Globally, 400 billion cups of coffee are drunk each year. Coffee experts say demand is increasing world-wide. It’s the second most traded commodities in the world - a major cash crop for many poor, developing countries trying to trade their way out of poverty. Coffee promises to increase developing countries’ share of income from agricultural products on world markets – in line with Millennium Development Goal No 8’s commitment to a global partnership for development. But for the last 10 years the international coffee industry has been in crisis – and many coffee-producing countries are facing disaster. The world’s 25 million coffee farmers receive less than one per cent of the price of a cup of coffee sold in a coffee bar.

Coffee farmer Abera Kebede.

Ethiopian coffee farmer Abera Kebede says: “We are very worried about the crisis. If this will go on, we lose everything… In the past all children went to school. But nowadays half of them have to stay at home.”

The crisis has already halved the number of people working full-time in coffee farming in Central America. In the current buyers’ market, the price coffee farmers in many countries are getting for their coffee doesn’t cover their production costs.

At the heart of the crisis in the coffee industry today is overproduction. In 1989, the International Coffee Agreement, which helped guarantee coffee farmers their livelihood by monitoring the supply and demand for coffee beans, broke down. Since then, it’s been a free-for-all – with new, lower cost producers entering the market leading to overproduction, a wider variety of poorer quality coffees competing for sales, and a 50 per cent reduction in the international price for coffee.

There’ve been winners as well as losers. Vietnam, for example, seized the opportunities opened up by deregulation to become a major player in the global coffee market. It now produces - in an over-produced market – up to 15 million bags per annum. In ten years, it’s become the second biggest coffee producing country in the world.

Nestor Osorio, Executive Director of the International Coffee Organisation, says that quality has suffered: “In Vietnam you can find very good quality coffee but unfortunately because they grew so fast, they did in 10 years what a country like Colombia did in 100 years. They are very good at developing their agriculture. But when the processing of coffee takes place, there are many mistakes, many difficulties - the quality is not as good as another origin that had a tradition and a technology in producing good quality coffee.”

In Ethiopia, coffee is grown in the rainforest in the same way as it has been for centuries - no big plantations and environmentally friendly production. But producing coffee this way in today’s market - is expensive. Today coffee accounts for over 50 per cent of Ethiopia’s export revenues. Seven hundred thousand households are dependent on it. Despite worldwide over-production and competition from cheaply produced beans, Ethiopian producers are concentrating on quality.

Tadessa Meskela.

Tadessa Meskela, Chairman, Union of Oromia Coffee Growers in Ethiopia, complains that the buyers are not prepared to pay growers a fair price: “Buyers are very powerful. They are not paying a good price for the farmers. They pay a price which is much lower than the cost of production. I cannot say they pay a fair price to us. This is because of the oversupply in the world market. They prefer to buy coffee from very cheap countries like Vietnam. They are getting coffee from there. It is a buyers’ market today, not a producers’ market.”

While coffee consumption worldwide is going up, this is not keeping pace with the steep rise in worldwide production. The International Coffee Organisation stresses that in this situation, quality is all-important. “What we are trying to say is to the producer first - try not to produce substandard coffee,” says Nestor Osorio.

Seventy per cent of the world’s coffee is produced on farms of less than 10 hectares. For these small farmers, the boom in cafes and coffee shops in the developed world in recent years has not brought huge benefits. Coffee producing countries have seen the value of the coffee they export fall by 20 per cent in the last decade – from US$10 billion in 1990 to US$6 billion in 2000.

Nestor Osorio, Executive Director of the International Coffee Organisation.

But they could sell more to their own countries. Nestor Osorio: “I give you the example of Brazil that in 8 years went from 8 million bags to 14 million bags of consumption. It is a big population, the incomes of the countries have increased. We think that countries like Colombia, like Mexico, like India, like Indonesia, with the population and the incomes that they have - they could repeat that example.”

But what about diversification? Not so easy, as Philip Bloomer of Oxfam explains: “Coffee farmers would love to diversify out of coffee - but they find themselves imprisoned by a wall set up by the rich countries. If they want to move into maize, they find their markets are dumped, if they want to move into peanuts, they find they can’t export because there’s huge barriers in exporting peanuts, for instance, in the United States. So although they are desperate to move out, and everything is screaming at them to move out of coffee, they actually find themselves imprisoned - unable to move out of coffee.”

Fair Trade offers another way out of the coffee crisis. Currently Fair Trade accounts for just one per cent of the global coffee market – although it is growing. Sales of Fair Trade brands increased by 22 per cent between 2001 and 2002 – but it’s still a tiny fraction of overall trade.

Philip Bloomer of Oxfam explains why it’s important to the growers: “Fair Trade plays a vital role in so many coffee farmers’ lives. It has increased massively because there is a strong consumer demand for a coffee which has been produced and bought at a decent price that has been paid back to that farmer. Equally, the money that’s paid back to the cooperatives is invested in the communities - such as in the schools, in the health clinic, but also in the marketing of that coffee for the future. It provides a vital source of revenue for many, many poor coffee farmers.”

Coffee tasting.

Fair Trade coffee also acts as a quality guarantee. It’s sold direct from the producer to importers like Simon Wakefield: “We are looking for a good, full bodied flavour which is strong and you can taste it right at the back of your palate. You get a little bit of acidity or wininess out of it, like a fruity wine.”

James Wolfensohn, President of the World Bank, says that a fair market is even more important: “Fair Trade is well intentioned. But my own personal belief is that what the farmers overseas are looking for in the countries in which we deal - which is after all five-sixths of the world - what they're looking for is non-intervention. They're looking for a fair chance to compete.”

On a sales trip to Europe, Tadessa Meskela is making his own sales direct to discerning importers of high quality coffee in the Netherlands. There’s always a niche market for the quality product. But in the current hostile market, what’s the future for other small coffee producers who don’t have such a good product?

TRANSCRIPT Read the full transcript of The Coffee-Go-Round