January 28, 2015

The world loves coffee. On any given day, people drink 2.25 billion cups of the different variants of coffee, easily making it the most popular beverage. That also makes coffee a major global industry catering for thousands of businesses – particularly at the consumer end – and employing hundreds of thousands of people. In fact, coffee is the second most traded commodity after oil, and the leading source of foreign exchange for numerous producer countries.

Not surprisingly, the coffee industry has evolved into a complex structure. Over the last half century, cafés have sprung in virtually all towns across the world, not just in the major cities. The industry also supports thousands of exporters, wholesalers, and retailers.

Also inevitably, innovations, both at the consumer and production end, have taken root in the industry. Coffee connoisseurs and retailers have developed new varieties of instant coffees, the most famous of which is cappuccino – and manufacturers have created an entire sub-sector of coffee making and dispensing machines.

But while the evolution of the coffee industry has led to obvious economic advantages for millions of people, it has also led to some serious global problems. Today, it is a classic case of an industry that has become a victim of its own success.

How Has the Coffee Industry Become a Global Problem?

It is on the production side that the coffee industry has become a global problem. Until the 1970s, coffee was grown in a mixed agro-forestry system where coffee plants were cultivated in the shade of indigenous trees. That system mimicked how the plant originally used to grow naturally in the East African highlands and blended into the indigenous co-system.

But the agro-forestry system was inefficient for modern business needs. Most strikingly, the system complicated the deployment of modern agricultural methods such as fertilizer and pesticides, leading to a situation where relatively few coffee plants were dispersed over large acreages. As a result, large coffee producers began experimenting with alternative methods of production, eventually settling on what today are the two leading methods of production: monoculture and sun-cultivation. The monoculture system cultivates coffee with only a single species of pruned trees to offer shade while sun-cultivation totally eliminates the trees to leave only the coffee plants in the open sunlight.

The shift has been fast and massive, particularly in the last two decades. Between 1996 and 2010, for example, monoculture and sun-cultivation of coffee increased from 24% of global production to 43%. As expected, the new system has hugely improved efficiency. The number of coffee plants per acreage has grown, as has the rate of photosynthesis per plant. The system has also made it a lot easier to mechanize the watering and deployment of pesticides and fertilizers. As a result, consumer prices of coffee have stayed low. The effect is that monoculture and sun-cultivation of coffee has done exactly what business school textbooks say ought to be the aim of good business. Not surprisingly, many governments in coffee producing regions have taken notice and now encourage their small-scale farmers to adopt these better paying modern methods of coffee production.

The problem is that the new ways of growing coffee has depleted natural forests, including the hugely important rainforests. It just happens that coffee grows in the tropics – South and Central America, Africa and Southern Asia – the same places that are home to the world’s rainforests. The new methods of production have pushed back the rainforests, in the process destroying natural habitats for both animals and plants. More precipitously, the destruction of rainforests has robbed the planet of its key absorbent of carbon dioxide emissions, in effect contributing directly to climate change.

To be fair, it is not just coffee production that is eating into the rainforests. Logging, large scale ranching, and mining have also greatly contributed to the problem. But there is no doubt that coffee production is one of the greatest climate threats. The effect is that the estimates by rainforests advocacy organizations now place the current rainforest cover at 6% of the global land surface, down from 15% in 1950.

At that rate, there will be no rainforests remaining in 40 years.

Poverty Side Effects of Better Coffee Production

The improvement in coffee production is also shaping out into a major drag on global efforts to fight poverty. Unlike other large-scale agricultural products like cotton, wheat and maize, coffee is a product that defies extensive mechanization. While the water, pesticide, and fertilizer deployment can be mechanized, the actual picking of coffee cherries and pruning of the plant have to be done by hand.

For small scale farmers, that is not a problem as they still rely on family labor. But it is a problem for plantations as they have to rely on large, hired labor forces. Inevitably, that creates pressure to keep wages low. The result is that, in a strange twist of economic logic, the massive increase in coffee production has not resulted in increased wages for coffee plantation workers. In most coffee producing regions, a job in a coffee plantation remains the preserve of the least educated, poorest segment of the workforce – and still pays minimum wages with no benefits.

