According to the International Coffee Organization (ICO), coffee prices have risen for 17 consecutive months, and the industry has been hit by successive shocks, most recently the conflict in Ukraine, affecting both supply and demand. Just off the weekend, I was chatting with a friend who complained that a cup of coffee had gone up to around $7, which was really squeezing people’s income. As a disclaimer, I’ve never had a cup of coffee in my life – just the aroma is enough to turn my stomach. But for the past few weeks, I’ve been thinking about coffee for another reason. I’m currently doing some research on East Timor with a view to predicting changes in the presidency. The first round of elections took place last weekend and it looks like Ramos-Horta will win the second round in April. One of the things I’m working on is a plan to diversify the country’s exports as the inevitable decline in oil revenues starts to take hold. I’m also developing fair trade models for sustainable agriculture (that is, not the cash crop mania that destroys subsistence farming and ends up driving farmers into international debt), while also allowing countries to diversify their export portfolios. Equity and sustainability are good ideals. For a country like Australia, there is an opportunity here to reform its ways, break the dog-eat-dog slogan of “free trade” and really start doing something good in our region. That’s what this blog post is about.
The next content has not yet been determined. Rather, it’s a set of processes that helped me understand the situation and begin to draw a blueprint for sustainability – sector by sector.
Global Coffee Trends
Coffee exports from South America (Brazil, Colombia) plummeted from the second half of 2021 to 2022 – by 16.1% between October 2021 and January 2022.
Production is expected to decline further.
Global shortages are expected relative to demand.
This ABC article (September 20, 2021) – Importers warn of looming coffee shortage that could last three years – foreshadows the problem:
Climate change-related weather events have affected major coffee-producing regions, and global supply chain issues are hurting importers.
It is estimated that drought and severe frost have destroyed about 20 percent of Brazil’s coffee trees.
Brazil is the world’s largest coffee producer, accounting for about half of the world’s supply.
Brazil has cut its production by 25%.
It is clear that the world is in the midst of another wave of rising coffee prices, and the next chart shows the price of a composite indicator of ICOs from January 1990 to March 2022.
The ICO indicator price system started in 1965 and is based on an aggregated measure of four separate price groups:
– Colombian mild Arabica coffee.
– Other mild Arabica coffees.
– Brazilian and other natural Arabica coffees.
– strong.
“The current composite indicator price is calculated by taking the weighted average of the indicator prices for four independent groups, weighted according to their relative shares in international trade,” the ICO said.
According to the latest ICO – Monthly Coffee Market Report – February 2022 – Global coffee futures prices fell due to the conflict in Ukraine.
But the price of the ICO composite indicator continued to rise (+3.2%) in February 2022 (“17 consecutive months of gains”).
Russia and Ukraine together account for 3.8% of global coffee consumption.
On the supply side, Russia is an important supplier of ammonia, a fertilizer ingredient that could drive up input costs for coffee growers.
In addition, ongoing disruptions to shipping have left “several Honduran coffee containers stranded in international waters”.
As such, expect continued chaos.
Timor-Leste exports diversify
Timor-Leste has a so-called “narrow export basket”, which means that a large proportion of its exports are dominated by a few commodities.
Oil and gas exports account for more than 75% of the country’s total exports.
WTO– Fact Sheet – Provide more details.
The chart below summarizes the export share of commodity groups in 2019.
Fuel and Mining Products – 75.6%
Coffee – 16.6%
Other – low
Timor-Leste also trades mainly locally – Singapore, South Korea, China, Indonesia, India and Japan.
Its overwhelming reliance on oil and gas is limited.
Currently, Timor-Leste is benefiting from rising energy prices, but the medium-term forecast is poor.
The country’s oil fund established since independence is massive, but additional oil revenue is falling as fields dry up.
I’ve written a lot about this issue, you can check out the related blog post – here.
Obviously, the oil fund won’t last forever.
But this should not be used as a further argument for austerity and a smaller reduction in the oil fund. The reality is that global uncertainty makes it all the more imperative for Timor to fast-track the development of its human capital and physical infrastructure.
Currently, with Timor’s dollarized currency system, the huge oil fund is the only viable financial resource available to the government to address key issues such as unemployment reduction, skills development, food security and infrastructure development.
