Coffee price slump

In the verdant southern highlands of Ethiopia, coffee farmer Gafeto Gardo is thinking about calling time on an industry that has sustained families for generations. Over the past year, the amount Gafeto gets for a kilogram of coffee beans has fallen a third to 8 birr, or just 29 US cents, reducing his income from a cappuccino sold in the West for US$3 to US$4, to under a cent.

"We are now losing hope. We are not reaping as much as we should and I am worried this will have a huge impact," said Gafeto, flanked by labourers laying coffee cherries on jute mats in the rolling hills of Ethiopia's Shebedino district. "Coffee is our life here."

Unlike producers of commodities such as oil and natural gas, coffee farmers have long suffered from being at the wrong end of the value chain - receiving only a small fraction of the retail price of their crop. Now, a slump in global coffee prices to their lowest in nearly 13 years in September is raising questions about whether it's worth growing beans at all in some of the traditional coffee heartlands of Central America, Colombia and Ethiopia.

"It is labour intensive and costly. They were struggling as things were before, let alone now prices have gone down. We fear they could abandon the crop en masse," said Desalegn Demissie, head of the Shebedino cooperative development office.

But at the other end of the chain, coffee has never been hotter. Millennials in the West who grew up with Starbucks drink lots, and have fuelled a proliferation of coffee shops and pricey innovations from cold brew to nitrogen coffee. The industry has also seen a wave of acquisitions as companies such as Nestle, JAB Holding and Coca-Cola spend billions to boost their market share.

For struggling farmers, though, times are tough. Growers around the world have warned coffee company executives in the West of a growing "social catastrophe", unless they can help to raise farmers' incomes. In a letter last year to chief executives at companies such as Starbucks, Jacobs Douwe Egberts (JDE) and Nestle, a group representing growers in more than 30 countries said there was a risk farms would be abandoned, fuelling social and political unrest as well as more illegal migration.

BUMPER BRAZIL CROP

The main factor behind the latest slide in prices was a bumper coffee crop in Brazil, by far the world's biggest producer. The Brazilian harvest hit the price of Arabica beans traded in New York at the ICE Futures U.S. Exchange. On September 18, a kilogram of Arabica fell to just 95,10 US cents, a level not seen since December 2005 and less than a third of the peak in 2011. Four months later, the price is still hovering around a dollar a kilo.

For Gafeto and the 4 500 other farmers in the cooperative he helped establish in Ethiopia, the fluctuations in financial markets in New York quickly feed through to prices at home. The internal market in Ethiopia is largely determined by daily auctions run by the Ethiopian Commodity Exchange but prices correlate closely with trends in global futures markets.

One problem for Ethiopian farmers is that most of their coffee is exported in bulk as green, unroasted beans, with most of the processes that add the greatest value taking place afterwards in the countries that consume the coffee. "There hasn't been a really significant change in how coffee has been transported, purchased or produced in many decades. It has always just been extracted from the country," said Rob Terenzi, co-founder of Vega Coffee in the United States. -Nampa/Reuters