Macchiato Myths The dubious benefits of fair trade coffee  The debate on the benefits of market liberalization has shifted enormously in the past 20 years. Gone are the days when anyone seriously argues that free trade brings poverty or that socialism brings equality-based prosperity. The benefits of trade have gained such currency that even rock stars now call for trade as a means to economic prosperity. Sadly, behind their calls for greater trade opportunities lies a campaign that seeks to undermine the system that promotes the material prosperity they seek for people living in developing countries. Despite its claims to promote prosperity, the 'Fair Trade' campaign builds a bureaucracy funded by developing country farmers, based on a top-down business model that undermines productivity, quality and opportunity for poor farmers. The 'Fair Trade' campaign will undermine the economic prosperity of developing countries. Its flagship is the coffee trade.
Every few years, Australians are deluged with new data from the Australian Bureau of Statistics detailing our behavior as consumers. While our ratio of beer to wine and milk often grabs headlines, one of the growth areas of consumption is our black bitter friend, coffee. Since the 1970s, personal consumption of coffee has doubled from 1.2 to 2.4 kilograms per year, more than thrice the consumption of tea. Historically, Australia was a coffee producer until the 1920s, when the industry was undermined because of high labor prices. Since then, Australia has imported all of its coffee, but plantations are now active in Queensland and the north-east of New South Wales, producing a high quality product that is gaining popularity on the local market. In the past, Australian coffee producer Jasper Coffee sold 30 per cent of its product to Australians; that has now grown to 50 per cent, with the remainder sold on the export market. The international coffee trade: Coffee is a major international commodity traded globally in a market worth more than US$10billion per annum. It is produced in over 50 countries by up to 25 million farmers and is mostly produced in the developing world. It is also a core export for many developing countries, reaching as much as 50 per cent of total export revenue for some countries. Key producer countries lie in South America, Southeast Asia and Africa. There are two key types of coffee: Robusta and Arabica. Arabica has a mild flavor and is grown at very high altitudes. It commands a higher price than Robusta which, as its name implies, has a more robust flavor and is grown more generally. There are substantial price differences within each variety. Like wine, beans are sold as single variety and blends. Coffee is a highly volatile commodity. The time it takes from plantation to harvest can be a number of years. Price hikes due to a poor harvest can easily plummet in succeeding years due to bumper crops or increased plantation to take advantage of high prices. In 2000-01, overproduction was 10.8 million bags, the following year it halved to 5.6 million and then spiked in 2002-03 to 15 million. This volatility caused the international community to stabilize the market by managing trade through the International Coffee Agreement (ICA). The ICA was established in 1962 and is managed by the International Coffee Organization which was founded the following year under the auspices of the United Nations. The ICA was used as a development mechanism to assist the Third World; it fell with the collapse of the bipolar architecture of the Cold War. The aim of the Agreement was to try to stabilize coffee production internationally. It achieved this by controlling the market through quotas and by ensuring that countries withheld supply when it peaked above consumer demand, effectively controlling prices. Agreements were struck for five-year periods with extensions granted while new agreements were negotiated. In the last 15 years, pressure on the international coffee market has been mounting. As an instrument for controlling prices and production, the ICA fell in 1989 and with it collapsed the conventional coffee trade that restricted producing countries and limited supply. An extension to the existing 1983 Agreement was struck, but with all quotas and control instruments suspended. The result was a boom in coffee production when the free market was allowed to operate. Previously locked out producers were suddenly able to trade on the international market unhindered by multilateral agreements that controlled supply. The explosion in production had an inevitable consequence: a fall in price. By 1992, coffee futures had bottomed and the international supply had clearly outgrown consumer demand. During negotiations for an updated ICA, agreement could not be achieved to control prices and so the new ICA focused on other avenues of international co-operation. The last ICA was the 2001 Agreement that came into effect in May 2005. Its aims shifted away from regulating coffee supply and demand towards improving consumption and the quality of coffee. Unknown Author Article Source: Unknown |