreme poverty. Says one coffee farmer, Gregorio Gomez, ‘The cafeteleros, the
coffee farmers, were poor when we started growing coffee 40 years ago, and we
are just as poor now. That has not changed at all’.”

Only four
corporations—Proctor and Gamble, Philip Morris, Sara Lee, and Nestle—account
for about 60 percent of U.S. retail coffee sales and almost 40 percent of
worldwide sales. These corporate giants are becoming even more dominant,
joining other industries in the merger and acquisition frenzy of the last
decade. In December 1999, Sara Lee announced that it had purchased Hills
Brothers, MJB, and Chase and Sanborn coffee companies from Nestle. Sara Lee’s
holdings already included Superior Coffee and Chock Full o’ Nuts (which Sara
Lee had just acquired in June 1999).

The coffee
industry is divided into several branches of activity: growers,
exporters/importers, shippers, roasters, and retailers. Only about 8 percent
of the price of coffee in a U.S. supermarket goes to farm labor, and another 5
percent goes to the grower. But 67 percent goes to the company that does the
roasting, grinding, packaging and shipment, and 11 percent goes to the retail

The big coffee
corporations are able to maintain high retail prices of coffee despite the
huge drop in the price of the beans through a near-monopoly of the supply-end
activities, and because so much of the price charged to consumers is beyond
the actual costs of growing the coffee. The imperialist countries are the
leading consumers of coffee. The U.S., Germany, France, and Japan buy over
half of the world’s supply of coffee. Meanwhile, coffee is produced entirely
in tropical Third World countries, with two-thirds of the beans coming from
South and Central America.


Coffee Market

The history of coffee is
the story of yet another capitalist industry founded on the blood of slaves,
dependent on the sweat of millions of workers, dominated by a few imperialist
countries and huge corporations, and subject to the anarchic fluctuations and
devastation of the capitalist market.

By around the
end of the 17th century, coffee-drinking was big in Europe, but coffee had not
yet been extensively cultivated by the imperialist powers and it was still
considered an “exotic” drink—because it came from non-European countries. But
around the early 1700s coffee cultivation began to take off under the control
of a few imperialist countries, mainly the French in Haiti, the Dutch in Java,
the Portuguese in Brazil, and the British in Ceylon.

The tropical
climate in these regions was perfect for coffee cultivation. The intensive
labor required to grow, harvest, and process coffee in the colonies of the
“New World” initially came from imported African slaves and from the native
population, coerced into forced labor. In fact, slaves were also initially
imported to the Caribbean to harvest sugar, which made coffee palatable to
many consumers.

colonialists were among the first to cultivate coffee using slaves in the
Caribbean, just as they had done to cultivate sugar. Importing 30,000 African
slaves a year from about 1730, “French Haiti” became the world’s leading
coffee exporter, supplying half the world’s coffee by 1791, using half a
million slaves. However, conditions on the coffee plantations, as on any other
plantation, were so brutal that the entire population of Haitian slaves
revolted in what is known as the Haitian Revolt in 1793. Most plantations were
burned to the ground and the owners killed.

Brazil had
officially become an “independent” country when it broke with colonial rule in
the 1820s, but it still relied on slaves to work the fazendas, or
plantations. Like France, Brazilian capitalists continued to import tens of
thousands of African slaves a year, so many that by the end of the 1820s, well
over a million slaves labored in Brazil, composing almost a third of the
population. Although the import of slaves technically became illegal in 1831,
the number of slaves being imported every year was still in the tens of
thousands by around 1850, and slavery was still legal. By this time Brazil had
become the world’s largest coffee grower, producing half of the world’s supply
of coffee.

Once slave
importation became illegal, plantation owners did what they could to import
slaves illegally. But they also began to look into new sources of cheap labor
to work the coffee fields. The scheme they developed over the last half of the
19th century was the import of colonos, or poor European immigrants. At
first these immigrants had to incur a debt for the cost of their
transportation to Brazil, and it was illegal for a colono to move off
the plantation until the debt was repaid. This amounted to debt peonage. In
1884, the government agreed to pay for the transportation costs for colonos.
Still, working conditions were so bad that most plantations maintained a small
army of armed guards. Eventually, many coffee farmers concluded that the
system produced coffee even more cheaply than slavery and advocated
the abolition of slavery. In 1888, slavery was finally ended in Brazil.

