“The snail” strategy in the face of climate change and the coffee price bubble

“The snail” strategy in the face of climate changeand the bubble of coffee prices

René Mendoza Vidaurre[1]

Snail´s path

-Everything that goes up, must come down, said a woman

-But roasted, ground coffee goes up in price but does not come down, responded her daughter.

-That is because those who earn more are few and are higher up, reacted the mother.

-Maybe the path of the snail needs to replace the ladder, where we do not go up at the cost of…stuttered the daughter and she bit her tongue, while her mother listened.

Between the months of October and November of 2021 was a peculiar moment. While the price for coffee “went up” and the COVID-19 pandemic “came down”, adding the “Omicron” variant, affecting human health, in Glasgow (Scotland) the 26th edition of the annual United Nations Conference on Climate Change , COP 26[2] was being held, looking to reach an agreement between those “from above” to save the planet from a catastrophic climate. This coincidence of events calls us to reflect: the price of roasted and ground coffee goes up and does not tend to go down, climate change also “goes up” (gets worse) and the elite of humanity, the “cherry on the pumpkin” as Bauman (2014)[3]  describes them, continue believing – and make all of us believe – that “anything can be done with money.”

Discerning a larger horizon during a volatile and uncertain moment seems to be an important light for our times.

In this article we argue that coffee expresses that reality of climate change, the “trickle down” world economy of social inequality, and that urgently needs a glocal strategy to take advantage of prices, mitigate climate change and deepen relationships of cooperation, crossing oceans. More “along a snail´s path”, as the daughter says in the story, which does get the attention of her mother.

1.    Coffee prices

Coffee prices have been on the rise since the month of October: US$ 2.30/lb (November 2021). It is estimated that they can break US3.00/lb and even US$4.00/lb. The two graphs which follow reveal its evolution with contradictory messages.

The first graph shows constant change in prices where in 2001-02 was the worst year and 2011 the best in a space of 100 years. The graph shows us that these price changes are normal, that they go up and go down, good years and bad years, it even reminds us that “whatever goes up must come down.” All this appears to be something natural.

The second graph shows prices adjusted for inflation: it starts from 1977, a year of high prices. That 1977 price is 1,000% higher than prices for 2020-21. The adjustment for inflation has as a principal determining factor cost increases which include inputs, labor force and expenses, which generally are outside the control of coffee producers. From there, prices can go up, but if costs go up more, that “rise” in prices really is not a rise, but rather the prices for export coffee (raw material) are systematically falling. In other words, the “rise” in coffee prices which are happening in the last three months of 2021 are like a “fleeting joy.”

2.    Causes or coincidence of elements that create waves

Without losing sight of graph 2, let us focus on the causes of the rise in prices in this second semester of the current year, 2021. More than causes, we see that there are several elements that are happening simultaneously, and that tacitly are interconnected causing this “rise” in prices.

There is price speculation, because there is a lot of money “in the streets”, while there is coffee in warehouses and on coffee plants. Even though in the month of November importers (roasters) began to see the coffee in their warehouses reduced.

That price speculation is due to the fact that the coffee harvest in Brazil, generally plantations under the open sun and monocropping systems, plummeted in the current cycle by at least 20% (some estimate that the loss of the coffee harvest will be as high as 60%), first because of a drought, and later because of a freeze, including snow, in the month of July caused by a cold wave from the Antarctic; both, drought and freeze, are clear effects of climate change, in turn caused by human actions, forewarned by scientists (see Kurmelovs)[4]. The situation of Brazil, which under President E. Bolsonaro in the last three years razed the Amazon to impose monocropping agriculture and ranching, means a lot because it produces 35% of the total volume of world coffee. If Brazil drops its production by half, no importer, roaster or distributor of roasted and ground coffee wants to take the risk of being left without coffee for tomorrow morning – or for 2022 – which is why they are running to buy coffee at whatever the price.

