The Six Stages of the Coffee Price Crisis

The Six Stages of the Coffee Price Crisis

BBy now, many readers will have heard about the coffee price crisis and the SCA’s response team, dubbed the Price Crisis Response Initiative. If you are among them, you likely understand that the price crisis is a complex issue and that there’s no easy, quick solution.

By ELLIE HUDSON

Whether you’re already familiar with the SCA’s response to the price crisis or still learning about it, many readers will recognize that it is important, and want to do their part to mitigate it. You want to see farmer livelihoods improve and to look forward to a future where specialty coffee thrives. You may be asking, “But what do I do, and how do I do it?” On behalf of the staff and volunteers of the SCA’s price crisis response team, I present these updates and suggested answers.

What Is a Crisis?

First, it may help to consider the coffee price crisis in the context of other crises, and what it really means to be in crisis.

Some features typical of any crisis include a large scale, the potential for significant negative consequences or damage, and decision-making as a means of influencing a crisis’ progression. In fact, the very word “crisis” comes from the Greek word krísis, meaning decision or turning point. Yet, we often think of any crisis as not just the decisions involved in the crisis, but also the signs and events leading up to a critical moment and the consequences that result. The 2008 Global Financial Crisis is an example – looking back at that time, we easily see that the crisis was not localized to a specific place nor even a specific time. Though 2008 and 2009 are the years most often associated with the beginning of the global financial crisis, any account of it points to warning signs and specific factors in play in the years leading up to the collapse of investing giant Bear Stearns: early bank failures, a sudden lack of access to credit where access had been abundant, and political and other large-scale decisions taken (and not taken). The coffee price crisis also has a long arc, and we find ourselves at a critical stage of decision-making.

The Six Stages

The large scale and high stakes of a crisis make it, by nature, unpredictable. However, we can still benefit from seeing the crisis unfold in predictable stages:

  1. Warning
  2. Risk Assessment
  3. Response
  4. Management
  5. Resolution
  6. Recovery

 

Looking at this Coffee Price Crisis in these six stages is useful toward understanding where we are now and providing hope that we can and will get to a future of positive recovery, where livelihoods have been protected, change has contributed to the good, and coffee and its people are thriving.

Background: Stage 1
Stage One: Warning

In hindsight, warnings of this coffee price crisis abound. In 2013, an outbreak of coffee leaf rust across Central America precipitated losses of between 11% (Nicaragua) and 70% (El Salvador) of export volumes, and in some regions coffee production has still not recovered – nor have the communities of farmers and farmworkers recovered the economic or social safety nets required to insulate them against price shocks.

In November 2016, when the commodity futures market (“C”) price for coffee fell below the Fair Trade minimum price for washed arabica of US$1.40/lb., many organizations expressed their concerns publicly. However, it wasn’t until August of 2018, when the C market passed the US$1/lb. threshold for the first time in more than a decade, that the word “crisis” began to appear.

The formation of the SCA’s price crisis response team began with this moment in 2018 and represented both an acknowledgment of the prior warnings – many of them from within the SCA community – as well as a symbolic end to the Warning stage and transition into next stages.

Now: Stages 2 & 3
Stage Two: Risk Assessment and Stage Three: Response

At the specialty coffee community’s urging, the SCA’s price crisis response team swiftly began to deploy tools toward both Risk Assessment and Response in the first half of 2019, launching into these next two stages concurrently. Through careful and thorough assessment, the SCA team is working toward identifying those credible, tangible actions that can be taken by SCA and our community. It is a mandate to do this with open communication along the way, enabling the community to be actively involved asking questions, challenging assumptions, raising awareness, and supporting the work of allies already ongoing.