While introducing our own currency is a medium-term goal, and strategies must be developed to determine the transition path, we must recognize that, in the context of a dollarized currency system and a sprawling backdrop, a lot of work can be done now. Oil Fund resources that prepare the country for transformation and provide significant short-term gains in material prosperity and environmental sustainability.
One aspect of this work now is the diversity of non-oil exports.
A country like Timor-Leste has several parts of its sustainable development plan as an alternative to the kind of car crash plans offered by institutions like the World Bank and the International Monetary Fund.
These agencies often want to downsize the agricultural sector and turn it into a cash crop for export. This strategy not only made the world mass produce agricultural products and kept prices down, but also undermined the agricultural self-sufficiency of poorer countries.
As a result, farmers end up in deeper debt and local residents lose food security.
However, criticizing the strategy does not mean avoiding food exports.
It just means that countries have to be smarter about the way they build their export markets.
Developed countries can also help.
Despite the emerging narrative that “globalism” is dead and countries will seek to become more self-sufficient in light of Covid, Russia, China, etc., there is still a lot of talk of “free trade” going on.
Australia is currently negotiating a “free trade” deal with India, despite India’s sympathy for Russia.
You can be sure that any such agreement will be neoliberal and will help companies not people.
Australia is also a poor citizen of the world when it comes to foreign aid.
Despite its commitment to meet the globally agreed target of direct aid as a percentage of GDP, the Australian government has refused to deliver on that commitment.
Even now, it counts the spending of legal refugees in short-term concentration camps as foreign aid, which is the moral flaw of our political class.
I wrote about this shame in this blog post – Australia’s overseas aid cuts reveal a country that has lost its spirit (May 15, 2017).
Unfortunately, our inability to abide by agreements with the United Nations and others has put our country in the toxic category.
Just last night, the UN secretary general said Australia was one of the G20 diehards on climate action. Another example of how the country has lost its way.
The Australian government has responded to the criticism, claiming that UN Secretary-General “Antonio Guterres… [was] …member of the UN “chat class”” (resource).
All of these elements can be combined to assist the development of the Timorese coffee industry, which has some very unique characteristics.
This – East Timor coffee industry – is the largest non-oil export sector, albeit small by world standards.
It is a relatively large source of employer and investment capital.
But it produces the world’s largest supply of “organically” grown coffee, and thanks to the volcanic soil available, its yields are considered to be of the highest quality.
A large part of the department is organized along the lines of cooperation.
This – Timor Cooperative Cafe – For example, established after the country gained its freedom from Indonesia in 1999.
Founded in 1994, the cooperative now has 28,000 grower members and supports 44,000 families – “it is divided into 16 cooperatives and 493 producer groups.”
It trades under Fairtrade certification, which provides farmers with stronger income security.
The Coop provides members with free health care (general medical, dental and maternal and child health services), business development and other benefits.
However, the industry still faces huge problems – mainly due to lack of working capital and poor infrastructure (transportation etc).
a plan
So with world coffee prices rising and Australian consumers complaining that Australia needs to do the right thing as a global citizen and a desire to enter into trade deals with other countries, that’s the plan.
Australia entry fair trade agreement Invest without ownership with Timor-Leste to improve the capital available to Timor-Leste coffee cooperatives.
We also agreed to buy most of our coffee needs from Timor-Leste until we will help expand its supply capacity.
The purchase price will follow “fair trade” rules, which will help farmers increase their income and material living standards.
The program has several other benefits.
First, we can lower the price of coffee for Australian consumers (is that a benefit?)
Second, by purchasing imported products closer to home, we reduce the carbon footprint of coffee consumption, which will allow us to legally say we are working to change the way we fight global warming.
Third, we improved our astounding foreign aid/GDP performance while truly raising the standard of living in one of our nearest neighbors.
We can also expand the program to Papua New Guinea, which is also a coffee producer that requires significant investment and is closer to our coast than East Timor.
in conclusion
There is nothing wrong with countries seeking to export agricultural products as long as producers receive fair prices on the world market and the production process does not disrupt traditional practices and damage the quality of the local environment.
Timor-Leste’s coffee program is a win-win for both Australia and Timor-Leste.
Of course, given the lack of generosity and vision in our political class, this is not going to happen.
But it should.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
