January 10, 2008

Why Coffee Farmers Are Poor

In his chapter on globalization, Harford offers many examples of how free trade can lead to greater development in a country and a higher standard of living for its citizens. In espousing the merits of globalization, Harford also refutes two common arguments against globalization; that it is bad for the environment and the world’s poor.

One thing Harford discussed that I found interesting was the consistent poverty of coffee farmers. I always assumed that coffee farmers remained generally very poor because coffee was cheap and therefore didn’t lend itself to high wages for the farmers. Harford points to the lack of scarcity power as the main reason for the state of the coffee farmer.

Because coffee can grow in many places around the world, it is an easy industry to get into. Anytime the price is raised too much from one farm, another farm will pop up and undercut the first farm, offering lower prices. Even when farms band together to form a cartel and raise prices, as with the attempt in the short lived Association of Coffee Producing Countries, more farms will arise and ruin any power the cartel had.

In addition to the lack of scarcity power, Harford mentions that trade barriers can also push people in poor countries into coffee farming. High tariffs against other agricultural imports such as beef or rice or grain often force farmers out of those industries and into coffee farming, where there are very few trade barriers.

Another cause of coffee farmer poverty occurs because if coffee farmers suddenly start making much more money, it will become desirable for people in other, less profitable jobs such as workers in sweatshops to become coffee farmers. The new influx of coffee farmers will cause the price of coffee to collapse, setting the industry back where it was.

Because of these reasons, Harford states that coffee farmers will not make more money unless broad development occurs across poor countries. Since there is so much coffee being produced by so many people with no other alternatives, only raising the standard of living everywhere will raise the wages of coffee farmers.


Larry Eubanks said...

I wonder . . . in which countries do we find coffee farmers? And, is there a reason why the standard of living in not higher in those countries?

Jake Williams said...

The heaviest coffee production occurs in equatorial regions. I suppose that part of the reason there is a low standard of living in these countries could be due to the restrictive, corrupt governments in many of these places. Also, it seems like many of these countries do not have many viable alternatives to coffee production for the farmers to get into without investing a great deal in their own education.