By the end of
the 19th century, Brazil controlled three-fourths or more of the global
production of coffee. While Brazil was dramatically expanding its coffee
production in the 19th century, countries in Central America also began to
grow the plant. Like Brazil, Guatemala declared independence in the 1820s.
But, unlike Brazil, Guatemalan capitalists didn’t rely on imported slaves to
get their coffee production going. Rather, they relied on forced labor and
debt peonage of the Mayans and the theft of common lands. In 1873, any land
not planted in coffee, sugar, cacao, or pasture was declared “idle” and
confiscated by the state for sale. The land was then sold at a price that was
cheap to the capitalist but well beyond the reach of a peasant, and a large
army enforced this system of coerced labor.

As a world
market for coffee began to mature it wasn’t long before capitalist production
resulted in “boom-and-crashes” in coffee prices. The Dutch had already begun
coffee cultivation in their colonies in the “Far East” in the early 1700s.
After the Haitian revolt the Dutch began cultivating java beans in the East
Indies, again with enslaved laborers. Prices had stabilized in the early 1800s
at around 16 to 20 cents a pound, but then lurched up to 30 cents a pound as
coffee demand in the U.S. and Europe rose. This stimulated more cultivation in
new areas, such as Brazil. In 1823, prices shot up even further when war
between France and Spain appeared imminent. Then, just as the first major
Brazilian harvest was becoming available, the war did not materialize and the
price of coffee collapsed, causing extensive business failures in Europe.

In the book
Uncommon Grounds
, Mark Pendergrast concludes: “The modern era had
commenced. Henceforth coffee’s price would swing wildly due to speculation,
politics, weather, and the hazards of war.”

Coffee has
become the second most traded commodity in the world, behind petroleum. A
recurring theme in the history of the coffee market, wild swings in price give
rise to periods of frantic trading and “boom-and-crash” fluctuations in the
world coffee market—allowing some to make millions, while others are crushed.
When prices rise, land is opened up for coffee cultivation. This has
repeatedly led to overproduction crises and to subsequent crashes in coffee
prices—like what is happening now. Commenting on this persistent trend, Mark
Pendergrast says: “The coffee market has always been volatile. Rumors of
Brazilian frosts cause price hikes, while surprisingly large harvests produce
dreadful declines, along with misery for farmers and laborers. Market forces,
complicated by nature and human greed, have resulted in extended cycles of
boom and bust that continue to this day. Since coffee trees take four or five
years to mature, the general pattern has been for plantation owners to clear
new lands and plant more trees during times of rising prices. Then when supply
exceeds demand and prices fall, the farmers are stuck with too much coffee.
Unlike wheat or corn, coffee grows on a perennial plant, and a coffee farm
involves a major commitment of capital that cannot be easily switched to
another crop. Thus, for another few years, a glut ensues.”


Coffee and

After World War II,
coffee roasting was concentrated in the hands of a few major corporations. In
Latin America, where Brazil had emerged as the dominant coffee producer in the
world and Colombia had become the second largest producer, the U.S. was
concerned about maintaining its client dictatorships and its uncontested
dominance of the hemisphere. The U.S. staged a coup in Gutatemala in 1954 to
overthrow Jacobo Arbenz and supported a brutal military dictatorship in Brazil
in the 1960s. And in Nicaragua, the U.S.-supported dictator Somoza held power
for decades—the Somoza family had built a dynasty based largely on massive
coffee plantations. The U.S was also active in Africa, which had become a
coffee-growing region. In 1961, the CIA helped assassinate Patrice Lumumba in
the Congo, a coffee-producing country, and installed the dictator Mobutu.

Coffee prices
rose somewhat after World War II, hitting a high point in 1955. But after
that, prices crashed yet again. In 1962, the U.S. supported the establishment
of the International Coffee Agreement. A corporate executive with General
Foods expressed the capitalist concerns behind this agreement: “You would have
a crisis on your hands if this income [to Latin American countries] was
stopped…. Really it was quite simple. Politically, the countries would have
been quite helpless. From a security standpoint of the United States, if Latin
America had gone down the drain and the Communists taken over, they would have
been right at our back door. And this would have been an uncomfortable and
unhealthy situation for the United States.”

