Comments: A Token Fair

Comments

I think we're looking at stupidity, since the central claim makes _no_ sense. If you can only sell your product at a price so low that you can't recover costs, you go out of business, unless you have some outside subsidy (hah), or the product's a loss-leader you make for other reasons (not very likely with a cash crop!). Not to embrace capitalism and all its works or anything, but this kind of thing just doesn't _happen_ in a market system.

Cosma, yes and no. The claim merits some investigation, but I have seen similar claims recently.

As for the economics, its not a sustainable situation, but its entirely possible for the claims to be true over certain periods of time. Remember a farmer/grower is to certain extent bound to their crop. Some cash is better then no cash, and you can't just switch crops on the flip of a dime. If more coffee is being produced then is needed prices will drop. If the market is oversaturated enough they will drop to the point where the producers won't be making enough to live healthily. But given that coffee generates some income, and switching to another crop takes capital and time, they will have little choice but to keep on going.

Often these sorts of situations lead to a degree of indentured servitude or serfdom, although I have no idea what the precise situation is like in coffee growing areas. The growers/farmers/peasents will be loaned money by the buyers to be paid back when the crop is sold. If they can't sell enough crop, they don't die they just go deeper into debt to the buyers. All in all a nasty situation, and entirely possible within a "market" system.

I was going to add qualifiers about switching costs and debt bondage, especially when growing is organized through share-cropping, but thought I'd sound too much like a hereditary development economics geek (which I am). The organization of coffee growing is quite variable. In some place it is a classic share-cropping situation, in others (India comes to mind) a more normal capitalist commercial enterprise, where large farmers hire wage- or piece- workers seasonally. (India used to have a central marketing board, which did the international trading and set the prices paid to the farm owners --- I don't know if they still do.)

as far as i'm concerned the more economics geeky this space gets the better, I need to learn this stuff.

as for some facts, according to Trans Fair coffee prices hit record lows in 2001 and 2002, supposedly with these results:

"In 2002, world coffee prices plummeted to an all time low, $0.42/pound, forcing some farmers to take drastic measures just to feed their families. Destitute coffee farmers are forced to resort to desperate measures like switching to growing coca for the cocaine trade, and living in fear of armed guerillas. Thanks to Fair Trade, coffee farmers can now earn a more secure living."

"Thousands of family farmers have been uprooted in the past year in Central America and Mexico, two regions hardest hit by the continued freefall in coffee prices. Many have been forced to sell their farms and leave their families to seek underpaid work in cities across the US and Central America. In this time of crisis, Fair Trade offers a living wage and a beacon of hope to farming families, allowing them to stay on their land and protect their families and communities."

http://www.transfairusa.org/content/about/issues.php

Of course its 2004 now and it looks like prices are up maybe 25%, with January 2004 being by far the highest its been in at least 3 years.

http://www.ico.org/statist/p2.htm

and yeah while I have a "development economics geek" around, do you have any book recommendations?

I don't know enough about Trans Fair to say anything worthwhile about their reliability. Some of what they're saying in those quotes makes my thumbs prick (how's the price of coffee supposed to make any _difference_ to guerrilla exactions?), but, like I said, I don't know.

Books: I'd say start with Sen's _Development as Freedom_, or Easterly's _The Elusive Quest for Growth_, or really both. Debraj Ray's _Development Economics_ is the standard textbook, & pretty good, but it's a textbook, and presumes a lot of econ. background. Klitgaard's _Tropical Gangsters_ is out of print but fun if you can find a copy. Douglass North's books on institutional change are really important (and come with Manuel Delanda's seal of approval, if that makes a difference). Finally, I think the 2003 World Development Report (http://econ.worldbank.org/wdr/wdr2003/) is very good, but I'm biased, because my father's the lead author.

oooh nice, thanks for the pointers. the klitgaard appears to be back in print btw.

the Trans Fair statements are obviously filtered both by ideology and PR, but I suspect they represent some basic truths. Obviously coffee prices hitting record lows is bad for growers, unless their productivity has increased rapidly. And just as obviously Trans Fair doesn't have much reason to note that prices have since gone up...

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