Module Twenty Two, Activity Four

The Impact of Coffee in Ethiopia

Coffee Beans

Vocabulary:
Export: to ship/send to another country for use/sale
Import: to bring in from a country for use/sale

There is an activity you can do with students below. This activity discusses how trade occurs on the coffee market and the implications of trade on Ethiopian farmers and coffee corporations. It is important to introduce this lesson with the basic information on coffee that is given below before moving into the activities.

Activity 1:

Activity 1 is a simulation. In this simulation the act of trading coffee is shown to build an understanding of the different roles in the coffee industry. At the end of this lesson is the simulation of the “The Coffee Trader” taken from www.crsfairtrade.org. Follow the directions and complete with your students.

Introduction
Ethiopia is the birthplace of coffee. It is also the largest coffee producer in Africa. It provides at least 60% of the export revenue for Ethiopia. As you have learned in the previous lessons, Ethiopia’s economy and society is heavily reliant upon the coffee industry. Ethiopia’s coffee is enjoyed around the world, but who is making the most profit from these fine coffees? This lesson focuses on learning more about the coffee industry, fair trade, and international companies that all impact Ethiopia.

Lesson Note: “Black Gold: Wake up and Smell the Coffee” is a documentary that could be used along with this lesson. (www.blackgoldmovie.com)

Dr. Martin Luther King Jr. once stated that ““Before you’ve finished your breakfast this morning, you’ll have relied on half the world.”  The United States relies of many different countries to produce foods, materials, etc., as those countries rely on the money they will make to feed, clothe, and send their children to school. Ethiopia is one of the countries that the United States relies on. Recently, US coffee companies and coffee shops have been under scrutiny for their trading practices with Ethiopia and other coffee exporting countries. Many consumers are unaware of issues such as pricing and trade regulations. In this lesson you will hear from two sides – the coffee farmers from countries like Ethiopia, and the corporate side of coffee production and sales.

Coffee
Coffee is a beverage that is made out of coffee beans that are produced in many parts of the world. It is the second largest export in volume the world behind oil. In order to make coffee, the coffee beans go through a long process to become ready to be made into a coffee beverage. Coffee beans are actually the two seeds that are found inside the fruit that grow on a coffee plant or tree. The fruit when it is ripe is called a cherry and it is a dark, glossy red (as seen in the picture below). It is then often picked by hand or shaken off a tree onto mats by a machine. It is grown in high altitude in semi-temperate climates. The bean must first be picked, then defruited, washed, dried, sorted and sometimes aged. After this it gets roasted. There are two varieties –Arabica and Robusta. Robusta is often grown in regions where Arabica coffee cannot be grown and is thought to have originated in Uganda. Arabica originated in Ethiopia. Arabica is known to be a better coffee with less caffeine than Robusta.

Ripe Cherries

Ripe cherries on a coffee plant

Understanding Trade
It is important to understand how trade works (and in this lesson we will focus primarily on Ethiopian coffee trading as an example) to understand the impact coffee has on Ethiopian coffee farmers and others in Ethiopian society.

Coffee is consumed (see map and graph below) around the world, but it cannot be grown in every part of the world, therefore it must be imported and exported.

Coffee Consumption Map

Coffee Consumption Map Worldwide (taken from 2003 data)

Much of the coffee that is produced in Ethiopia is exported. Around 15 million people in Ethiopia livelihoods are dependent upon the coffee exports of their country. The coffee that is exported goes through a chain of trade. This chain of trade consists of six main players: farmers, suppliers, buyers, exporters, roasters, retail/café owners, and then finally onto the consumer (For a more detailed process of coffee from the crop to the cup* (highly recommended to go and print off the sheets) – go to this website: http://www.crsfairtrade.org/coffee – this shows the process that the coffee goes through to get to the consumer – the conventional way and the fair trade way).The price that the farmer receives will vary daily depending on the markets in New York and London (if the coffee is being sold as a commodity), or it will depend on what specialty coffee companies will pay for the coffee in their contracts (for example-Starbucks). In Ethiopia – their beans are sold in an auction in the capital city and it is there that the price is set. The prices that are set there will influence what the farmer will be paid. 1-3% of the profit typically goes to the farmers, 7% goes to shippers, exporters, and local traders, 90% of the profit goes to retailers/cafés, roasters and importers (these percentages may vary).
*For a visual representation of this, use a hundred pennies. Take a penny for each percentage and see just how much each person in this trade is making.

For the current commodity price of coffee visit: http://www.quotecoffee.com/ and go to http://blackgoldmovie.com/resources (go to the bottom of the page and click on the Coffee Calculator to view what each link in the chain of trade will make on a cup of coffee.)

Activity:

Using the commodity quote given on the website above and the 1-3% profit (this is not always the average) farmers typically make off of a bag of coffee – figure out how much a small coffee farmer might make off of 20 bags (each bag of coffee beans is typically 60 kg or 132 lbs.) of coffee beans at the rate given on the commodity price of coffee.