So far, many organizations from disparate parts of the coffee value chain have been involved in Risk Assessment at three convenings in the United States, Germany, and Brazil. These convenings established the purpose and vision for the SCA’s (find those on our website here) and built consensus around these statements among collaborators. The groups assessed risks within specific contexts, including:

  • Power imbalance and free-market failure (linked to lack of inclusivity)
  • No external pressure – no media or consumer attention (knowledge imbalance)
  • Lack of creativity and innovation in this space (insufficient competitive pressure)
  • Lack of incentives for a new way of doing business (focus on the economic lens)

 

At the conclusion of the Risk Assessment stage, what is all this assessing expected to produce? Using Systems Thinking as a strategy, the staff and volunteers of the SCA’s price crisis team engaged the guidance and expertise of Forum For the Future (FFF), a global non-profit sustainability organization, to organize the assessments from these voices throughout the specialty coffee value chain into an asset called a Systems Map. This Systems Map directly challenges long-held assumptions as fundamental as the linear nature of the “seed to cup” journey and the role of the market itself, toward clearly identifying the areas where intervention in this crisis might be most impactful.

While the Systems Map is being formed through global collaboration and hands-on workshops, the team continues to perform other types of risk assessment, such as analyzing the risk of inaction – in other words, what if we do nothing? What if we maintain the current status quo? We know that if we do nothing, people in our community will continue to suffer food insecurity and the consequences of migration (for those that leave and those that remain behind), among other stresses, including the ever-mounting pressure of climate variability on agricultural producers – especially smallholder farmers in tropical growing regions. If we do nothing, coffee-growing environments will be impacted by deforestation as producers seek to cover income shortfall through means other than coffee, or in some cases, to increase their capacity to grow coffee, no matter how low the price of coffee is on the market. Quality will also suffer as farm labor grows scarcer due to migration, which in turn makes workers more expensive to contract, and this will impact the bottom line for roasting businesses and consumers (and others). The price crisis team concluded that inaction is extremely and prohibitively risky, especially for coffee producers and for the long-term viability of specialty coffee. In other words, inaction is not an option.

A comprehensive list of responses taken, and further recommendations, will be included in the final report, but the following were the distillation of the key ideas from these various workshops for the SCA to take forward:

  • Bring a coffee voice to the need for humanitarian support​
  • Drive awareness of the need for action​
  • Develop an SCA position on competition law
  • Amplify the living income movement​

 

Finally, the Risk Assessment & Response stages include finding allies: who is out there already responding, what are they doing, and how can we join forces, trying to increase positive impact?

The price crisis Systems Map is expected to identify areas where the most attention is needed, having maximum impact on the crisis, aiming to shepherd in the next stage (Stage Four): Crisis Management.

Next: Stages 4, 5, and 6

Unifying these first stages is the hope and belief that we will make it to Stage Four: Management – in some ways the promised land of organized interventions where everyone can participate toward ending this crisis. Looking at these stages it is obvious that we can’t manage a crisis that hasn’t been assessed nor could we expect anything to change if we don’t start responding to the warnings. It is worth noting that while SCA expects to lead where we can, we will also enthusiastically support other partner organizations when they are better positioned to lead. The strategies around intervention are still being brought into focus by the work being performed in the Risk Assessment and Response stages at press time, but are likely to include the following:

  • Living income/wage: Work toward new price establishment norms in both directions along the value chain based on a dignified livelihood (considering labor as a significant proportion of the cost of production).
  • Reimagine anti-trust law: While staying on the safe side of anti-trust laws and ethical practices, educate ourselves about anti-trust, working with professionals and organizations who are rethinking the regulations that currently prevent conversations about the future of our industry from happening. Actively seek a solution that includes equitable power distribution within the value chain
  • Don’t forget about consumers: Investigate amongst consumers their role in the true value of sustainable coffee and the current situation on the ground to develop a strong demand signal
  • Boost domestic consumption: increase the power of the global south in the coffee value chain and help address the oversupply in the market by boosting the proportion of domestic consumption
  • Deliver full price transparency across the supply chain: Change the information flow on pricing to increase the bargaining power of different actors along the value chain to challenge the current value distribution
  • Enable technology-driven traceability: Support technology that allows for a more direct connection between the consumer and the coffee origin to build empathy and enable a shift in buying that supports sustainable value chains
  • Chart a path toward new price discovery mechanisms: Endeavor to reflect the supply and demand of different grades of sustainable and quality coffees, rather than the overall supply and demand for commodity-grade coffee.

