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Coffee Troubles Brewing

June 14, 2003

Ethiopian farmer Mohammed Ali Indris estimates that five years ago he made $320 for his coffee and corn, comfortably supporting his family of 12. This year, according to the relief group Oxfam, he expects to make only $60. He has had to pull three of his children out of school and sell his oxen to pay back loans for seed and fertilizer. That is the price of the global coffee glut, a downward spiral that U.S. leadership could help end.

The social consequences in Latin America are even more ominous. Some Colombian fields where coffee once grew now produce coca, according to the International Coffee Organization (ICO), an intergovernmental body of coffee-importing and -exporting nations. This could undo so-far-successful Colombian efforts to reduce the production of coca, the raw source of cocaine. In addition, impoverished coffee pickers in Mexico reportedly are joining the northward stream of migrants to the United States.

Prices for coffee farmers have fallen 70% in the last five years. U.S. consumers are seeing much smaller price reductions, with the difference disappearing into the pockets of middlemen. The price plunge is unlikely to reverse without the leadership of the U.S., the world's largest importer of coffee, in coordinating a global strategy to tackle the situation. Crucial to that is rejoining the ICO, which brings nations and companies together on issues affecting the coffee trade.

Admittedly, the ICO has an unsavory past. It was a classic cartel, setting and enforcing coffee prices for three decades starting in 1963, often at artificially inflated levels. Those tactics led the United States to leave the ICO in 1993.

But that time is past. As other price-fixing commodity agreements broke down in the early 1990s, the ICO committed to using market-based solutions to stabilize prices.

A solution proposed by the ICO calls for setting up minimum international quality standards on exported coffee, limiting the number of dead or unripe coffee beans that can be mixed in. It would reduce the glut of cheaper, substandard coffee beans flooding the market, often from new producers such as Vietnam.

Though many members of Congress have voiced strong support for rejoining the ICO, the State Department is balking. But the latest International Coffee Agreement, the organization's chief tool for stabilizing coffee markets, doesn't even require enforcement by importing nations; it offers mostly inducements, including certificates of quality for exporters and a seal of approval for retail packaging.

The glut is raising the risk of national destabilization in Third World countries like Africa's Burundi, which gets 80% of its export revenue from coffee. Down the road, struggling coffee industries in Latin America and Africa could disappear and shortages could arise. Better to dampen the pendulum swings now, with global cooperation.

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