Fair Trade (go to http://www.fairtradeusa.org/ for more information on fair trade and links to other websites)
Fair trade is an organized movement to secure more rights for producers in developing countries when it comes to selling their product. Fair trade strives for greater equity in international trade, especially for those in developing countries. Fair trade hopes to take farmers out of poverty by paying prices that will make for a livable wage (a livable wage means to afford school for their children, clothing, clean water, better housing, etc.). It helps these farmers to compete in a global marketplace. Fair trade products can be found online, in stores, coffee shops, etc.

Cooperatives
Cooperatives are formed in order to provide a place where small farmers can come together and sell their products and share in the profit of the cooperative. In a cooperative the farmers have a set minimum price for their coffee. What they get paid will go no lower than that price. In a cooperative, small farmers have a better chance of selling their product at a higher price than selling individually. Cooperatives are often organized with fair trade practices and also work not only to economically develop farmers, but they also work to develop the community and culture of their area (for example, building schools with their profits). Go to http://www.oromiacoffeeunion.org to look at a cooperative that has been started in Ethiopia.

Recent impacts on the Ethiopian Coffee Trade & News Articles
There has been a “coffee crisis” occurring in recent years. Coffee prices have hit a thirty year low causing many coffee farmers to live in or below poverty- they are selling their product for less than it costs to produce. Even though coffee consumption is on the rise (as well as the costs for coffee drinks) those that are producing the coffee beans are not seeing the profit from this. The coffee crisis that has occurred over the past decade has strongly impacted Ethiopia (as well as many other countries around the world). Families are unable to send children to school, they deal with starvation, and small coffee farmers feel forced to get rid of their coffee plants in order to grow such things as narcotics (which make more of an income for them) in order to feed their families. Movements like fair trade are attempting to help farmers once again make profits. Read the articles presented below for different views about the “coffee crisis” and what is being done in Ethiopia to help out the coffee farmers who produce such a valuable product, but never themselves get paid the value of that product.

Teacher Led Activity :

Have students break into groups and do a *jigsaw activity with the variety of articles below. Have each group become an expert on their particular article. This means they must be able to tell the main ideas, supporting details, facts given, contrasting views (if they are given in the article), and then discuss what they have also learned from the article. After an appropriate amount of time, have students break up, make sure there is one person from each of the previous group, and form a new group. In this new group, each person will share their article with the others and talk about the main points, questions they may have, etc. In the end come back together and discuss what was learned, questions, etc. Please remember that the articles that are located here are from a variety of sources in an attempt to look at multiple perspectives on this issue. Others articles could also be found and used.

*Jigsawing is one method of instruction. To jigsaw, count students into groups – number them 1, 2, 3, 4…so on depending on the number of students in your class. All 1’s will read the same article, 2’s the same, and so on. When time is complete and they have read their article and discussed it, then the whole class will get into new groups. Each group should contain a 1, 2, 3, 4…and so on. This way each group is able to be represented and share what they have learned with other students.
Beginning of Article 1
Mugged: Poverty in Your Coffee Cup from Oxfam International
There is a crisis destroying the livelihoods of 25 million coffee producers around the world. The price of coffee has fallen by almost 50 per cent in the past three years to a 30-year low. Long-term prospects are grim.

Developing-country coffee farmers, mostly poor smallholders, now sell their coffee beans for much less than they cost to produce – only 60 per cent of production costs in Vietnam’s Dak Lak Province, for example. Farmers sell at a heavy loss while branded coffee sells at a hefty profit. The coffee crisis has become a development disaster whose impacts will be felt for a long time.

Families dependent on the money generated by coffee are pulling their children, especially girls, out of school. They can no longer afford basic medicines, and are cutting back on food. Beyond farming families, coffee traders are going out of business. National economies are suffering and some banks are collapsing. Government funds are being squeezed dry, putting pressure on health and education and forcing governments further into debt.

The scale of the solution needs to be commensurate with the scale of the crisis. A Coffee Rescue Plan, which brings together all the major players in the coffee trade, is needed to make the coffee market benefit the poor as well as the rich. This is about more than coffee. It is a key element in the global challenge to make trade fair.

The coffee market is failing. It is failing producers on small family farms for whom coffee used to make money. It is failing local exporters and entrepreneurs who are going to the wall in the face of fierce international competition. And it is failing governments that had encouraged coffee production to increase export earnings.

Ten years ago producer-country exports captured one-third of the value of the coffee market. Today, they capture less than ten per cent. Over the last five years the value of coffee exports has fallen by US$4bn; compare this with total debt repayments by Honduras, Vietnam, and Ethiopia in 1999 and 2000 of US$4.7bn.

The coffee market will also, arguably, end up failing the giant coffee-processing companies, at present so adept at turning green beans into greenbacks. The big four coffee roasters, Kraft, Nestlé, Procter & Gamble, and Sara Lee, each have coffee brands worth US$1bn or more in annual sales. Together with German giant Tchibo, they buy almost half the world’s coffee beans each year.

Profit margins are high – Nestlé has made an estimated 26 per cent profit margin on instant coffee. Sara Lee’s coffee profits are estimated to be nearly 17 per cent – a very high figure compared with other food and drink brands. If everyone in the supply chain were benefiting this would not matter. As it is, with farmers getting a price that is below the costs of production, the companies’ booming business is being paid for by some of the poorest people in the world.