In parallel fashion, the cost of logistics has shot up for all products. In contrast to merchandise like grains which are transported in cargo ships, with coffee marine transportation is in containers. The price of marine transport of 1 container of coffee rose from $2,000 (US$4.80/quintal) to $4,000, then to $7,000 and now there is talk of it reaching $15,000 (US$36/quintal)[5]. The cost of trucking from customs to the warehouses has also gone up, and it is reported that in the United States there are not enough trucks, which is why customs is charging fines for those who do not pick up their coffee in the stipulated time frame.  It is also reported that there is a certain amount of chaos in exporting from countries, particularly Brazil, because they do not have enough containers for maritime transport in a timely fashion, which is why the importers in England or the United States are waiting for more than 2 months for their coffee.

This has to do with the recovery of the world demand for goods and services promoted by the policies of fiscal stimulus on the part of governments of the developed countries – e.g. $1.9 trillion dollars equal to 10% of US GDP which the government of the United States injected into its economy at the beginning of 2021, as well as the $1 trillion for infrastructure in November 2021. This demand surpassed the supply of goods and services in the market. Companies expected that because of the pandemic there was going to be a period of prolonged stagnation and reduced their production and inventory, and the flow of world transport of merchandise dropped.  Warehouses were full of coffee. But things turned out just the reverse because of the strong demand, which is why there is not enough capacity to supply the market. 

This imbalance between world supply and demand for merchandise is what is causing the inflation in developed and emerging countries. Last October the IMF estimated that inflation will reach its peak at the end of 2021 of 3.6%, much higher than what was expected this past July of 2.4%, which means that all prices for products are rising and will continue to rise.

3.    Tendencies

What situation awaits us in the immediate future and in the medium term? Given that the only thing certain is uncertainty, here we note some tendencies about coffee, relationships between importers and exporters, fair trade organizations, coffee producer families and their organizations, and the value of roasted ground coffee in the United States and Europe.

If coffee plants in Brazil were severely damaged, their renovation will take 3 years, at least assuming that in those 3 years there is not another drought or freeze. If it takes 3 years, coffee prices are doing to remain high for the next 3 years. Consequently, some scholars believe that the price of coffee may go beyond US$3 and even reach US$4/lb[6]. This would appear to be good income for producer families. Even though climate change might even make the situation worse: a producer in Central America could receive $250 for 1 quintal of export coffee. And if his coffee field, despite being associated with fruit and forest trees in contrast to the plantations in Brazil, is damaged by climate change? They could be left holding the bag.

We foresee a possible deterioration in the relationships between importers and exporters of export quality coffee. Compliance of agreements between importers (buyers) and exporters of coffee will be seen in accordance with the rise and fall in prices. Both can agree to set a defined price in advance, let us say they agree on 220 + a differential of 20 and requiring a cupping score of 81; but if prices begin to drop after February or March 2022 before the agreed upon coffee is sent, that importer or roaster will want to economize and therefore free themselves from the previously signed contract. If market prices have already dropped to 180, the importer-roaster could decide that the cupping of the coffee resulted in a score of 79 and send the coffee back, or offer to buy it at 190 as “a favor.” Consequently, in that transaction the exporters lose US$50/quintal, unless they look for another neutral cupping, but that requires more time, and with that more expenses and tensions will emerge. The reverse can also happen, if the price “on the street” is above the agreed upon price, coffee exporters will seek to break the contract. Let us say that they signed a contract at 190 at the beginning of the 2021-22 harvest, given the rise in price to $230, the exporters will seek to sell it at that “street price”, which is why at the moment to fulfill their prior contract they will no longer have coffee in their warehouse. These are shenanigans from both sides that affect the long-term relationships; because of this, importers (buyers) currently are resisting setting prices in these months of November and December, and if they do so, they want to be sure that there is coffee in the warehouse of those who are offering the coffee. With more price variation, there is more prevalence of shenanigans on both sides, more opportunism.

