Government Aid to Coffee Producers in Brazil

Bag of Brazil coffeeThe Slump

Coffee prices have slumped over the past year but we still feel the pinch for our caffeine fix. That is to say, the prices that farmers receive for their product; prices at the supermarket have not. The Brazilian government is to aid coffee producers. Starbuck’s is not going to help the latte drinker.

The Conundrum

The conundrum is how to balance the amount a farmer receives for green beans and what you might pay for a latte, and who gets what chunk of the disparity. As the commodity price of beans fluctuates (coffee being the second most widely traded commodity in the world, after oil), there is a lag for retail. A year and a half ago, the commodity market was off the hook with the price of green beans at a 34 year high, spurring many retailers to increase prices by 10% or more (Note: Starbuck’s, Dunkin’ Donuts). Now, the C-market has slumped. But many green brokers had locked in prices for beans relative to higher C-market pricing. Roasters and retailers are still paying according to somewhat higher green broker pricing. Meanwhile, the farmer is receiving less. And the consumer is still paying what we have been paying the past year or so.

The Game

Brazil is increasing its minimum to pay farmers by 17%. Starbuck’s is now cutting pricing again, but only on retail bags. Cafe pricing will remain high. It’s quite a game to balance what profits you can earn, what pricing allows you to carve out a piece of the pie from your competitors, and what is the right thing to do. Plus, we can reflect on what the farmers may earn and what impact we may have on that, understanding the many relationships exist between the worker, the plantation owner, the cooperative, the exporter, importer, roaster and finally the retailer.