Paying prices as low as they can go – whatever the consequences for farmers – is a dangerous business strategy in the long term. And even in the short term it does not help the business interests of the producers of instant coffee. It is particularly risky given that these companies depend on the goodwill of consumers. The rise of Fair Trade sales in recent years has demonstrated that consumers care about the misery of those who produce the goods they buy.

The coffee industry is in the process of a radical and, for many, extremely painful overhaul. It has been transformed from a managed market, in which governments played an active role both nationally and internationally, to a free-market system, in which anyone can participate and in which the market itself sets the coffee price. Recently this has brought very cheap raw material prices for the giant coffee companies.

At the same time, Vietnam has made a dramatic entry into the market and Brazil has increased its already substantial production. The result is that more coffee is being produced and more lower quality coffee traded, leading to a cataclysmic price fall for farmers. Eight per cent more coffee is currently being produced than consumed. In the meantime coffee companies have been slow to comply with what one of them identified as being their core responsibility within the current crisis: the generation of demand for coffee. The current growth rate of 1-1.5 per cent per year in demand is easily outstripped by a more than two per cent increase in supply.

Despite the stagnant consumer market, the coffee companies are laughing all the way to the bank. In the free market their global reach gives them unprecedented options. Today’s standardized coffee blends may be a mix of coffees from as many as 20 different coffee types. Sophisticated risk management and hedging allows the companies, at the click of a computer mouse, to buy from the lowest-cost producer to mix these blends.

At the other end of the value chain the market does not feel so free. Without roads or transport to local markets, without technical backup, credit, or information about prices, the vast majority of farmers are at the mercy of itinerant traders offering a ‘take it or leave it’ price. Their obvious move out of coffee and into something else is fraught with problems. It requires money that they don’t have and alternative crops that offer better prospects. For a farmer to turn her back on the four years spent waiting for coffee trees to start bearing fruit is a highly risky strategy.

The coffee-market failure is also, in part, a result of stunning policy failure by international institutions. The World Bank and the IMF have encouraged poor countries to liberalize trade and pursue export-led growth in their areas of ‘comparative advantage’. The problem for many poor countries is that the advantage can be very slim indeed – as the flood of coffee and other primary agricultural commodities onto global markets shows. These countries are stuck selling raw materials that fail, utterly, to capture the value added by the time the product hits the supermarket shelves.

Even within the free coffee market, these institutions can be charged with dereliction of duty. Where was the sound economic advice to developing countries on overall global commodity trends, and their likely impact on prices? What urgent steps are donor governments taking to ensure that efforts to create a more manageable debt burden for the poorest countries are not undermined by commodity shocks?

Until now, rich consumer countries and the huge companies based in them have responded to the crisis with inexcusable complacency. In the face of human misery, there have been many words yet little action. Existing market-based solutions – Fair Trade and the development of specialty coffees – are important, but only for some farmers. They can help poverty reduction and the environment. However, a systemic, not a niche solution, is needed.

The challenge is to make the coffee market work for all. The failures of previous efforts at intervention in the market must be understood and lessons learned. But so too must the lessons of the moment. The low coffee price creates a buyers’ market, leaving some of the poorest and most powerless people in the world to negotiate in an open market with some of the richest and most powerful. The result, unsurprisingly, is that the rich get richer and the poor get poorer. Active participation by all players in the coffee trade is needed to reverse this situation.

The next year is critical. Coffee-producing governments have agreed a plan that aims to reduce supply by improving the quality of coffee traded. This will only work if it is backed by the companies and by rich countries and is complemented by measures to address long-term rural underdevelopment.

Oxfam is calling for a Coffee Rescue Plan to make the coffee market work for the poor as well as the rich. The plan needs to bring together the major players in coffee to overcome the current crisis and create a more stable market.

Within one year the Rescue Plan, under the auspices of the International Coffee Organization should result in:

  1. Roaster companies paying farmers a decent price (above their costs of production) so that they can send their children to school, afford medicines, and have enough food.
  2. Increasing the price to farmers by reducing supply and stocks of coffee on the market through:
    > Roaster companies trading only in coffee that meets basic quality standards as proposed by the International Coffee Organization (ICO).
    > The destruction of at least five million bags of coffee stocks, funded by rich-country governments and roaster companies.
  3. The creation of a fund to help poor farmers shift to alternative livelihoods, making them less reliant on coffee.
  4. Roaster companies committing to increase the amount
    of coffee they buy under Fair Trade conditions to two per cent of their volumes.

The Rescue Plan should be a pilot for a longer-term Commodity Management Initiative to improve prices and provide alternative livelihoods for farmers. The outcomes should include:

  1. Producer and consumer country governments establishing mechanisms to correct the imbalance in supply and demand to ensure reasonable prices to producers. Farmers should be adequately represented in such schemes.
  2. Co-operation between producer governments to stop more commodities entering the market than can be sold.
  3. Support for producer countries to capture more of the value in these commodities.
  4. Financed incentives to reduce small farmers’ overwhelming dependence on agricultural commodities.
  5. Companies paying a decent price for all commodities,
    including coffee.