At the same time, the use of monoculture and sun-cultivation of coffee depletes soil nutrients much faster than the traditional method and increases the plants’ vulnerability to pests. As a result, the new methods of production have resulted in a massive increase in the use of synthetic fertilizers and pesticides. That has, in turn, introduced new pollutants to the environment, particularly to the natural water systems. Not only does the pollution further destroy the natural habitat of animals and forests downstream, but it also contaminates the water supply of farm workers and local populations. The pollution of water is made worse by the waste from coffee processing – removal of the coffee bean from the pulp – which takes place at farm level.

Worse still, the expansion of plantations has reduced the size of natural forests that local populations traditionally relied on for firewood, building material and food supplements, further pushing them into poverty. Plantations have also tended to take up the best land, effectively pushing peasant farmers to the harsher, mountainous ridges where it is harder to make a decent living.

How Might Coffee Consumers Save the Coffee Industry?

It is not all gloom for the coffee production business. While the devastating new systems of coffee production continue to ravage the world, there is a glimmer of hope that the system may be stopped – or at least slowed down greatly – over the next decade.

The hope, curiously, is coming from coffee consumers. Over the last decade, a trend of conscious consumption – where consumers choose products on the basis of their green credentials – has finally jolted coffee producers, forcing many of them to go out their way to get eco-labels for their products. For example, it is now fairly easy to find coffee labeled as organic – meaning it was produced with minimal synthetic fertilizers and pesticides.

Better still, environmental protection advocacy groups are finally having an impact on the coffee industry. Besides the usual advocacy, some of these organizations have moved into eco-labeling of coffee, effectively creating a powerful business imperative for coffee producers to go green.

A good example is the Fairtrade system, an international organization that seeks to get a fair deal for small-scale farmers. The Fairtrade organization only accepts small scale, family coffee producers or their associations that are governed democratically. The organization then guarantees the farmers a base price that covers their cost of production, labels the coffee as ‘Fairtrade Coffee’ and tracks the produce all the way to the consumer. The impact is that large-scale producers now have serious green competition to their products.

But, in spite of the best efforts by green advocacy groups and the increasing importance of eco-labels, prospects of better coffee farming – and reduced pressure on rainforests – remain mixed at best. The main reason is that demand for coffee remains strong and is in fact growing. The US, EU, and Japan remain the top coffee consumers, together drinking about 50% of global coffee, and the economic growth in the rest of the world is adding to the demand. Brazil, for example, is no longer just the largest coffee producer but also the second largest consumer.

The increasing demand places rainforests at a precarious position. Data from the World Resources Institute, for example, estimates that 80% of global rainforest cover has already been lost. The Amazon rainforest has lost 15% of its size since 1970, with Brazil – home to a third of the world’s rainforests – alone losing an average of over 21,000 square miles of rainforests every year.

All of which means that reduced coffee consumption is one of the best hopes for the conservation of rainforests. Less demand for coffee, coupled with consumer insistence of eco-labeled coffee might just create enough business pressure in the coffee industry to consolidate better production methods.

In other words, your coffee cup has now become a factor in the survival of rainforests and the fight against global poverty. By reducing on the number of the cups of coffee you take in a day – and insisting only on eco-labeled coffee – you will be contributing to the survival of planet earth.

References

http://www.sustainablebusinesstoolkit.com/environmental-impact-coffee-trade/

http://www.huffingtonpost.com/2014/04/29/sustainable-coffee_n_5175192.html

http://www.utexas.edu/news/2014/04/16/shade-grown-coffee-shrinking/

http://dev.ico.org/documents/cy2014-15/cmr-1114-e.pdf

http://apps.fas.usda.gov/psdonline/circulars/coffee.pdf

http://www.fairtrade.net/coffee.html


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