 

Our community’s ultimate reward would be in reaching the fifth and sixth stages: Resolution and finally, Recovery. While most crises experience these stages over the longest periods of time, they are the stages where the new world order begins to take over, the negative effects of the crisis start to change direction, the pressure lessens, and the community may even be strengthened by having gone through the earlier crisis stages together. Thinking again about the global financial crisis or natural disaster recoveries, we know it is premature to start planning resolutions and recovery without fully understanding and assessing risks and responses. And though we know that resolution and recovery are possible, we also know that resolutions do not necessarily satisfy everyone’s desires, nor will recovery be likely to restore the status quo, and this can also have unintended consequences.

“So, What Can I Do?”

Everyone in our community can (and should) contribute to moving toward Resolution and Recovery of the coffee price crisis. Here are some tangible suggestions, presented as a list and without comment, though the members of the SCA’s price crisis response team are literally at your service with more information or guidance where there is interest:

Help amplify the voices of warning.

Talk to colleagues and customers, and share through social media. We’ve compiled resources available from the SCA and external sources at sca.coffee/pricecrisis. Check out and share these resources to help drive awareness of context and explain how we get to where we are.

For a producer perspective on the price crisis, we recommend starting with the Declaration of the Coordination Group of the World Coffee Producers Forum, made public during their meeting in Nairobi on March 2019. For an economic perspective, we recommend reading the International Coffee Organization’s report on the economic sustainability of coffee growing, published in September 2016.

SCA Lectures, Interviews, and Podcasts: attend them live, ask questions, tell your friends, bring your friends, watch recordings, discuss, share.

We at the SCA host discussions regularly on topics related to the price crisis and farm profitability at our events and virtually via webinars and podcasts. All of these sessions are recorded and uploaded to YouTube and many of them also make it onto the SCA Podcast. You can find all of these on the price crisis section of our website but here are a few we recommend you start with.

To learn about the work of the price crisis response team, watch this webinar recorded live in August 2019. You won’t want to miss a presentation delivered by Peter Roberts and Chad Trewick on Emory University’s Specialty Coffee Transaction Guide, also available in Spanish here. We also hosted two webinars with World Coffee Research on their work in farm profitability in East Africa and Latin America.

Re:co Symposium, our annual event for leaders of the specialty coffee industry focused this year entirely on the price crisis. We have uploaded videos and podcasts from each talk every week for the past few months and they’re really an excellent resource from the best thinkers in our industry.

You should, of course, watch/listen to every single episode and you can find them here, but we recommend starting with Ric Rhinehart’s talk on the role of specialty coffee in the price crisis, Hanna Neuschwander’s presentation on unlocking coffee’s flavor code, and Vanusia Nogueira’s talk on the work of the World Coffee Producers Forum.

Want to learn more about the C market and alternatives to our current price discovery mechanisms? Well, you should watch this video of Dr. Peter Roberts on how he thinks we can empower the industry to look beyond the “C” market. And to understand how past efforts to prevent price crises haven’t quite worked, watch Dr. Janina Grabs explain how we can overcome the “single exit fallacy.”

For a deep background on anti-trust laws and what they mean for our discussions on coffee prices, this presentation by Jeff Glassie at Re:co is a must-watch. 

Stay tuned for more from the SCA’s price crisis response team.

The staff and volunteers of the SCA’s initiative related to the coffee price crisis are hard at work on a report to be published at the end of 2019 with recommendations for the coffee industry. The work we will all need to do will not be easy and there won’t be a single way out of this crisis, but we as an industry are clearly committed to the long-term sustainability of coffee and to our responsibility to coffee farmers around the world.

ELLIE HUDSON is the Director of Strategy and Steering for the SCA’s Advocacy Center and a member of the SCA’s Price Crisis Response Team.