Taken from: http://www.maketradefair.com/en/index.php?file=16092002164814.htm

End of Article 1 

Beginning of Article 2 
Taken from: http://news.bbc.co.uk/2/hi/science/nature/800356.stm
Wednesday, 21 June, 2000, 18:08 GMT 19:08 UK

Coffee crisis in Ethiopia

Coffee Crisis

Coffee: The most valuable international commodity after oil

The future of the world’s most popular coffee bean is under threat because of deforestation, according to an Ethiopian ecologist. Tadesse Gole, currently at the University of Bonn, Germany, claims only an international emergency program can save the surviving remnants of the wild arabica coffee plants growing in the highland rainforests of south-west Ethiopia. Over 90% of the coffee drunk in the world comes from a few commercial varieties of arabica bean. But the ability to develop new varieties that can overcome disease depends on the survival of the many wild varieties in Ethiopia. And these highland forests have lost more than half their trees in the last 30 years.

Cash crop
“We gave the world coffee. Now we hope the international community will collaborate with us to save its genetic base,” said Tadesse Gole, in the magazine New Scientist. He said Ethiopian government plans to protect three forest fragments have foundered for lack of cash. Arabica beans are so widely used they are the most valuable international commodity after oil. Most of the coffee is grown on plantations outside Ethiopia from a handful of cultivated varieties created from a few individual bushes. But these plantations are at risk from disease, such as the coffee rust that hit Brazil in the 1970s, and when disaster strikes, plant breeders turn to Ethiopia for genetic help.

Gene bank
It is home to the largest coffee gene bank, at Jimma, and the even greater genetic reserves scattered through the forests, where arabica bushes make up much of the undergrowth. But these forests now cover less than 2,000 square kilometers, according to Dr Tadesse. They are being exploited for timber, and razed to make way for tea plantations and to allow for the mass resettlement of people displaced by the drought in the 1980s. Dr Tadesse said that, despite the seed banks and plantations, “we know very little about the biology of the wild coffee”. Local farmers who cultivate about 100 traditional varieties in their own gardens may know more about wild coffee than anyone else, he said.

Global problem
Gene banks for coffee outside Ethiopia, in Kenya, Brazil, Colombia, Costa Rica and elsewhere, are also in danger, said Charles Adwanda of Kenya’s Coffee Research Foundation. Coffee genes can only be saved by planting bushes in fields, because the seeds do not survive in cold stores. “Civil unrest, illegal clearing for narcotics cultivation, and the sale of research land to private developers” are wrecking many of these fields, said Mr Adwanda. This leaves Ethiopia’s threatened forests as the last line of defense against the genetic devastation of the world’s favorite drink.
End of Article 2

Beginning of Article 3
Starbucks in Ethiopia coffee row

US coffee chain Starbucks is denying Ethiopia earnings of £47m ($88m) a year, according to Oxfam. 
The UK charity says Starbucks asked the National Coffee Association (NCA) to block the country’s bid to trademark three types of coffee bean in the US. Oxfam says poor farmers would have benefited from the move but the NCA says there is no economic case to support the charity’s claims. Starbucks denies initiating opposition to the trademark application.

‘Backwards step’ 
The Ethiopian government filed its applications to trademark its most famous coffee bean names – Sidamo, Harar and Yirgacheffe – in US courts last year. Oxfam claims that Starbucks flagged up the application to the NCA – of which the firm is a leading member. The NCA then filed its opposition at the US Patent and Trademark Office. Oxfam’s Phil Bloomer said the charity had worked with Starbucks in the past and appealed to the firm to “act responsibly”. “Their behavior on this occasion is a huge backwards step and raises serious questions about the depth of their commitment to the welfare of their suppliers,” he said. Berhanu Kebede, Ethiopia’s ambassador to the UK, said in a statement that the international community should support the country’s efforts to ensure farmers got a fair reward for their hard work. “This campaign has a pivotal role in redressing the unfairness of the international trading system,” he said.

‘Reduce demand’ 
Starbucks’ senior vice-president of coffee procurement, Dub Hay, denied approaching the NCA to oppose the Ethiopian move. “We did not get the NCA involved – in fact it was the other way around, they contacted us.” Robert Nelson, head of the NCA, backed Mr. Hay’s claim, adding that his organization opposed the Ethiopian move for economic reasons. “For the US industry to exist, we must have an economically stable coffee industry in the producing world,” he said. “This particular scheme is going to hurt the Ethiopian coffee farmers economically.” He claimed that the Ethiopian government was being badly advised, and the move would price them out of the market. The trademark move would also reduce demand for the country’s coffee, he said. Oxfam said the NCA and Starbucks should not dictate to Ethiopia how best to sell its products.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/africa/6086330.stm

Published: 2006/10/26 10:36:00 GMT

© BBC MMVII
End of Article 3 

Beginning of Article 4

Starbucks in Ethiopia coffee vow 
Starbucks has agreed a wide-ranging accord with Ethiopia to support and promote its coffee, ending a long-running dispute over the issue. The US retailer will market, distribute and, in some cases, license Ethiopia’s range of high-quality coffee brands. A row over the recognition and use of trademarks for its coffee has stymied co-operation between the two sides. But it is hoped the deal will act as a catalyst to raise prices and improve the livelihoods of Ethiopian farmers.