International Coffee Organization, or ICO, charged with implementing the
agreement was essentially a global cartel (an association of large global
producers), which assigned coffee quotas to both producing and consuming
countries. Under the ICO, prices remained relatively stable for almost 25
years. But toward the end of the 1980s the agreement began to break down. A
global glut of coffee had developed and many countries had become dissatisfied
with the quotas assigned to them by the ICO. In order to meet explosive debt
payments, these Third World countries needed to expand production even more,
and had begun to sell much of their product outside the ICO at low prices.
Prices steeply declined after the mid-1980s and, in 1989, the ICO fell apart.
In addition, the Soviet Union had collapsed, and the U.S. faced new economic
necessities as well as new freedom to operate and expand. Prices continued to
crash, causing incomes in coffee-dependent countries to drop by billions
within a few months. Prices fell in the early 1990s to nearly as low as the
current prices.

The collapse of
the ICO, the crash in coffee prices from the mid-1980s to early 1990s, and an
International Monetary Fund (IMF)-imposed Structural Adjustment Program (SAP)
were significant factors that gave rise to the civil war in Rwanda, which
broke out in 1990. Coffee was cultivated by about 70 percent of rural
households in Rwanda, and Rwanda earns nearly half of its export earnings from
coffee, making it the fourth most coffee-dependent country in the world.

With the
collapse in coffee prices, Rwanda’s export earnings declined by 50 percent
between 1987 and 1991. Famines erupted throughout the countryside. To make
matters worse, the IMF imposed an SAP on the country in 1990. The Rwandan
currency was devalued in 1990. Real earnings by coffee farmers dramatically
dropped as the SAP resulted in soaring domestic prices—while requiring a
freeze on the price of coffee beans sold by farmers. A second currency
devaluation in 1992 led to further escalation in the price of fuel and other
consumer essentials, and coffee production fell by another 25 percent in a
single year.

In his book
The Globalization of Poverty
, Michel Chossudovsky notes: “Not only were
cash revenues from coffee insufficient to buy food, the prices of farm inputs
had soared and money earnings from coffee were grossly insufficient. The
crisis of the coffee economy backlashed on the production of traditional food
staples leading to a substantial drop in the production of cassava, beans, and
sorghum. The system of savings and loan cooperatives which provided credit to
small farmers had also disintegrated. Moreover, heavily subsidized cheap food
imports from the rich countries were entering Rwanda with the effect of
destabilizing local markets.”

The worldwide
coffee glut finally subsided a bit toward the mid-1990s, and a Brazilian frost
helped to increase prices. Shortly after the frost, however, prices began to
steeply fall yet again. Ironically, the most recent price collapse in the
coffee market came about partly as a result of Vietnam becoming the second
largest producer of coffee beans in the world, displacing Colombia, which had
held that position for decades.

At around the
same time that the ICA fell apart, Vietnam received huge loans from the World
Bank and the Asian Development Bank to plant coffee trees bearing the
low-quality robusta coffee bean. (Arabica beans are considered higher quality
beans and are more expensive.) As the Vietnamese-produced robusta beans began
to enter the world market in a big way in the late 1990s the price of coffee
beans began to collapse yet again. Vietnamese exports of coffee beans has
tripled in the last five years, which also corresponds to the period of the
most recent price crash in the global coffee market.

Farmers in
countries like Guatemala, where workers get only $3 a day, can’t compete with
coffee producers in Vietnam who pay workers only around $1 a day. Even Brazil
is planning to import coffee from Vietnam to take advantage of its lower
prices. Nevertheless, despite a 64 percent increase in coffee export volume,
the Vietnamese ministry of trade announced in October 2000 that the total
coffee export value actually declined by $80 million for the 1999-2000 crop
compared to the prior year.

An analyst at
the World Bank, describing the “huge success” of Vietnam and defending the
brutal workings of the “free market,” said, “It is a continuous process. It
occurs in all countries—the more efficient, lower cost producers expand their
production, and the higher cost, less efficient producers decide that it is no
longer what they want to do.”

According to
one doctor in Guatemala, “What’s happening is a catastrophe. There’s always
been poverty and temporary unemployment, but I’ve never seen real hunger like
I do now—people who have literally nothing to eat but tortillas.”            Z

Innes is part of a
Revolutionary Worker newspaper writing group in
the San Francisco Bay Area.