The `Latte Revolution'? Regulation, Markets and Consumption in the Global Coffee Chain
Introduction
Every day, about 2.25 billion cups of coffee are consumed in the world (Dicum & Luttinger, 1999, p. IX). Yet, the act of––and symbols attached to––coffee drinking are not the same as they were 20 years ago. New consumption patterns have emerged with the growing importance of specialty, fair trade, and organic coffees. Coffee bar chains have spread dramatically, although the relative coffee content of the final consumption “experience” in these outlets is extremely low.1 Coffee bar chains sell an ambience and a social positioning more than just “good” coffee. In short, the global coffee chain has gone through a “latte revolution,”2 where consumers can choose from (and pay dearly for) hundreds of combinations of coffee variety, origin, brewing and grinding methods, flavoring, packaging, social “content,” and ambience. At the same time, international prices for the raw product (“green” coffee) are the lowest in decades. Coffee industries in developing countries are in disarray. Coffee farmers are losing a source of livelihood.
This paper explores this contradiction through the analysis of the changing features of the global coffee-marketing chain. It examines the consequences of the shift that has occurred in the last two decades in the regulatory framework at the international level––with the end of the quota system managed by the International Coffee Organization (ICO). It also explains how market liberalization and deregulation in producing countries has decreased their capability of controlling exports and building up stocks, therefore weakening their market power. Finally, the paper examines how new consumption patterns and changing strategies by key corporate actors (adoption of supply-managed inventory, consolidation, branding) affect other actors in the chain. These major shifts in international and domestic regulation, consumption, and corporate behavior are assessed in relation to the organizational features of the chain, its mode of governance, the ownership characteristics at various “nodes,” and the distribution of income along the coffee chain.
The next section explains the main features of the global commodity chain (GCC) analysis (also known as “value-chain analysis.”) Section 3 lays out the fundamental characteristics of the global coffee chain. The following section analyses some of the consequences of the switch in coffee trade “regimes” that took place starting in the late 1980s. Section 5 focuses on market power and corporate strategies in the current configuration of the global coffee chain. This is followed by the examination of how coffee consumption is evolving in the industrialized economies (the “latte revolution”). Section 7 assesses the insights offered by the restructuring of the global coffee chain to wider debates in the GCC literature. The final section assesses what the coffee study has to say about the role of commodity trade in development and provides several policy options to address the emerging imbalances in the global coffee chain.
Section snippets
Global commodity chain analysis
The main methodological instruments used in this paper are drawn from GCC analysis. The GCC approach was developed by Gereffi and others within a political economy of development perspective. In this body of work, the international structure of production, trade, and consumption of commodities is disaggregated into stages that are embedded in a network of activities controlled by firms and enterprises. The systematic study of commodity chains seeks to explain the spatial organization of
The global coffee chain
Coffee goes a long way and changes many hands from bean to cup (see Figure 1). Historically, Brazil and Colombia have been top world coffee producers. In the 1990s, however, the situation changed with the fast growth of coffee production in Vietnam (see Table 1), which has contributed to the dramatic drop in international coffee prices of the late 1990s (see below). In 1999/2000 Vietnam replaced Colombia as the world second largest producer. The ICO categorizes exports by type of coffee. As we
The international coffee agreements
Coffee was one of the first commodities for which control of world trade was attempted, starting in 1902 with the “valorization” process carried out by the Brazilian state of São Paulo. This process involved state action to raise the price of coffee, which was made possible at that time by the large share of production (between 75% and 90%) of São Paulo in terms of world coffee production (Lucier, 1988, p. 117). Pre-WWII attempts at manipulating the world coffee market were all centered around
Market power and corporate strategies
In Section 4 I have argued that there has been a general shift of power from producing to consuming countries in the coffee-marketing chain following the end of the ICA regime. Power relations between producers and buyers have also become more complex. Domestic market liberalization in producing countries entails that states as such cannot be considered “market units” anymore (Daviron, 1996). Grower organizations have not been able to substitute governments as organizers of coffee exports.
The “latte revolution”? specialty coffee and the changing world of coffee consumption
Globally, most coffee for in-home consumption is purchased in supermarkets. The food retail sector is highly concentrated in the United States, the United Kingdom and Northern Europe and plays a dominant role in the food marketing chain (van Dijk et al., 1998). Yet, through consolidation and with massive investment in advertising their brands, roasters have managed to keep control of the coffee chain (van Dijk et al., 1998). This happened in spite of the development of private coffee labels by
Coffee and GCC analysis
In this section, I provide a reading of the restructuring of the global coffee chain through the analytical categories of GCC. I also assess the insights offered by the coffee case study to wider debates that are taking place in the GCC literature. As explained in Section 2, Gereffi, 1994, Gereffi, 1995 identifies four key dimensions of GCCs: the input–output structure, the geographical coverage, the governance structure, and the institutional framework. Table 3, Table 4 summarize changes and
Conclusions and policy options
The GCC approach provides useful tools for the analysis of commodity markets. It examines how key agents build, co-ordinate and control the linkages and flow of produce between producers and consumers, and the roles played in this process by contractual forms, the co-ordination of finance and business services, and––increasingly––the wider regulatory framework. It pays attention to the organizational aspects of the chain, to the whole range of activities from primary production to final
Acknowledgements
I would like to thank Henry Bernstein, Niels Fold, Deepa George, Gary Gereffi, Peter Gibbon, Michael Friis Jensen, Poul Ove Pedersen, and two anonymous referees for helpful comments on earlier drafts of this paper. I am also thankful to the Danish Social Science Research Council and the Centre for Development Research, Copenhagen for funding the research project under which this paper was generated.
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