Globalization and the Coffee Industry

By Oleg Nekrassovski

The present paper discusses three aspects of the global coffee industry. The first aspect

is the dependency in the coffee trade and the development of the coffee trade. The second

aspect is the environmental impact of the global coffee trade. And the third aspect is coffee

trade agreements. The paper first discusses fluctuations in coffee prices in Tanzania’s coffee

exporting market and the economic meaning of this phenomenon. Next the paper discusses the

start of Starbucks’ spread into India and the associated trade agreements. Then, it gives a

thorough description of various types of coffee cultivation and their associated environmental

impacts. Finally, the paper discusses the nature and function of the International Coffee

Organization.

The consumption of coffee in the developed world, doubtlessly affects those in the

developing world. Tanzania, for example, is Africa’s fourth largest coffee producer after

Ethiopia, Uganda, and Ivory Coast (Ng’wanakilala, 2011). And according to a trader at a leading

Tanzanian coffee exporting company, prices at Tanzanian coffee auctions tend to fluctuate in

response to the size of orders that Tanzanian coffee exporters intend to supply to their clients

(Ng’wanakilala, 2011). The clients of these exporters must be mostly the developed countries

because all of them have the money for massive coffee consumption, but lack the climate for

its production. Be as it may, the above described price fluctuations on the Tanzanian coffee

market are easy to understand with even the most basic economic laws. According to basic

economic theory, the free market price, of a consumer good, increases the moment the

demand for that good is increased. Hence, the more Tanzanian coffee is bought by the

developed world, the more poor Tanzanian coffee growers will receive for their produce. And

the more coffee is consumed at the individual level in the developed country, the more coffee

will be bought by that country from a developing, coffee-producing, country. Considering the

fact that many developing countries are coffee producers, and that the above described

economic law is universal, any increase in the consumption of coffee by the people in the

developed world increases the average income and hence the standard of living of people in

the developing world.

According to the article “Coffee days” (2011), cheap chain coffee shops have

significantly changed the social space of urban India. Up to now, India’s cheap chain coffee shop

market has been dominated by two Western coffee chains, Barista and Café Coffee Day (Coffee

days, 2011). This is about to change as the North American coffee chain giant, Starbucks, has

announced that it is beginning its long-awaited invasion of India (Coffee days, 2011). To make

the job easier, Starbucks made a deal with India-based Tata group. According to this deal, Tata

Coffee (a member of the Tata group) will supply Starbucks with coffee beans from its

plantations in south India. While Starbucks, for its part, will open a few coffee shops, most likely

in Taj hotels, all of which are managed by the Tata group (Coffee days, 2011). According to

Starbucks chairman, Howard Schultz, the reason for Starbucks’ late entrance into Indian market

lies in problematic Indian retail regulations (Coffee days, 2011). This supports a well known

economic premise, that any regulation of the local economy impedes free trade and the

formation of a global economy.

McCook (2008), in his description of a relevant primary source, states that intensified

coffee production first appeared in Latin America in the 1970s. This form of cultivation involves

the extermination of most other plants that create shade, the cultivation of hybrid coffees with

the highest yields, fertilization of the soil with chemical fertilizers, and the extermination of

parasitic coffee vermin with chemical pesticides (McCook, 2008). A different form of coffee

cultivation, introduced to Latin America more recently, is called organic cultivation. It is

characterized by the production and application of organic inputs through an intensive use of

labour (McCook, 2008). Organic cultivation, just like intensified cultivation, is science based. It

relies heavily on botany, ecology, and other sciences (McCook, 2008). The specific techniques of

organic coffee cultivation are quite varied. One of them is the careful terracing of coffee plants

and farms; a technique which helps to prevent soil erosion. Another, is a deliberate

accumulation of organic debris, such as leaf litter and humus, to enrich the soil. And yet

another, is the retainment rather than extermination of diverse species of shade trees; a

practice which has proved effective in increasing the yield of organic coffee farms (McCook,

2008). Thus, according to McCook (2008), the ecological benefits of organic farming are

undeniable.

A recent study by Martinez-Torres, described by McCook (2008), of contemporary

coffee farming in Mexico, goes to great length to show that organic farming is no less

productive than intensified farming. To this end Martinez-Torres compares the yields of organic

and intensified Mexican coffee farms of various sizes, and comes to a conclusion that the

productivity of intensified farms is only slightly lower than that of organic coffee farms

(McCook, 2008). In the same study, Martinez-Torres finds that among Mexican coffee farmers,

the use of organic cultivation is most prevalent on the smallest farms (McCook, 2008).

All in all, McCook’s (2008) paper indicates that organic coffee cultivation is here to stay.

It is no less productive than intensified cultivation, but unlike intensified cultivation, it is

beneficial rather than harmful to the natural environment. The ever increasing demand, by the

developed world, for organic produce, guarantees that the organic cultivation of coffee will

only continue to grow and perhaps one day will completely replace non-sustainable intensified

cultivation. Also, the fact that the price of organic coffee, on the global market, is higher than

that of inorganic coffee, will continue to guarantee that organic coffee cultivators (most of

whom are in the developing world) will greatly benefit from our consumption of organic coffee.

And considering that the owners of small farms, who are necessarily the poorest farmers, are

the ones most likely to engage in organic coffee cultivation, the continued consumption of

organic coffee by the developed world will be especially beneficial to some of the poorest

people in the developing world.

The International Coffee Organization (ICO) is a major intergovernmental coffee

organization. ICO’s exporting members produce over 97% of world’s coffee, while its importing

members consume about 80% of world’s coffee (International Coffee Agreement, n. d.). The

ICO makes a strong, positive influence on the world coffee economy and on the living standards

in the developing world, through various initiatives. It contributes to the development of

international coffee policies through intergovernmental coordination. It helps to make the

world coffee economy sustainable. It adds value to coffee and improves its marketing by

initiating coffee development projects. It uses innovative market development activities to

increase world consumption of coffee. It promotes the improvement of coffee’s quality. It uses

statistics and market studies to collect objective and comprehensive information about the

world coffee market, and uses this information for creating transparency in the world coffee

sector (International Coffee Agreement, n. d.).

Thus, it is clear from all of the above that the global coffee trade is beneficial to the

global economy especially to the economy of the developing nations. It is especially beneficial

to some of the poorest citizens of the developing nations. Also, a large proportion of coffee

cultivation is beneficial rather than harmful to the environment. And finally, the global coffee

trade is characterized by mutually beneficial trade agreements between market giants which

are monitored by at least one intergovernmental coffee trade organization to ensure that the

agreements in question do not harm the environment or the coffee farmers of the developing

nations.

References

Coffee days. (2011, January 15). Retrieved from http://www.indianexpress.com/news/Coffee-

days/737676.

International Coffee Agreement. (n. d.). Retrieved from http://www.ustr.gov/trade-

topics/environment/commodity-agreements.

McCook, S. (2008). Coffee and flowers: Recent research on commodity chains, neoliberalism,

and alternative trade in Latin America. Latin American Research Review, 43(3), 268-277.

doi: 10.1353/lar.0.0043.

Ng'wanakilala, F. (2011, January 15). Tanzania coffee prices fall on poor quality. Retrieved from

http://af.reuters.com/article/investingNews/idAFJOE70E0AT20110115?pageNumber=1

&virtualBrandChannel=0&sp=true.