The Trouble of Poor Farmers and Wealthy Buyers

Grant YSeptember 12th, 2007
By: Grant Y

(Page 2 of 4)

Working their way from the dirt roads of Ethiopia to the skyscrapers of Wall Street, Black Gold also touches on the complexities of the coffee trade.

Coffee is a material commodity, much like gold or wheat, and is traded on commodities market with over $140 billion in contracts each year. Prices change daily, in response to fluctuating demand and supply, but are set not by traders, but the New York and London boards of trade. In the coffee industry, this is simply referred to as the "C" market.

The purchasing of coffee is done by companies that go to auctions in the home countries of farmers and cooperatives. At these auctions, most buyers simply follow New York prices as a guideline as to how much they are willing to pay. This means farmers have no say when it comes to negotiating prices. In Black Gold, an auction scene portrays this scenario perfectly, as Meskela turns to the camera and explains that a five-cent drop in prices in New York is immediately reflect in an dilapidated auction house thousands of miles away.

While co-ops like Oromia band together to negotiate a price, major buyers also band together in an effort to push prices down. Coffee is a harvest crop, farmers keep bringing more supply to the market, whether or not they have buyers. The major buyers, such as Kraft, Sara Lee, Folgers and Nestle, know this and exploit their ability to wait until a surplus in the market reduces prices. Many farmers, strapped for cash, have no other choice but to sell their coffee and reduced prices.

During the period of the filming for Black Gold, coffee prices were close to $0.80 per pound on the commodities market - half of what they received years ago. Yet, farmers of the Oromia co-op however, were receiving less than half of the $0.80, as that is cut into by a series of middlemen that include coffee buyers, exporters and processors.

Throughout the documentary, the filmmakers routinely cut back to interviews with depressed farmers and their families, who both hope and literally pray for a fair price for their hard work. The hardest part about watching the film is seeing these farmers obviously eager to work, yet wanting nothing more than their basic survival needs to be met.

Free Markets and the World Trade Organization (WTO)

The catalyst for the collapse in coffee prices started in 1989, when the US abandoned the International Coffee Agreement, which set a minimum price of $1.20 per pound. With emerging countries like Vietnam flooding the market with cheap robusta coffee - ironically, on the advice and support from the World Bank, market prices eventually crashed to $0.50 per pound, the lowest adjusted price in over 100 years.

Champions of the free market, nations like the US argue that there is no need to prop up the price of coffee in free market economies. (Incidentally, the primary reason for setting the International Coffee Agreement was to combat communism, on the rationale that poverty stricken countries would destabilize and turn into Marxist regimes.) Keynesian economists also stand by the book of saying that the market is essentially an equilibrium of supply and demand; with coffee being produced at a surplus right now, causing the drop in prices.

Western countries like the US and Europe are vocal about the benefits of free trade and prevent coffee exporting nations from providing subsidies for their farmers. However, the US they are oddly silent on their own farming subsidies and efforts in blocking imports from coffee exporting nations. Under WTO regulations, coffee countries like Ethiopia are allowed to export cheap, unprocessed green coffee beans, but are imposed with heavy tariffs and taxes if exporting the more lucrative processed and roasted beans. The result is that middlemen roasters from import nations profit the most, preventing coffee nations from developing profitable infrastructure.

In an animated scene, the directors take the viewer to a five-day meeting of the World Trade Organization, where talks have broken down between first and third world nations. Representatives from the third world nations angrily tell reporters that they are being given demands by European Union while unable to address their own agendas.

The desperation in the WTO meeting is reflected in an earlier supermarket segment, where Meskela browses an isle entirely comprised of coffees from around the world. Meskela, upon seeing the impossible multitude of choices, remarks that it makes him sad, because it reminds him that all of these farmers are just as desperate as his own in Ethiopa. To the viewer, the wall is even despairing, as one realizes the insurmountable odds to survive with so much competition.

Traders on the New York commodities exchange market.
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