‘Milestone’ 
Although Ethiopian coffees command a premium price in foreign markets, particularly the US, farmers who grow the beans often live in extreme poverty. Hopes of an alliance between Starbucks and Ethiopia receded last year when the retailer objected to a plan to license rights to coffee brands in countries where they were not registered as trademarks. Starbucks was also accused of opposing potentially lucrative trademark applications in the US. But the new agreement acknowledges Ethiopian ownership of popular coffee designations such as Yirgacheffe, Harrar and Sidamo, regardless of whether they are registered or not. It will also allow Starbucks to use coffee types in certain markets under agreed conditions. Ethiopian farmers will not receive royalty payments from the deal, but it is hoped that more effective distribution and marketing will help boost demand and, in time, lift prices. “This agreement marks an important milestone in our efforts to promote and protect Ethiopia’s specialty coffee designations,” said Getachew Mengistie, director general of the Ethiopian Intellectual Property Office. “Having the commitment and support of Starbucks will help enhance the quality of Ethiopian fine coffees and improve the income of farmers and traders.” Ethiopian coffees have been trademarked in the US, Japan, Canada and Europe, while applications are pending in China, Brazil and India.

Fair trade concern 
But fair-trade campaigners argue that this has done little so far to reward Ethiopian farmers, some of whom receive only $300 a year for their crop. Ethiopian officials said the ultimate aim of the agreement was to try to boost prices, which for Starbucks purchases averaged $1.42 per pound last year. Starbucks said the accord was far more comprehensive than previous agreements. “We are extremely pleased that this agreement supports both the Ethiopian specialty coffee industry and the farmers and their communities that produce these fine coffees, while allowing us to bring them to our customers,” said chairman Howard Schultz.
Ethiopia is Africa’s largest coffee producer, ahead of Uganda and the Ivory Coast, and coffee is its largest source of foreign exchange.
Story from BBC NEWS
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6225514.stm

Published: 2007/06/21 09:49:41 GMT

© BBC MMVII
End of Article 4

Beginning of Article 5
Article from Oxfam International: https://www.oxfamamerica.org/press/oxfam-celebrates-win-win-outcome-for-ethiopian-coffee-farmers-and-starbucks/

Oxfam Press Release – 21June2007

Oxfam Celebrates Win-win Outcome for Ethiopian Coffee Farmers and Starbucks

Starbucks and Ethiopia sign agreement; Oxfam ends Campaign on Starbucks
Washington, D.C. – Starbucks and Ethiopia signed a distribution, marketing and licensing agreement today that ends their trademark dispute and brings them together in partnership to help Ethiopian coffee farmers. International relief and development agency Oxfam welcomes the agreement that has the potential to give farmers a fairer share of the profits for their world-renowned coffee brands, Sidamo, Harar and Yirgacheffe. “Congratulations to our Ethiopian coffee farming partners and to Starbucks on an agreement that recognizes Ethiopians’ right to control the use of their specialty coffee brands,” said Raymond C. Offenheiser, president of Oxfam America. “This agreement represents a business approach in step with 21st-century standards in its concern for rights rather than charity and for greater equity in supply chains rather than short term profits.”Eight months ago Oxfam began working to raise awareness of Ethiopians’ efforts to gain control over their fine coffee brands. Today, Starbucks has honored its commitments to Ethiopian coffee farmers by becoming one of the first in the industry to join the innovative Ethiopian trade marking initiative.“Harnessing market forces and allowing poor countries to benefit from intellectual property rights are keys to creating fairer and more equitable trade,” continued Offenheiser. “In a modern economy, companies must bring their business models in line with the demands of good corporate citizenship, which goes beyond traditional philanthropic approaches to dealing with poverty.”Nearly three years ago, Ethiopia’s coffee sector launched a plan to take better advantage of its intellectual property. The country applied for the trademark registrations of its specialty coffee brands in the United States, Canada, and other countries. At the same time, Ethiopia began negotiating with coffee roasters to sign agreements acknowledging the right of Ethiopians to control these brands.“With this agreement, Ethiopians can build the value of their coffees and farmers can capture a greater share of the retail price,” Offenheiser concluded. “This should help improve the lives of millions of poor farmers, allowing them to send their children to school and access healthcare.”According to a press release issued by Ethiopia and Starbucks today, the agreement allows Starbucks to use and promote these coffee brands in markets both where trademarks exist for the brands as well as where they may not, in accordance with agreed terms and conditions negotiated with Ethiopia. Currently Ethiopia has successfully registered trademarks in Canada, the European Union, the United States and Japan.In October 2006, Oxfam kicked off an international campaign to encourage Starbucks and other roasters to engage with Ethiopia directly on the trade marking initiative. Since then, more than 96,000 supporters have called on Starbucks to sign a licensing agreement. Their emails, faxes, phone calls, postcards, and in-store visits helped bring global attention to the issue.Oxfam encourages the development of innovative market-based strategies to gain more benefits from trade. The Ethiopians’ strategy on coffee is particularly noteworthy because they are seeking to use trademarks – a part of the modern intellectual property system – to benefit poor farmers.