Fair trade organizations can lose a lot in this context of high prices. Some have contracts set at $160, $190, $225 and others at $230 per quintal. Most of the cooperatives do not distribute their profits, nor do they deduct just $25 or $35 for costs of harvest collection, dry milling and export services; they are accustomed to deducting larger amounts for whatever reason. Consequently, when the members see that their cooperative is paying them $140 or $160 per quintal, when “on the street” they are offered $180 or $190, they tend to go for the higher price. This happens because the members are the owners of their coffee and want to sell it wherever they can when the price is high, and they are going to turn their coffee in to their cooperative when the price “in the street” is lower than what their cooperative tends to pay them. In turn, many cooperatives, on not receiving coffee from its members, buy coffee “from the street” from traditional intermediaries, coffee for which they will not pay the organic nor social premium to anyone. In other cases, the members deliver on the volume of coffee committed to their cooperative, but they turn in their lesser quality coffee, the best coffee they sell to traditional intermediaries. So, if most of the members divert their coffee to “the street”, fair trade organizations will be left with a volume of coffee less than their goals, will be compensated by coffee from “the street” and probably will take lesser quality coffee; this shows a structural weakness in the fair trade chain, from the producers to the fair trade stores, there is no mutual loyalty for the reasons that exist, they continue being governed by opportunism where “making a quick buck” is the focus.

Within this environment of prices and opportunism, organic coffee producers will tend to turn toward conventional coffee, producers with traditional coffee who do not apply neither chemical nor organic inputs will look for agrochemical inputs, and those who already use agrochemical inputs will tend to increase them. The spirit of increasing volume for more money will gain ground. The motor which pushes this is the culture of “making a quick buck”, and its effects can be disastrous for the peasantry, their organizations and the salvation of the planet. Commercial intermediaries will insist on buying future coffee with money in hand, providing credit under terms of usury and offering agrochemical inputs to be paid with coffee, which will lead the peasantry to go into debt, depend more on the market for coffee production and commit their coffee to those commercial intermediaries. Organizations of producers, for having responded with “street prices” will be left without funds to provide credit to their members, which will limit their harvest collection in the next coffee cycle, and therefore become a disadvantage for continuing their alliances with importing organizations in the United States and Europe, unless they embrace commercial intermediation. With the turn towards agrochemical inputs and monocropping agriculture, as well as the cooptation of producer organizations by market forces, the damage to soil and water will intensify; something of this has happened in Brazil on a larger scale: coffee producers in the state of Paraná suffered freezes 40 years ago, which is why they moved to Minas Gerais in search of a more stable climate, but they did not learn their lesson, they planted coffee in the open sun, highly technified and based on agrochemicals, which are propitious conditions for a freeze to hit them even harder.

At the same time, the price of roasted ground coffee and the price of a cup of coffee in coffee shops for consumers in Europe and the United States tends to rise, in fact it was already rising in October 2021. Many studies show that the price of roasted ground coffee, as well as a cup of coffee in Starbucks or different coffee shops, centuries ago broke with the saying that “what goes up, must come down”, the price of roasted ground coffee sold in retail goes up and does not come down, like agrochemicals, they go up without limit; only peasant products like export coffee, beans in sacks or pigs on the hoof go up and down, while their price adjusted for inflation go down and down, systematically. This means that social inequality within a glocal framework will intensify, including environmental deterioration.

4.    Long term strategies

In general, not speculating and increasing one’s own efficiency is what is most recommended. Immediately selling coffee that one has at the New York market price; not speculating, thinking that prices are going to rise even more. At the same time, increasing efficiency in harvest collection and dry milling which means reducing costs and taking advantage of the “waste”, protecting coffee from possible theft and being concerned that the coffee be good quality; also increasing efficiency on the other side of the ocean.

In the case of cooperative organizations that are working in alliance with importers, be they fair trade ones or importers with a sense of social justice, that alliance has to go beyond the price for export coffee – which goes up and down – where the parties live together “in separate beds”, one in raw materials and the other in processed products; it should go toward the price of roasted ground coffee that goes up and up, contributing in this way to social equity; working on forms of mitigating climate change; and that each chain of actors improve their capacities for economic and social investment in rural communities. This is how to begin to “exchange the ladder for the snail´s path.” In what follows we break down these points.

