The coffee price crisis: A Q&A with Rick Peyser

  • John Rivera
  • Sep 11, 2019

Coffee farming families are struggling as the price for their crop falls below $1 per pound.

At that level, farmers in the developing world, where most coffee is grown, can’t afford to cover their costs, let alone feed their families. Rick Peyser, Lutheran World Relief’s senior relationship manager for coffee and cocoa, answers some basic questions on how the crisis happened and what effect it is having on the lives and livelihoods of coffee farmers.

Why is the price paid to coffee farmers for their coffee so low?  Has it ever been below $1 before? 

The price paid to farmers for their coffee is low due to a global oversupply of coffee.  The “C” price, the world benchmark for Arabica coffee trading, is based on supply and demand.  Over the past months, the “C” price has reflected an oversupply that has been caused by large crops from the two largest coffee producing countries, Brazil and Vietnam. This oversupply has caused prices to dip below $1 (US) per pound, well below most coffee farmers’ costs of production. 

Unfortunately, periods of over-production and very low “C” prices for coffee are not something new.  In 1975, the “C” price fell to $.46 per pound. In 1994, prices were in the $.60 per pound range before doubling twice, reaching close to $2.40, due to frosts in Brazil. In 2001, prices decreased to $.43 per pound, which according to Oxfam and the World Bank, led to the migration of approximately 650,000 coffee farmers to nearby urban centers or to the U.S.  

Maria del Cid Aguilar, mother of five, on her coffee farm in Las Marias, Usulután, El Salvador. Her crops have suffered from the effects of coffee rust disease and the higher temperatures and humidity caused by climate change. Photo by Sean Hawkey for LWR

What effect is this low coffee price having on farmers and their families?  

The livelihoods of many small-scale coffee farmers are totally dependent on earnings from coffee.  Decades ago, many coffee farming families were well diversified and used income from coffee to purchase what they did not produce on the farm.  The growth of specialty coffee and the potential of higher prices for a higher quality product over the past few decades have led many farmers to devote more and more of their land solely to coffee production, often to the exclusion of other food and income-earning crops. 

When the current low prices are combined with the “thin months,” when money for necessities like sufficient food runs low, and the harsh impacts of climate change (including drought in many areas), families in many areas of Central America and elsewhere have been struggling to put food on their tables.  At the same time, those farmers who supplemented earnings from their own coffee crops with income from working as day laborers on neighboring farms are often unable to do so. With coffee prices so low, neighboring farms do not have the income to pay for the labor, and in some cases are forced to leave coffee unharvested. Given their lack of income, many farmers have been forced to migrate to the U.S. to seek better employment opportunities to support their families.  There is no doubt that low coffee prices are contributing to the increased migration pressure on the Mexico-U.S. border.

Why is there such a big difference in the price paid to farmers and the price we pay for coffee in the store or in coffee shops?  

Coffee changes hands many times between the coffee tree and a cup of coffee. In addition to the work of the farmer who grew and harvested the coffee, the beans are processed, dried, milled, sorted, bagged, transported to the port and from the destination port to the roaster where it is roasted, packaged, distributed and finally served. Each of these intermediary steps adds value and cost to the coffee that the farmer harvested. Cafés have additional costs just to serve the coffee: rent, labor, employee benefits, equipment and maintenance, etc., that all add to the final price of a bag or cup of coffee.  The cost of coffee served in a café represents a relatively small percentage of its overall operational costs.   

Despite this, farmers receive a disproportionately small percentage of the retail selling price of their coffee, given the costs of fertilizer and pesticides, their labor and the risks that they assume (weather, pests, volatile prices, etc.). In fact, most coffee farmers are earning less today than they were 25 years ago, when adjusted for inflation.  At the same time, the price for a cup or pound of coffee has at least tripled during this same period.  This imbalance is under scrutiny by the Specialty Coffee Association’s Price Crisis Response effort, Lutheran World Relief and Heifer International, among other organizations.

Rick Peyser, left, samples coffee at the Temu Kopi conference in Medan, Indonesia.

What can we as consumers do about this?  

As consumers, we can ask our coffee suppliers what they are doing to ensure that farmers are receiving a fair price for their coffee. It is good to know if and how our coffee suppliers are engaging in this issue. Ask them questions: “Does your café know what the farmers who grew their coffee received from its sale?”   “Does your store offer coffees like LWR Farmers Market Coffee, Fair Trade or other Direct Trade initiatives that bring farmers better pricing?” Merely by asking questions like these, consumers will learn more about their store and cafés practices, and as importantly, the store and café will understand that consumers are interested in this issue and may take steps to adjust their coffee purchases and offerings. Failing this, consumers may decide to seek out other suppliers for their favorite coffees.

What are Lutheran World Relief and IMA World Health doing to address this coffee price crisis?  

Lutheran World Relief and IMA World Health have been concerned about this issue for many years.  Our programming has largely focused on helping coffee farmers improve their earnings from coffee and develop better resilience to shocks like volatile market prices and the increasingly harsh impacts of climate change.  In addition, Lutheran World Relief introduced LWR Farmers Market coffee, which includes coffee from farmers who have participated in our development projects.  Lutheran World Relief works with Thrive Farmers International, Inc., a coffee company that purchases, roasts and packages this coffee for us, and pays farmers a higher price for their commodity than has been available through other programs, like Fair Trade. 

Lutheran World Relief, through its impact investing initiative known as Ground-Up Investing, founded Mountain Harvest, a coffee company that is working with small-scale coffee farmers on the Ugandan slopes of Mt. Elgon to produce very high quality coffee that is bringing farmers higher prices than previously available to them. 

Lutheran World Relief has also been working closely with our friends at Heifer International and the Specialty Coffee Association in advocacy efforts focused on generating awareness about the harsh impacts that low coffee prices are having on farming families.  We are also helping to develop and support efforts to establish new methods of price discovery to rebalance the coffee supply chain and improve earnings for coffee farming families.

Bwairisa Jane and her husband, Gidudu John, are growers for Mountain Harvest Coffee on Mount Elgon in eastern Uganda. Photo by Jake Lyell for Lutheran World Relief

John Rivera, Sep 11, 2019 email