Why Coffee Farmers Are Poor

Updated: Jan 14

There is a lot of interest in the welfare of coffee farmers in the greater coffee community, from Coffee Roasters, Importers, Exporters, Baristas, Trade Organizations, NGO’s, and Farmer’s Coops. Dozens of organizations and well-meaning individuals dedicate their lives to improving the welfare of the farmer, and many large corporations have also made farmer welfare a priority.

So why does coffee farmer poverty persist? I contend that the coffee farmer poverty exists for two very specific reasons: geography and farm size.

The geography is unfortunate because the conditions that are conducive to growing coffee are also significant barriers to economic development. This makes coffee farming and poverty inextricably intertwined. Until we solve the problem of tropical underdevelopment, coffee farmers will have an income problem. Farm size is potentially an easier problem to solve, and I will outline my thoughts on it below. Both of these problems, however, are structural economic issues rather than a problem of moral failures on the part of the coffee industry.

In this article I will provide evidence of the scope of the problem and along the way, I will challenge what I consider to be two popular misconceptions.

1) that paying more for coffee is a viable solution, and 2) that corporate greed is to blame.

Finally, I conclude with what I believe are sustainable solutions.

The unfortunate truth is that tropical underdevelopment is a persistent problem, and it is much bigger than coffee. However, since coffee is a tropical plant that grows best in mountainous land, poverty in coffee farming is a subset of tropical underdevelopment.

Before we talk about why tropical underdevelopment exists first let me demonstrate the depth of this issue:

The above charts highlight the GDP per capita in temperate zones (along with an estimate of income per capita), vs tropical countries where coffee can be grown.

The average income in temperate zones is some 3-5 times the average income of countries capable of producing coffee. This creates a huge selection bias when looking at coffee farmer income since right off the bat, the pool of people who have the option of becoming a coffee farmer is selected from the poorest countries in the world.

Showing may be better than telling in this case, the below charts illustrate this point.

This suggests that the larger problem that we have to contend with is why tropical countries are economically poorer than their temperate cousins.

Renowned Harvard economist Jeffrey Sachs theorized some causes of this in his 2001 paper, “Tropical Underdevelopment.” He identified 5 key areas that arrest development in these regions #1 of which is technology (especially healthcare and agriculture). Technology developed in temperate regions is ecologically specific and not easily transferred to tropical regions.

Think about something as fundamental as a road. Anyone who has ever driven on a crop tour in a coffee origin knows what roads are like in these areas.

When I lived in Uganda my house was on a horrible paved road with potholes, cracks, breaks etc. Imagine my delight when they paved this road a couple of months after I moved there, “what luck!” I thought. However, within a few short months of heavy rains, the road was a disaster again.

A Typical Ugandan Road

Look at the farming technology in North America and Europe. Large tractors plowing neat rows in giant flat prairies has no equivalent in the mountains of Colombia or India. Only in the plateaus of Brazil is mechanization feasible on any scale in the coffee industry.

Sachs proposed massive increases in foreign aid to bridge the technological gaps and improve good governance in these countries.

He largely succeeded in these efforts. From 2000 to 2015 Foreign Aid doubled, yet the results were not necessarily what we had hoped.

Two of the biggest problems with foreign aid and NGO funding is the problem of destroying local businesses and creating a culture of “Neo-colonialism.”

Regarding the latter, massive amounts of foreign money that funnels into foreign nationals administering it to locals can be a catch-22. Either rich countries do nothing, send money to locals with no oversight, or send money to locals conditionally and get accused of colonialism.

The economic impact of well-meaning aid can also be an issue. The documentary Poverty, Inc. outlines how American food aid decimated the livelihood of Haiti’s rice farmers. When I lived in Uganda, the garment industry was massively disrupted by donations. Everywhere people could be seen sporting cheaply made Western t-shirt donations, “Smith family reunion” or “Tim’s Bar Mitzvah”.

The problem with the top-down approach to aid is that it is so one-sided, it is resources and intentions sent from one place to another. It is not a partnership.

In the coffee industry we are guilty of the top-down approach, but we also have pioneered the bottom-up approach.

The coffee certification industry aims to improve the economic well-being of farmers by engaging directly with farmers on a micro-level. The idea is that if farmer quality and productivity can be improved, the farmer can receive more money and a better livelihood.

This brings us to the 2nd problem of coffee farmer poverty: small farm size. According to the ICO, over 80% of coffee farmers are small holder farmers (less than 2 hectares).

A recent study by Fair Trade International highlights income by farmers with various levels of productivity. With a typical farm of 2 hectares or less, a farmer is making $494 of annual income with a low-productivity farm. If they invest in their coffee and make substantial improvements in yield to 15 bags per hectare, they will still only earn less than $1500 in profit. Even if they were to able to achieve Brazil-level of productivity of 30 bags per hectare, they would still only be earning $2964 per year. That’s 25% lower than the average income in coffee producing countries!

This bring us to ...

Misconception #1: Paying above market price as a viable solution for the problem of coffee farmer poverty.

There are several problems with this, but the first is an ethical one. When you pay an additional fee over and above the market price for coffee, you are essentially giving a donation. You’re saying, here’s 2.50 for the coffee, and here’s a little something extra because I think that you need it.

This doesn’t make sense philosophically. If you think about it in terms of need, increasing your pay to one farmer does nothing for the thousands of other poor farmers and other economically depressed people of that country. Does the coffee farmer in Chiapas deserve your charity more than an urban orphan in Mexico City? How do you even know that the farmer you are buying from is poor? Should you only buy from poor farmers? What if quality is important to your business?

In addition to the philosophical problem is a more practical one. When you are paying above market price, you are effectively paying a voluntary price floor. This destroys demand and incentivizes production.

Even if these altruistic prices were to catch on, and everyone starts paying above market prices to farmers for their coffee, the economic problem is compounded. When other local farmers see that coffee farmers are earning more from coffee than they are making in other crops, they will switch what they are doing to coffee farming which increases supply.

The problem is that demand does not increase along with the supply. In fact, demand would decrease. Since everyone is now paying more per pound for coffee, we would not be able to afford to buy as much coffee as we were previously.

For example, if a company had a $10k budget to buy coffee annually and the market price is $2/lb then y