Even though market prices are above $220, a price of $190 defined (and agreed upon) for this and the next five years is a good price. This agreement should move under the principal of sharing risks and profits in terms of the price of roasted ground coffee within a framework of informational transparency between the participating actors: producer organizations in countries of the south and importers from the United States and Europe. In this alliance they set as a base price $190, and share profits or losses from the sale of roasted ground coffee; in other words, producer organizations and their membership would also have the possibility of assuming losses, a scenario for which they should increase their levels of efficiency which would allow them to continue lowering their costs, even though we doubt that they might be losses in the sale of roasted ground coffee, because that would mean that the importers would accept that prices to consumers would drop. This base agreement is possible under the principal of mutual loyalty, where the importer would not break their contract when the NY price of coffee is low and where the producer organization, like their membership, would honor their commitments regardless of the up and down movement of the price; where no actor of the alliance would go out running to “the street” after money. This agreement would demonstrate that, despite so much uncertainty and speculation, the best continues to be establishing long term relationships based on a reasonable price, sharing profits and losses in terms of the price of roasted ground coffee, and being committed to human and natural communities. 

By setting the price at $190 the producer organization should adhere to that: adopting the readjustment. Those producers, who sold coffee to their organization at a lower street price to the average of the season paid by the organization, would be paid the difference. This is part of equity with consequences for two-way loyalty, from the producer to their organization and from that organization to its members, and from both to the importer.

Producer organizations should innovate in an ongoing way. Collecting the harvest in the community itself and paying the couple for the coffee received – paying the husband and the wife for the coffee reduces the poor use that possibly the husband might do if only he is paid. Buying coffee also in cherry form in case the producer family does not have a wet mill. Not sticking to just parchment coffee, where “coffee belongs to men”, but adding value to the coffee in the community itself, drying it to the point of hulling, selecting the beans and hulling it, taking advantage of the coffee hull as fertilizer or as an energy source, activities where women take center stage; not centralizing coffee milling, nor turn it into something technologically intensive in environments with high unemployment. Finding meaning to each activity: drying coffee on the farm itself instead of throwing water on it 2 Km prior to delivering the coffee to their cooperative, believing that they will “earn more”; selecting the coffee beans instead of pressuring that they deduct whatever they want so long as they pay you immediately. Organizing coffee shops in country as well, as a window on the rural world. Helping producers to also see into the distance under “high beams”, that they harvest what they sow: in the next cycle, let us say 2022-23, the member would turn in the same – or proportional to – the volume of coffee that was turned in the previous cycle, let us say 2021-22, so that if the price of coffee drops in that cycle, that producer will not be able to turn in more than the volume that was delivered in the previous cycle; that the organization might be a space so that the owners of coffee might analyze why they turn in a certain volume to their cooperative and to traditional intermediaries, about what limits or empowers them to embrace their organization.[7] Likewise importers in the United States and Europe, improving their social networks through universities, churches and cooperatives; improving their coordination for importing, transporting, storing and distributing roasted ground coffee for consumers; selling coffee on line; organizing coffee shops where they have murals with information about the entire coffee chain; enable the willinglness of people who seek to support a just glocal chain; analyze the coffee chain from the context of the United States or Europe. North-South organizations, intertwined with one another, are like the piece of tortilla that accompanies a fried egg, like honey on pancakes, the ideal complement to people who organize and move the coffee world while contributing to social and environmental equity.

Organizations and their membership must avoid wasting resources, a practice that harms the family and worsens climate change. Instead of poorly spending the good income from coffee, they should take on a commitment about how to mitigate climate change and how to use their income well to the benefit of their families. What happened in Brazil with the freeze caused by the cold wave from the Antarctic can also happen in Colombia, in Central American countries and in other parts of the world; in fact, they are already happening in several regions of the world. Consequently, members and their organizations should invest more in the soil and water, reducing the amount of coffee trees per hectare, diversifying more, combining agriculture and smaller livestock (poultry), producing ecological fertilizer and depending less on agrochemicals, and adding value to different products from the farm. More than drought resistant crops, like casava, pitahaya or pineapple, investing in agroforestry systems that capture carbon dioxide, contribute to biodiversity, soil and water. More than merchandise and money, that organizations build dense social relationships of cooperation, also with working people, to strengthen communities.[8]

It is a time in which we need more common sense. Avoid that reality where “the higher you go the harder the fall.” Instead, the more you cooperate with people and nature, the more “cushion”

you build that will soften any “fall”, and that instead that “cushion” pushes you in a collective way to scale up with equity along the snail´s path.