End of Article 5 

Websites to visit: 
These are some of the websites found on the topics discussed in the lesson, there are many more websites out there to view – encourage students to do some research on their own and find sites that give multiple perspectives about the coffee industry.

http://www.highergroundstrading.com/

http://www.crsfairtrade.org/

http://www.ico.org/index.asp

 

Whole Class Activity (from above)  Coffee Simulation – “The Coffee Trader” from www.crsfairtrade.org – TABLE OF CONTENTS

About The Coffee Trader – A Fair Trade Simulation in Two Acts
Act One 
Farmer role 
Buyer role 
Discussion notes
Act Two 
Farmer role 
Buyer role 
Discussion notes 

Introduction and Directions“The Coffee Trader” is designed to help participants identify the challenges faced by small-scale producers around the world by inviting them to act out a series of trading simulations. In Act One, geographically isolated small-scale farmers negotiate with coffee buyers under a series of parameters that illustrate the power imbalances inherent in many commodity supply chains. In Act Two, the parameters are redrawn to simulate a Fair Trade negotiation. In the facilitated dialogues that follow each act, participants identify and analyze both the structural challenges that small-scale farmers face overseas and the opportunities that Fair Trade presents to change the trading landscape.(A variation on this approach for groups with more time and/or more general interest in agriculture, alternative trade and/or international development involves an intermediate simulation in which fewer variables are changed from Act One to demonstrate how effective, market-oriented interventions can dramatically improve the position of small-scale farmers even outside the Fair Trade system.)The ideal group size for the simulation is at least 12 participants, organized into groups of six or more. The exercise is ideally conducted in a space large enough to permit the physical separation of participants so that none is within 6-10 feet of another. It requires no materials other than the roles that follow, markers and a flipchart for the facilitator to capture the group’s reflections.

THE COFFEE TRADER – FACILITATOR’S GUIDE

ACT ONE: CAFÉ, THE CONVENTIONAL WAY
SUMMARY & STAGING
Summary
Act One illustrates the plight of small-scale coffee farmers who lack vital information and resources and work in isolation from markets and one another. The simulation consists of a series of negotiations between small-scale farmers and a coffee buyer in which the power dynamics are highly skewed in favor of the buyer. It is a stylized experience that reflects many of the realities of the coffee trade for small-scale farmers.

Staging
The group must divide into small groups of no fewer than 4 people (6-8 or more is ideal). One person is identified as the buyer, and the remaining members of the group are farmers, who must physically separate themselves and are forbidden to speak to one another. The facilitator may wish to identify one person as an observer to help facilitate discussion in the plenary after the simulation. After giving participants a minute or two to read their roles, the simulation begins. The buyer moves from farmer to farmer in a series of isolated negotiations. The facilitator may wish to enforce strict time limits on each negotiation (2-3 minutes) to ensure that every buyer has at least a few opportunities to negotiate.

At the conclusion of the allotted time, the facilitator brings the group to plenary to discuss the experience.

THE COFFEE TRADER—FACILITATOR’S GUIDE
WWW.CRSFAIRTRADE.ORG

ACT ONE: CAFÉ, THE CONVENTIONAL WAY
Role: Farmer

You are an independent small-scale coffee farmer living in the mountains of the República Cafetalera. You have three acres of land, two of which are devoted to coffee production. Coffee represents your primary cash crop, and your sale of coffee is the biggest source of revenue each year. You have 1000 pounds of coffee to sell. Ten years ago, you were getting more than $1 per pound. In recent years, however, prices have fallen to much lower levels. Last year you sold for 50 cents per pound, and had a very difficult time feeding your family and meeting unexpected expenses during the year. You hope to get as much as you can for your coffee this harvest, but you are afraid prices will be low again.

With the proceeds from your sale, you need to pay off $250 in debt to the folks who sold you seeds and tools on credit. You also have a host of immediate expenses that total $100: medicine for your mother-in-law, shoes for your children and materials to repair your earthen wood-burning stove. You would like to send your kids to school this year, but don’t know whether you will be able to afford $50 for uniforms and school fees. In order to be able to pay off your debts, buy the things you need and send your kids to school, you need to make at least $400 from the sale of your coffee. You want to make as much as you possibly can, since whatever you earn above that amount you can put toward future expenditures on food, medicine, etc. You think that you will have other opportunities to sell your coffee to another buyer this year, but you can’t be sure. Since you don’t have transportation to get your coffee to the town market, you need to rely on buyers coming out to your remote farm.

Good luck!

