Coffee and Economics: The Numbers #2

May 25, 2015 4
Photo of man working in field. Photos by Victor Biro

Because coffee is so important to Ethiopia’s economy, and so many people in Ethiopia rely on coffee for their livelihood, the price of coffee is very important to them.

As you probably know, coffee prices fluctuate on the global market depending on supply and demand so, for example, when World War II broke out and South American countries were unable to export coffee to Europe they sent all their coffee to the US market and over-supply brought the price down for US consumers.

In order to try to keep prices steady the International Coffee Organization (ICO) was started in 1963. The ICO instituted a series of coffee agreements, brokered by the United Nations, between coffee producing countries and coffee consuming countries. The agreements successfully stabilized the international price of coffee – a good thing for coffee producers because they could be sure of how much money they would get for their coffee.

However, in 1989 the US pulled out of the international coffee agreements, which was a problem because the US is the largest coffee consuming nation. Without the US it became difficult to enforce the agreement.

The ICO also ended its quota system about this time and the 1990s saw a rise in free-market economic thinking that meant coffee prices were once again left to fluctuate on the global market. Around this time Vietnam also established itself as a major coffee supplier, meaning even more coffee was available on the market.

This combination of factors resulted in a steep drop in the price of coffee, which made life extremely difficult for coffee producers. By the early 2000s prices were so low the result was an international coffee crisis.

Awasa, ETH., 28 Nov 2014 -

Those most affected by the drop in prices were of course the coffee farmers.

There have since been several sustainability initiatives aimed at raising the price farmers get for their coffee. A move towards specialty coffee – where coffee is priced based on its point of origin and quality – also offers an opportunity for increased incomes to farmers. As the birthplace of coffee and a producer of organically grown Arabica coffee, Ethiopia stands to benefit from the growing interest in specialty coffee.

Be a part of the solution — help Water Wise Coffee improve sustainability in coffee. Find out how you can get involved.



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