Shared interest

Germany’s Federal Cartel Office speaks of a “consultation group”, while observers and the media use the term “coffee cartel”. The members include four of the biggest coffee roasters in the German market: Tchibo, Melitta, Dallmayr and Kraft Foods, a US-based multinational corporation. The Federal Cartel Office believes that the CEOs and marketing directors of these companies coordinated the dimension, timing and announcement of price hikes. The government agency speaks of at least five price rises that were implemented this way. All summed up, they are said to have cost consumers € 4.8 billion.

As price fixing is illegal, the antitrust agency has imposed fines totalling nearly € 160 million on the three German roasters. Kraft Foods was spared because it cooperated with the authorities and helped to uncover the price-fixing ring. Tchibo and Melitta as well as five individual managers have appealed against the fines.

“The gulf in the coffee industry keeps widening,” says Brigitte Binder, fair-trade officer of the Protestant Church Development Service (EED). While the world-market price has been rising in recent years and end consumers have been paying more and more, she argues, the incomes of the people who grow coffee have been dwindling. In many cases, the revenue has dropped so low it does not even cover the cost of production.

Fair-trade brands guarantee a decent livelihood to producers. Their suppliers receive a minimum of €1.20 plus premiums for a pound of Arabica beans. That is roughly the price agreed by producers and consumers in the International Coffee Agreement that ran from 1963 until 1989. After it expired, prices became volatile, at times dropping below 60 cents a kilo. Since 2007, the average world market price has been more or less on a par with 1989 once more. According to Binder, however, the producers are only getting “a smaller and smaller share of the revenues generated worldwide”.

Coffee is one of the most important commodities traded on the international market. The biggest buyers are the United States and Germany – both countries import more than 100,000 tons of green coffee per month. The leading producers are Brazil, Vietnam and Colombia. The global trade in coffee, however, is dominated by a small number of players: multinational corporations like Nestlé, Kraft, Sara Lee and Procter&Gamble on the one hand and a few very large coffee roasters like Starbucks, Tchibo and Lavazza on the other hand.

For two reasons, coffee is normally roasted and ground in the consumer countries:
– The end product’s flavour depends on processing, and the aroma is rather short lived.
– Tariffs and taxes make it hard for producer countries to develop value-added chains of their own.
“Whereas green coffee can be imported into the EU at zero tariff, roasted coffee is subject to an import duty,” Binder explains. Moreover, some countries levy a coffee tax on imports. In Germany, it stands at more than € 2 per kilo of roasted coffee. Unroasted beans, however, are tax-exempt.

Coffee is grown by some 25 million farmers. The only international brand to emerge from a producer country so far is the Juan Valdez, a brand owned by the Colombian Coffee Growers Federation. It is an exception, not the rule. The bulk of international trade is in dried beans.

In principle, the price of green coffee is established according to supply and demand at the London and New York exchanges. However, futures trading has sometimes led to marked price fluctuations.

Germans have been buying more and more fair-trade coffee in recent years. All major companies have fair-trade brands today, and the lion’s share of fair-trade coffee is sold in conventional supermarkets. At two per cent, fair-trade coffee’s market share in Germany is still small, but the trend is clear. As coffee prices have lately been quite high, fair-trade products are not very expensive in comparison anymore, which has certainly not hurt fair-trade brands. Nonetheless, ­Antje Edler of Forum Fairer Handel, a fair-trade umbrella organisation, argues that the demand for these brands is not so much driven by prices but by people being “more interested in the conditions under which goods are produced”. (cir)