Role: Intermediary

You are a coffee trader. You live in a small town in the mountains surrounded by coffee-farming communities. You have a truck that enables you to travel from farm to farm in outlying regions during the coffee harvest to buy coffee that you will, in turn, sell to a processing mill. You have capacity to buy and transport 100,000 pounds of coffee this harvest season. Ten years ago, you were facing high prices. In recent years, however, prices have fallen to much lower levels. Last year you bought coffee for 50 cents per pound or less, and were able to re-sell it to the mills for 65 cents, making 15 cents per pound for a total of $15,000. This year was a strong harvest, so there is an oversupply of coffee. This means that the mills will not pay more than 60 cents per pound. You are also spending more for gas due to high prices at the pump, so you need to negotiate the lowest price possible to generate the same earnings as last year. With the proceeds from your sale, you need to pay off $2000 in debt to the mechanics who repaired your truck on credit. You also have a host of immediate expenses, including new tires for your truck, that total $500. You would like to build a new kitchen in your house that will cost you more than one thousand dollars and you would like to build a small warehouse where you can store coffee that will cost another few thousand dollars. In order to be able to do all these things, you calculate that you can’t pay more than 45 cents per pound for coffee. You want to pay much less, of course, since the less you spend, the greater your profits. If things don’t work out with these particular farmers, you will have plenty of other opportunities to buy from other farmers. Since there is such oversupply this year, so you don’t need to pay more than 45 cents this early in the season.

Good luck!

DISCUSSION NOTES

Bring the group back into plenary and solicit reactions from people who played both roles. Below are some suggested questions and priority themes you should work to elicit from participants.

Farmer Questions
• What was your goal?
• What happened? Did you sell your coffee/achieve your goal?
• Why/why not?
• How did the negotiation go? What was the tone? How did you feel?
• Did you make it clear that the welfare of your family depended on the terms of this sale? How did the buyer respond?
• What are the consequences of the outcome for you and your family?

Buyer Questions
• What was your goal?
• What happened? Did you buy coffee/achieve your goal?
• Why/why not?
• How did the negotiations go?
• What are the consequences of the outcomes for you/your business/your family?
• How did you feel?

Priority Themes
• Information
Because coffee farmers work in isolation from population centers and markets, they rarely have access to the information, resources or services they need to compete effectively. The buyers, by contrast, are directly connected to overseas markets through their sales channels, and have up-to-date information about prices.
• Lack of bargaining power
When coffee farmers work in isolation from one another, they have little to no leverage in negotiations. Unlike the farmers who must sell their coffee to survive, buyers can walk away from individual farmers with no adverse consequences for themselves, their business or their families.
• Zero-sum negotiations
This is a classic case of zero-sum negotiation: the trader’s gains are the farmer’s losses, and vice versa. There is no incentive for either party to accede to the demands of the other, since every penny gained by one party is a penny lost by the other.

ACT TWO: CAFÉ, THE FAIR TRADE WAY
SUMMARY & STAGING
Summary

Act Two simulates a negotiation between a cooperative and coffee company that participate in the Fair Trade system. Unlike the first act, which revolves around a struggle over the price of the coffee, Act Two is broader in focus—price is only one of several variables, and is less urgent to the farmers since the Fair Trade system guarantees that buyers pay coffee cooperatives a fair minimum price of $1.26 per pound for all the Fair Trade coffee they buy. The simulation consists of a single negotiation between the elected spokesperson of a coffee cooperative and a Fair Trade coffee company trying to sustain itself as a business while also fostering the development of a worthy cooperative. It is a stylized experience that reflects many of the realities of the Fair Trade coffee system.

Staging
The group must divide into small groups of no fewer than 4 people (6-8 or more is ideal). One person is identified as the buyer, and the remaining members of the group are designated as farmers who belong to the San Ignacio cooperative. These farmers must elect one of their number as spokesperson to represent the group in negotiations with the buyer, although the representative can consult at any time with fellow coop members. After giving participants a minute or two to read their roles, the simulation begins. The buyer and elected coop spokesperson begin to negotiate the terms of this year’s purchase. At the conclusion of the allotted time, the facilitator brings the group to plenary to discuss the experience.

Role: Elected cooperative representative

You represent 80 small-scale coffee farmers who belong to the San Ignacio Cooperative. You all own small farms averaging three acres in size, two of which are devoted to coffee production. Coffee represents your primary cash crop, and your sale of coffee is the biggest source of revenue each year.

Five years ago, coffee prices were at their lowest levels in a century. In an effort to improve your bargaining position with moneylenders and coffee buyers in this difficult market, a few of you— fellow parishioners at San Ignacio parish in town—banded together to create the cooperative. For the first few years, the cooperative was able to negotiate access to credit on better terms for its members, and managed to get a better price for its coffee since it offered buyers the ability to get a large amount of coffee through a single transaction, rather than going from farm to farm to get enough coffee to fill an export container. As more and more of your neighbors learned of these successes, they joined the cooperative. This expanded membership brought more production, more bargaining power and more success. Two years ago, the cooperative was able to invest in new technologies that helped to improve coffee yield and quality. At that time, the coop also applied for Fair Trade Certification. Then last year for the first time, the cooperative sold 20,000 pounds of its coffee to Café Justicia, a Fair Trade company in the United States, for the guaranteed Fair Trade minimum of $1.26 per pound—far more than other farmers in your region were earning and the most that anyone in your area had earned in many years. You deeply appreciated the opportunity to sell to Café
Justicia—the first time your cooperative was ever visited or listened to by a representative of any coffee company.

