Elsevier

World Development

Volume 30, Issue 7, July 2002, Pages 1099-1122
World Development

The `Latte Revolution'? Regulation, Markets and Consumption in the Global Coffee Chain

https://doi.org/10.1016/S0305-750X(02)00032-3Get rights and content

Abstract

Coffee is a truly global commodity and a major foreign exchange earner in many developing countries. The global coffee chain has changed dramatically as a result of deregulation, new consumption patterns, and evolving corporate strategies. From a balanced contest between producing and consuming countries within the politics of international coffee agreements, power relations shifted to the advantage of transnational corporations. A relatively stable institutional environment where proportions of generated income were fairly distributed between producing and consuming countries turned into one that is more informal, unstable, and unequal. Through the lenses of global commodity chain analysis, this paper examines how these transformations affect developing countries and what policy instruments are available to address the emerging imbalances.

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.

References (88)

  • R.P. Appelbaum et al.

    Power and profits in the apparel commodity chain

  • Barnes, J., & Kaplinsky, R. (1999). Globalization and trade policy reform: whither the automobile components sector in...
  • H.R. Barrett et al.

    Globalization and the changing networks of food supply: the importation of fresh horticultural produce from Kenya into the UK

    Transactions of the Institute of British Geographers

    (1999)
  • R.H. Bates

    Open-economy politics: the political economy of the world coffee trade

    (1997)
  • M. Borrus

    Left for dead: Asian production networks and the revival of U.S. electronics

  • Calvin, L., & Barrios, V. (2000). Marketing winter vegetables from Mexico. Paper presented at the IDS/Rockefeller...
  • M. Clancy

    Commodity chains, services and development: theory and preliminary evidence from the tourism industry

    Review of International Political Economy

    (1998)
  • Coffee, Sugar and Cocoa Exchange––New York (CSCE) (2001). Available:...
  • T. Crowe

    Coffee futures price behavior and fund investment

    ICO Coffee Newsletter

    (1997)
  • Daviron, B. (1993). Conflict et Cooperation sur le Marché International du Café: Une Analyse de Longue Periode. Thèse...
  • B. Daviron

    The rise and fall of governmental power on the international coffee market

  • B. Daviron

    Small farm production and the standardization of tropical products

    Journal of Agrarian Change

    (2002)
  • G. Dicum et al.

    The coffee book: anatomy of an industry from the crop to the last drop

    (1999)
  • Dolan, C., Humphrey, J., & Harris-Pascal, C. (1999). Horticulture commodity chains: the impact of the UK market on the...
  • C. Dolan et al.

    Governance and trade in fresh vegetables: the impact of UK supermarkets on the African horticulture industry

    Journal of Development Studies

    (2000)
  • R.F. Doner

    Driving a bargain: automobile industrialization and Japanese firms in Southeast Asia

    (1991)
  • Financial Times, London, April 27,...
  • R. Fitter et al.

    Who gains from product rents as the coffee market becomes more differentiated? A value-chain analysis

    IDS Bulletin

    (2001)
  • N. Fold

    Restructuring of the European chocolate industry and its impact on cocoa production in West Africa

    Journal of Economic Geography

    (2001)
  • N. Fold

    Lead firms and competition in `bi-polar' commodity chains: grinders and branders in the global cocoa-chocolate industry

    Journal of Agrarian Change

    (2002)
  • Shareholder value and the political economy of late capitalism [Special issue]

    Economy and Society

    (2000)
  • G. Gereffi

    The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks

  • G. Gereffi

    Global production systems and Third World development

  • Gereffi, G. (1999b). A commodity chains framework for analyzing global industries. Mimeo, Department of Sociology, Duke...
  • G. Gereffi

    Beyond the producer-driven/buyer-driven dichotomy. The evolution of global value chains in the internet era

    IDS Bulletin

    (2001)
  • G. Gereffi

    Shifting governance structures in global commodity chains, with special reference to the internet

    American Behavioral Scientist

    (2001)
  • G. Gereffi et al.

    Commodity chains and footwear exports in the semiperiphery

  • G. Gereffi et al.

    Introduction: global commodity chains

  • Gibbon, P. (1997). Of saviours and punks: the political economy of the Nile perch marketing chain in Tanzania. CDR...
  • P. Gibbon

    Free competition without sustainable development? Tanzanian cotton sector liberalization 1994/95–1997/98

    Journal of Development Studies

    (1999)
  • Gibbon, P. (2000). “Back to the basics” through delocalisation: the Mauritian garment industry at the end of the...
  • Gibbon, P. (2001b). At the cutting edge: UK clothing retailers and global sourcing. CDR Working Papers 01.4, Centre for...
  • Cited by (443)

    View all citing articles on Scopus
    View full text