Long term alliances that embrace these strategies can be like a red t-shirt in a washer full of white clothes, its mission is to bleed so that producers, cooperatives and associations, importers and coffee retail sites might learn to be linked together and then connect with one another to earn with equity, caring for the common home and cultivating a decent living. 

Concluding, “the snail´s path” is building an alliance based on the entire chain of actors that add value to coffee, their organizations, and communities. It is an alliance where profits and losses are shared from the sale of roasted ground coffee. It is building processes where roasted ground coffee is sold in the United States and Europe, and in countries in the South as well. It is an alliance where the emphasis on money “drops” and spaces for learning in organizations is emphasized, where we do not just look at coffee but at the ecosystem where that coffee is produced, and where there is a commitment for dense intracommunity social networks, networks between communities and in alliance with international organizations. This path, in the end, expresses the profound sense of egalitarianism, an idea associated with democratic traditions, which is not to give to each what each deserves, but give to each what is needed to develop as people, going beyond opportunism. This is the idea that the alliance of glocal organizations seeks to cultivate.

[1] René has a PhD in Development Studies, is an associate researcher for the IOB at Antwerp University, a member of OSERPROSS and a collaborator of the Wind of Peace Foundation. rmvidaurre@gmail.com This article has benefitted from information and ideas from Warren Armstrong, Anne Loewisch, Kleber Cruz, Arturo Grigsby, Gisele Henriques, Paz Redondo, Mark Lester, Daniel Ehrlich, Freddy Pérez, Fabiola Zeledón and Elix Meneses.

[2] COP is the acronym for the Conference of the Parties in English, the signers of the Framework Convention of the United Nations on Climate Change, a treaty of 197 agents ( 196 countries and the European Union) reached in 1994.

[3] See: ZygmuntBauman, 2014, ¿La riqueza de unos pocos nos beneficia a todos? Barcelona: Paidós.

[4] Royce Kurmelovs, 2021 (September 30), “Coffee bean price spike just a taste of what’s to come with climate change” in: The Guardian. https://www.theguardian.com/food/2021/sep/30/coffee-bean-price-spike-just-a-taste-of-whats-to-come-with-climate-change

[5] Now in September a disruption was experienced in the supply chain due to COVID-19. Some importers from England warned that the costs of a simple shipment rose from $3,300 to $10,000 (Kurmelovs, 2021). See also: Nigel Hunt, Jonathan Saul and Marcelo Teixeira, 2021 (August), “Analysis: Retail coffee prices to climb as frost and freight costs bite”, in: Reuters. https://www.reuters.com/business/environment/retail-coffee-prices-climb-frost-freight-costs-bite-2021-08-06/

[6] Jonathan Morris, 2021 (September 30) “Coffee bean prices have doubled in the past year and may double again – what’s going on?”, in: The Conversation. https://theconversation.com/coffee-bean-prices-have-doubled-in-the-past-year-and-may-double-again-whats-going-on-169000

[7] Just applying the rules, as fair as it may appear, can “kill” the spirit of growing organizationally. In the space of the organization the people who are owners of the coffee can express their perspectives and reasons, listen to other perspectives and reasons, support one another, and in this way make better decisions. The risk of only emphasizing the rules is that one might fall into meritocracy, that those who have privileges have them because they deserve them or that God blessed them for fasting, which are some ideas that come from the elites and are reproduced also by the peasantry; about this, César Rendueles (2020, Contra la igualdad de oportunidades. Un panfleto igualitarista. Barcelona: Editorial Seix Barral) argues that “equal opportunity” is a reformulation of meritocracy, which is a “way of justifying the privileges of the elites “. Organizations should help to understand the context that leads people to make one or another decision; in this way the organization is a medium for learning, more than a medium for making money. 

[8] In WFTO (World Fair Trade Organization) and in FLO (Fairtrade Labelling Organization) they are discussing a price of coffee that would ensure a basic and decent living income. As producer organizations based in communities, we can contribute to that reflection analyzing production costs, cooperation and community service.

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