Coffee and State Authority in Columbia

5 January 2004 by Josh Frank

Josh Frank is a writer living in New York. His work has appeared in Left Turn Magazine, Dissident Voice, Counterpunch, Z Magazine, among many others.

The global coffee industry has endured colossal changes over the past fifty years. Production of beans has shifted from country to country. Consumption of the product has increased almost exponentially through huge sales at retail outlets such as Starbucks and Seattle’s Best. But not all involved in the coffee market have benefited equally. Small coffee farmers have suffered tremendous loss. Environmental degradation has also increased as ancient forests have been cleared in hopes that the bare land can be transformed into fertile ground, worthy of growing cash crops. Countries have lost entire export industries as multinational corporations race to purchase the cheapest beans they can find. And no country has felt the pain of these transformations greater than Columbia.

In the mid 1970s coffee in Columbia accounted for 50% of their legal exports. During the global roar in the 1990s, as retail shops he country, many more traded coffee for more lucrative cash crops such as coca and opium. Andopened up on street corners throughout the industrialized world, Columbia’s coffee industry bottomed out. By 1995, Columbia’s coffee bean industry had suffered tremendously. Coffee dropped from 50 to 7% of their legal exports. Thousands of farmers fled t now oil has replaced coffee as the number one legal export, even though coffee farmers continue to employ the most workers of any industry in Columbia.

Coffee prices in South America peaked during the late 1960s to 1970s, a pound of coffee from the fields of Columbia sold at an average of $3 per pound. But by October 2001, the price of coffee per pound had dropped to $0.62 per pound.

The Columbian market at the time was regulated by The Columbia Coffee Federation (FNC); a quasi labor union that represented coffee producers.

The organization itself was founded in 1928, and quickly became the political voice for rural farmers who had little clout and minimal access to policy makers. Almost all coffee farmers were benefiting during these llucrative years. Agriculture was the business to be in if you wanted to make a good legal living in Columbia. However, the golden years didn’t last long.

The FNC since the 1970s has lost its once formidable power. Global demands have fractured the coffee community in Columbia through multiple trade factors, often referred to as the neoliberal model. This economic model draws on the old meaning of the word “liberal”. It includes endorsing the free-market system; deregulation of sectors, privatization, and an overall disregard for government oversight and taxation. Now known in the US as Clintonomics.
As more and more farmers began producing coffee beans (estimates ranged from 750,000 to 900,000 farms in 1972), prices began to steadily decline. Well over 200,000 farms were lost by the mid-1990s, as the oversupply of coffee in Columbia reached record highs. Columbia was not alone in its over-production of beans. In late 2001 it was reported that 60 countries produced 132 million pound bags of coffee, but the world only consumed 108 million bags.
The free-market way during the 1980s ruled the international coffee trade. Major multinational buyers during the eighties, Nestle, Phillip Morris, Proctor and Gamble, raced to the bottom of the price chain. They looked to profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. by buying the most inexpensive beans they could find. Columbia was sure to lose, as their beans are traditionally known for high quality and gourmet flavor. Production costs were also relatively high for a third-world country. The power of the FNC traditionally had raised the standard of living for the estimated 560,000 coffee farmers in Columbia. Any drop in their per pound production costs would greatly impact their standards of living.

Nevertheless, neoliberalism dictated the next winner in the coffee world. Following the 1973 Paris Peace Accords, Vietnam quickly came into focus as a potential mass producer of cheap coffee. Farm labor in Vietnam has always been cheap; in 1980 the average farm worker there made $0.09 a day. The climate in Vietnam was also ideal for producing beans, and the world market was more than ready to capitalize on these prime conditions.

Free-market economists would argue this is standard supply and demand economics. The world demand was flourishing, so it was only right for buyers to seek out the best and cheapest means of production. However, what this model fails to recognize is the harsh effects such policies have on small farmers in rural Columbia and elsewhere. The numbers show this neoliberal effect with a sobering jolt.
By 1999 Vietnam nudged its way into the top three global producers of coffee. Vietnam tied Columbia as the second largest producer at 12 million bags per year, trailing only Brazil. One decade prior Vietnam was a virtual no name on the world coffee circuit.

As the neoliberal model has created some winners, it has also produced many losers. Transnational corporations and gourmet coffee dealers have posted record profits, as the price per pound has slumped. The largest winners in this market have been the retail chain Starbucks, and the largest multinational coffee buyer Nestle. As these corporations’ bottom lines fatten, rural poverty in the countries they harvest is intensifying. International prices on coffee have now reached a 35 year low. The last 3 years have been the hardest on the global market, decreasing in value more than 50%. Taking into account inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. , the prices are lower than they have ever been in history.

Currently Columbia has $34 billion dollars in external debt. The International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

dictate how best Columbia can pay back these dues. The debt has forced the country to expand production of exports to generate hard currency. This macro-expansion has contributed to the overproduction of coffee beans. As the global demand for coffee has remained relatively stable, growing only slightly since the late 1980s, the increase in production has produced a massive oversupply of coffee beans. And unlike the subsidized agriculture in the US, Columbia is unable to dump their goods on other willing countries.

Under the given model, restrictions on supply are nonexistent. No regulatory measures are in place to halt the overproduction of coffee in Columbia. The impact has been great, as export revenues for multinational corporations have grown, real wage earnings for farmers has not.

As the Columbian government fully endorsed these neoliberal measures, their culpability in the matter goes without question. However, industrialized countries, policy institutions, and multinationals have in effect spearheaded the globalization pace set forth by the developing world.
Coffee beans since the early 1900s have been primarily an export commodity. Reliance on free-markets to dictate the flow of coffee, has been the famous Columbian mantra when discussing supply and demand economics. The FNC has historically monitored Columbian coffee markets, with an eye toward the industrialized world. As the FNC allowed multinationals to dictate production, they lost control of the coffee trade. In the past the coffee industry in Columbia relied on the FNC for regulatory and trade measures, more than they relied on the State. So it can be said that the FNC has acted as a puppet State for thousands of coffee farmers in Columbia since its inception early last century.

Third-world markets themselves are managed more by transnational corporations and policy institutions, than State capacities. The development of economic transactions across borders, particularly international borders, undermines State authority. This in effect marginalizes the State and the FNC as an economic player in the global community.

The neoliberal economy encourages private entities to dictate the flow of goods and capital. Therefore wealth and power has been transformed into the hands of private actors, and out of the clutches of the State. Such private actors decide who is included and excluded in global production networks. In the case of Columbia, as the FNC and the State allowed private players to manage the flow of coffee, the State and the FNC became more and more irrelevant in countering the strong market force. The negative effects have been felt tremendously by the poor rural coffee communities in Columbia.

As statelessness embodies these agricultural sectors, it becomes clearer and clearer that no governing body is wholly representing these poor Columbian farmers. Left to the devices of neoliberal forces alone, it is unlikely that coffee production in Columbia will again make up 50% of the legal export. Collectively the strength of the new market is embodied by multinational corporations and private players, not State and local authorities — soverignty kneels to the capitalism.

Private entities will continue to control the flow of coffee at the expense of farmers and the poor, only to provide monetary gain of the rich. All in all, this indicates that free-market economics are powerful enough to benefit a few, and crush the rest.

Source: Znet.

Josh Frank

Josh Frank is a writer living in New York. His work has appeared in Left Turn Magazine, Dissident Voice, Counterpunch, Z Magazine, among many others.



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