Coffee crisis: “Stabilizing prices and raising reliance to climate change is vital,” says Olam chief

01 Oct 2019 --- Olam Coffee CEO Vivek Verma is calling for a price stabilization fund to aid struggling farmers who continue to be seriously hit by a prolonged period of low coffee prices. If coffee were a product of the developed world there would have been a safety net mechanism put in place or, at the very least, there would have been subsidies at low prices, he notes. However, coffee is grown in mostly developing and underdeveloped countries, which do not have the means to support farmers inlow price periods. Meanwhile, some of the world’s largest coffee roasters and traders have signed an historic declaration on the economic sustainability of the global coffee sector earlier this week calling for change.

In light of International Coffee Day today, FoodIngredientsFirst conducted an in depth interview with Verma. He explains that it’s time to seriously look at implementing such a fund to subsidize farmers when prices are low for reducing production capacity over the short-term, while helping them mitigate the long-term impacts of climate change. The fund would then recoup the subsidy when prices are high without burdening local government budgets.

“The coffee market has been swinging from extreme low to high prices. While average prices are reasonable for sustainable coffee production, many of the millions of smallholder farmers are subsistence farmers and are unable to survive in an extreme low prices environment. They are then forced to give up farming coffee,” Verma says, speaking ahead of International Coffee Day on October 1. 

Verma is calling for a price stabilization fund to aid struggling coffee farmers.“Given more certainty of pricing, coffee farmers would become more bankable and would be able to raise financing on their own accord. A more stable and predictable income scenario would also encourage the next-generation to continue into coffee farming rather than looking for alternative employment or industries.”

Speaking about exactly how such a fund would operate, Verma explains it would act by subsidizing the farmers to take out short-term production capacity through pruning, stumping or replanting new varieties during extreme low prices and would look at recouping the subsidy through taxation at extreme high prices. The implementation of this would be the responsibility of individual producer countries.

“I believe a global price stabilization mechanism is a difficult but doable challenge,” he says. “For this to happen, we need a seed capital contribution as grants from financial development institutions, other NGOs; the participation of Commercial Financial banks to provide credit as well as to participate in managing the fund; involvement of governments of the various producing countries through the ICO in enforcing the conditions of the fund and, finally, Multinational Organizations to guarantee the commitments of the various governments.” 

Short-term actions in low prices, like replanting with new varieties, stumping, pruning would also help in the health of the coffee plants, making long-term production more viable and sustainable, as well as more adaptable to climate change.

Many private companies and the coffee industry would welcome the fact that there are no extreme moves in coffee as they may not be able to pass on very high prices to consumers as that would result in demand destruction, Verma notes.

Like other global coffee houses, Olam is supporting farmers – 56,000 smallholders of which are in sustainability programs with customers and partners across 18 origins, but this is a drop in the ocean.

What impact is climate change having on the coffee industry?It’s critical to give farmers a safety net that will also help them be resilient in the face of climate change.
It’s critical is to find a way to give farmers a safety net that will also help them be resilient in the face of climate change which is amplifying events such as frosts and droughts in Brazil, disease outbreaks in Central America, and other weather events threatening the stability of coffee supply. 

“This results in price volatility, often increasing the cost of production and reducing yields per area, thus impacting the income of small farmers,” Verma continues. “The increasing occurrence of extreme weather events has an even greater impact of prices due to increased duopoly structure of coffee market where Brazil and Vietnam origins constitute an increased percentage of global production. Therefore, any weather event in these two countries would lead to extremes in price.”

Another example comes from a few years ago when the leaf rust outbreak in Latin America affected a significant percentage of coffee farms, which impacted the world’s supply. It costed the region millions of dollars in damages, and therefore resulted in severe loss of income for farmers and workers. 

“Rising temperatures have also taken a toll in Central America, where rainfall has dropped substantially. In addition, the warming of some areas is pushing farmers to higher lands which may promote the encroachment into protected areas, deforestation and the expansion of the agricultural frontier,” he says.

One way Olam Coffee is hoping to achieve greater impact in its sustainability program is by opening up its supply chains to customers via the new sustainability sourcing offer AtSource. 

By tracking the whole journey of the coffee beans, AtSource provides Olam’s manufacturing and retail customers with a verified social and environmental footprint of their supply chain, right from the farm to the factory gate. The insight gives them greater visibility into how they can make farmers and landscapes more resilient. 

“We have very strong expectations because it is a unique offer. More and more customers are asking us to help them fulfill their public sustainability commitments with data and insights, as well as increasing the volumes of sustainable products. Through AtSource, we aim to connect our customers directly to the source of their supply, across the entire journey from field to processing, country of origin to the destination market. 

“This insight will help shape real change on the ground and meet customer’s social and environmental targets,” Verma concludes. 

By Gaynor Selby