Critical Assessment Of The Future Of Coffee As A Commodity Trade Essay

Critical Assessment Of The Future Of Coffee As A Commodity Trade - Essay Example This issue has been addressed by a diverse array of institutions with different approaches in order to find adequate solutions to short-term and long-term conditions of the coffee market as a commodity that is mainly produced in LCDs and developing countries where the levels of poverty are pretty high. The Food and Agriculture Organization (FAO). (2004) published a report entitled "The state of agricultural commodity markets 2004" with the main concern of addressing the issue of agricultural commodity economies with the intention of finding workable solutions to the challenges ahead. Jacques Diouf, FAO Director-General, stated the following in the Foreword: "The price of coffee plummeted 70 percent between 1997 and 2001, threatening the livelihoods of an estimated 25 million people who depend on coffee and triggering food emergencies in several countries in Africa and Central America." (Food and Agriculture Organization, 2004). This is really a very critical situation. There are several reasons behind it. It is a complex problem that has to be assessed from a multi-lateral perspective taking into account all the stakeholders, especially the small farmers in LDCs and developing countries. In its report, FAO acknowledges the greater productivity of the coffee sector. At the same time it points out that the main beneficiaries are the developed countries producers and consumers: "Advances in agricultural productivity th... ers in better-endowed and more-developed regions that have been able to take advantage of productivity gains to strengthen their position on world markets." (Food and Agriculture Organization, 2004). The FAO report also addresses the issue of concentration of a few big companies in the global market. This troublesome factor in the overall scenario of commodity trading is stated as follows: "Another development in agricultural commodity markets has been the increasing concentration of market power in the hands of a few transnational corporations. Just three companies now control almost half the coffee roasting in the world, for example, and the 30 largest supermarket chains control almost one-third of grocery sales worldwide." (Food and Agriculture Organization, 2004). Daniele Giovannucci, Bryan Lewin and Panayotis Varangis published a report for the World Bank entitled "Coffee markets: New paradigms in global supply and demand". Among their findings, the following statements picture a negative situation for producers in LCDs and developing countries regarding coffee economic viability: "Most of the world's coffee is produced by smallholders utilizing just a few hectares of land. In the past year, many reports have confirmed the heavy toll on farmers that have had to sell below cost or even give up their coffee farms because current prices do not even cover the most basic costs of harvesting and transport to market, and estimate economic losses for small coffee farmers at US$4.5 billion per year." (Giovannucci, Lewin, & Varangis, 2004). These losses are extremely burdensome for small farmers who mostly live in LDCs and developing countries. Finding a solution by raising prices has its ups and downs as can be seen in an article about commodity trade published