This year, your cooperative member can produce 80,000 pounds of coffee—just enough to fill two large shipping containers—and the going rate on the local market is about $0.63. The cooperative’s goal is to generate $75,000 in revenue, which it can achieve by selling one and one half containers (60,000 pounds) of coffee at the $1.26 minimum, or a lower volume of coffee at a higher price.

You are working to maximize your Fair Trade sales because for every pound of coffee you sell into the Fair Trade system, the company that buys it returns a small “social premium” to the cooperative that can be spent on community projects. The local health clinic was badly damaged in last year’s storm—if the coop can sell half its harvest on Fair Trade terms, it will have $2000 in social investment money to repair the clinic and purchase some basic medicines. There are also some upgrades you would like to make to your coffee processing facilities that will help you produce higher-quality coffee—$1000 in investments you will be able to make if you can sell another half-container at Fair Trade prices.

Good luck!

Role: Fair Trade coffee company owner

You own Café Justicia, a small coffee company in Savannah, GA. You lived in a coffee growing community while you were a Peace Corps volunteer in the República Cafetalera, and you came to understand the importance of coffee to the livelihoods of poor farmers overseas. You are committed to selling only Fair Trade coffee to your customers, and are making every effort to establish direct and personal relationships with the farmers who grow your coffee, even though this commitment is expensive—not only do you guarantee a fair price to coffee farmers, but you also invest significant amounts of time and money in traveling “to origin” (as they say in the coffee business) to build strong relationships with your suppliers.

A friend from the Peace Corps who still lives and works in República Cafetalera tipped you off about this coop two years ago. After visiting the coop, you were moved by its story and impressed with the quality of its coffee, so you decided to buy 20,000 pounds of coffee at $1.26 per pound and develop the “San Ignacio Special Reserve”—a limited line of custom-roasted Fair Trade coffee from this coop. Its sales were strong but not spectacular. You have a new promotional strategy for this coffee that you expect will lead to a significant increase in the amount of San Ignacio coffee you can sell this year to somewhere between 30,000-40,000 pounds. You are committed to this cooperative and want to find a way to help them succeed, and are willing to invest in the relationship to make that happen, but you do not expect to be able to sell much more than 40,000 pounds (one container) of their coffee this year.

Good luck!

DISCUSSION NOTES

Bring the group back into plenary and solicit reactions from people who played both roles. Below are some suggested questions and priority themes you should work to elicit from participants.

Cooperative Questions
• What was your goal?
• What happened? Did you achieve your goal?
• Why/why not?
• Were any agreements reached beyond the buying and selling of coffee? (Groups may seek creative solutions involving variables beyond price and volume, including collaboration on/funding for social investment in the community.)
• How did the negotiation go? What was the tone? How did you feel during the negotiation?
How was this different from the way farmers felt during the first act?
• What are the consequences of the outcome for your community?

Buyer Questions
• What was your goal?
• What were your constraints?
• What happened? Did you achieve your goal?
• Why/why not?
• How did the negotiations go?
• How did the negotiation go? What was the tone? How did you feel during the negotiation?
How was this different from the way buyers felt during the first act?
• What are the consequences of the outcomes for you/your business?

Priority Themes
• Stability
The long-term commitments made by Fair Trade buyers to coffee farmers removes a significant amount of uncertainty from the equation and permits farmers the luxury of making long-term plans for their farms and families—a future orientation that we all take for granted.
• Community
While individual farmers in this act are concerned about their own earnings, the focus migrates quickly to community-level needs when there is enough certainty that enough coffee will be sold at a fair price to ensure a sustainable livelihood.
• Relationships
The company’s determination to make a profit does not undermine its commitment to foster the development of the cooperative and community. Given the commercial and personal history between coop and buyer, and the prospect of engagement well into the future, the prevailing spirit is one of collaboration and mutual benefit.
• “Win-win” or “integrative” negotiations
This negotiation shows how Fair Trade can help to align the interests of producers and buyers. When coffee buyers invest in the people who grow their coffee, and more specifically in their social, economic and productive infrastructure, those farmers grow better coffee. When the buyers can sell better coffee to their customers in the United States, they benefit as well.

Final Activity:

After you have been introduced to coffee and have completed Activity 1 and/or 2 now, complete the final activity. In your local community travel to the places that sell coffee (brainstorm places where coffee is sold/found – schools (teachers lounge), churches, stores, coffee shops, etc.) and discuss with the manager if they do/do not sell fair trade coffee, why they do or don’t sell it and any other information you can receive. Now, form groups for your final activity. Each group is responsible for presenting to the coffee shop/stores where they sell coffee, to discuss with them how coffee is grown, etc., and why fair trade products should be sold/used in their community. Students can create an essay, PowerPoint, poster, etc.

 

This is the final activity in this module. Return to the curriculum, go on to Module Twenty Three, or choose from one of the other activities in this module.