Although coffee is a staple of many people’s daily routine, it is also at the heart of one of the world’s most unstable commodity markets.

The structure of the coffee market is rooted in a history of the Global North exploiting natural and labor resources in the Global South. Colonial powers like Great Britain, the Dutch Empire, and France relied on artificially low expense of forced labor to mass produce coffee and reap large profits. 

Today, this dynamic of inequality between the Global North and South continues. 

While many coffee farmers struggle to make a living because of low prices, large roasters earn profits of more than 15%. In the world of coffee, it is the farmers who make the least money. Most profits go to roasters and distributors. While the overall retail revenue is a staggering $200 billion, less than 10% of that money goes to growers.

 The coffee price problem manifests into greater issues like food insecurity, migration, climate resilience, and environmental protection. Many if not most coffee producing countries face humanitarian crises when the coffee commodity price falls below $1.00 USD per pound.The unit price for coffee plunged from $2.20 USD/lb in 2015 to around $0.86 in 2019. Literature review conducted by the Specialty Coffee Association (SCA) found that the profitability threshold is at approximately $1.14/lb. In Guatemala, for example, low coffee prices have prompted increased migration to U.S borders in 2019. 

In recent years, coffee consumers are increasingly aware of the Fairtrade label. Fairtrade’s goal is to improve the livelihood of workers and commodities for which Fairtrade covers includes cocoa and coffee. 

Here’s a quick guide to navigating the price dynamic of coffee.

 Why is there a coffee price crisis?

The problem is not demand:  it is relatively stable. Instead, the volatility is rooted in supply.  

The volatility of the coffee market is in part driven by unpredictable weather challenges like drought, floods, and pests. Recently, bursts in production in Brazil and Vietnam have generated surplus, causing the price to drop as demand remains largely unchanged. The increased production comes from investment in machinery, which greatly reduces labor costs for producers. Central America countries cannot undergo the same farm management changes because farms are on hillsides, which makes machinery difficult to use, or because small independent farmers cannot afford machinery. 

The fluctuation in supply is difficult to stabilize because it takes a long time from planning to growing to harvesting coffee, meaning that producers cannot shift their supply fast enough to account for demand. 

Consolidation in the industry is also affecting suppliers.  Large roasters/retailers are consolidating into larger entities by buying competitors out, thereby gaining increased leverage in negotiating lower prices. 

How does Fairtrade coffee mitigate the price crisis?

 In simplest terms, Fairtrade grants producers a minimum price. This, Fairtrade claims, protects coffee producers from price crashes. When the market price falls below the Fairtrade Minimum Price, as it had in recent years, producers with Fairtrade coffees can demand the minimum price, which may help cover their production costs. Yet, even the Fairtrade premium, $0.20/lb, is not always sufficient for farmers to make a living.  

But the farmers do not necessarily receive the premium directly. Instead, that premium goes to a shared fund among the farming community to support education, health care, and climate change adaptation projects. In this sense, Fairtrade improves growers’ livelihood and working conditions. 

 So why is there still a price crisis?

 At roughly 6% of overall coffee trade, Fairtrade coffee makes up just a small portion of the global coffee trade. Moreover, Fairtrade USA certified 176 million pounds of coffee in 2018 but only 35% of that coffee was sold at the Fairtrade price because the demand just isn’t that high. In practice, certification does not guarantee trade on fair trade terms. So, despite the traction Fair Trade gained over recent years, it still only holds a sliver of the market. 

 If Fairtrade doesn’t work, what are the alternatives?

 Fairtrade often comes to mind as a good way to support growers or as the solution to the coffee price crisis, but it may at most be a short-term safety net for a relatively small portion of producers. 

Several paths exist in addition to the Fairtrade model.

 The coffee industry, from farmers to roasters, have partnered up to reach goals meant to enhance environmental and human health.  This includes commitment to sustainable growing and sourcing methods. For example, small farmers currently bear most climate-based production risks (e.g. drought), which translates into increased production costs when these risks become realities. Engaging buyers with producers can allow development of better risk management strategies and insulate producers from cost instability. Notably, there are yet very concrete and effective solutions. Hence, the continued volatility of the coffee market. 

Changing how coffee is purchased could help too. For instance, more independent roasters are now reaching out directly to independent cooperatives, which is the working unit of coffee farmers in producing countries. Such initiative ensures that bean qualities meet market needs while reducing the chance of exporters and importers taking most of the profit. When small roasters do so, they likely highlight the uniqueness of beans coming from the cooperative they collaborate with. This enhances coffee drinkers’ knowledge and awareness of high-quality coffee as well as increase attachment to producing regions or countries. 

On a positive note, coffee commodity price for 2021 is trending upwards again. But price fluctuation of such scale remains unhealthy and especially problematic given that the victims are largely small independent farmers in developing countries with little to nonexistent social safety nets.