On behalf of Oxfam Ireland and the broader Oxfam family, I thank Members for inviting us to address the sub-committee. I am here because of the international crisis in the coffee industry and the effects it is having on producers in developing countries. As the Chairman said, many of these states, including Uganda, Tanzania and Ethopia, are priority aid countries for Ireland.
Last September Oxfam International launched a campaign on the crisis in coffee as part of a broader campaign called Make Trade Fair, which we have run over a number of years to highlight problems of international trade and the effects on producers in the south.
Page three of my submission gives an indication of the extent of the coffee industry. As the Chairman said, there are 25 million producers. We also estimate that approximately 125 million people depend in some sense on coffee. The coffee industry stretches across South America, Central America, Africa and Asia and is of critical importance to the lives of millions of people. The initial graph shows the extent of coffee production in countries like Brazil and Vietnam but it does not show the critical importance of coffee as a crop for the economies of countries. Regarding the dependence of certain countries on coffee exports in 1998, Burundi had an 80% dependence on coffee for its export revenue in 1998. That has since changed but the pattern is repeated in many other countries including Ethiopia, Uganda, Rwanda and many of the countries with which we have a particular connection. Coffee is not unique as a commodity. Many other developing countries depend on a small range of commodities to provide export revenue.
In terms of the problem, there has been a general decline in the price of commodities over the past 30 years, of which coffee is just one. There has been a dramatic fall in the real price of coffee, that is, the real price adjusted for inflation. Over the course of three years, there was a drop in price of about 70%. We can all imagine the consequences of that for whole economies and producers on the ground. To put that in perspective, not only has there been a fall in the price of coffee but there also has been a fall in the percentage value producing countries receive from the final sale of coffee. In 1992 developing countries received around 30% of the final price of coffee. The figure in 2002 was approximately 10%. That is a dramatic decline in the percentage, apart from the overall decline in the final price.
To give an example of how that works in terms of the coffee we buy every day in supermarkets or drink in a restaurant or café, in 1998 it was estimated that around 14% of the final price went back to the producer. In 2000, we estimated that percentage at approximately 7.6%. That figure has declined further and today we reckon it is around 6%. Last year we commissioned a consultant to examine coffee that was being imported from Uganda by supermarkets in the United Kingdom and the final percentage received was about 2.5%, which is a tiny sum and a dramatic fall from a figure of 14%.
What are the consequences of that fall? That is the reason we are here and why Oxfam has launched a campaign on coffee to address this crisis. A total of 25 million coffee farmers across Latin America, Africa and even Asian countries face ruin. Hundreds of thousands have been laid off. The World Bank estimated last year that 400,000 temporary workers and 200,000 permanent workers were laid off in central America alone as a result of this crisis. That is 600,000 jobs lost in central America alone early last year, and the crisis has continued since then.
In regard to the effects on individual families, we have heard evidence from producers across the world. Pre-starvation limits have been reached in countries such as Vietnam, where there are many producers, and Ethiopia, which is currently being affected by a food crisis. People are approaching starvation as a result of the loss of income from coffee sales. Children are being pulled out of schools. Our partners on the ground and people whom organisations like Oxfam International has frequently encountered have told us that they cannot pay for school uniforms or school fees. They have had to take children out of school throughout the school year. They have had to sell off the roofs of their houses in order to pay school fees, etc.
Poverty is a result of the coffee crisis and the knock-on effects are lack of health care, along with education or food. There are other social effects. A producer from Ethiopia, TadesseMaskele, visited with us last November. One of the effects of the crisis in Ethiopia is a slowdown in wedding ceremonies in the rural coffee areas of Ethiopia because there is not an accumulation of money to provide a dowry. These are the knock-on effects of the crisis in addition to the straightforward effects of lack of health care, education and food.
There are also dramatic losses for the individual countries. As we saw in an earlier diagram, Ethiopia had depended on coffee for 67% of its export revenue. When Tadesse visited us last November he told us that figure was now down to 35%. There are several figures in our coffee report which illustrate the dramatic effect of the drop in coffee prices on Ethiopia's export revenue.
We also have evidence from Uganda. The Ugandan Government told us that they can no longer afford to collect the €2 per annum head tax in coffee producing areas due to the effects of the coffee crisis. As we all know here, when Governments can no longer collect revenue that has an effect on the ability to provide basic social services.
The producer is not the only one to be hit by this crisis. Consumers, and in some cases coffee companies, have been affected. As a result of the ending of production or the reduction on inputs applied by producers in the south, who are producing quality coffees in places like Peru, there has been a decline in the quality of coffee available on international markets. There is a glut of coffee on international markets but a decline in quality. Some companies like Starbucks and Nestlé have told us they cannot get the quality they want for their blends. Two weeks ago, at the launch of its Fair Trade Coffee campaign, the chief executive of Bewley's in Ireland told us how they found it increasingly difficult to find producers who could give them the quality coffee they seek.
The roots of this crisis go back to 1989 with the ending of the economic clauses of the international coffee agreement. In 1989, the system of quotas and buffer stocks which had been in place over a number of decades ceased. This began a process of liberalisation in the international market for coffee but also in countries where there was a decline in extension services and market information provided for farmers. In addition, there have been new entrants to the market including Vietnam, which has become the second largest producer of coffee in the world.
Symptoms of the crisis are massive overproduction, the obvious price collapse which we have seen already, a decline in the overall quality of coffee, a shortage of high quality coffee for companies and a massive growing inequality between the companies who make singularly huge profits. We estimated recently that Nestlé made profits last year of 25% to 30%. I am not an expert in business, but that is a healthy profit for any company. The situation is similar with other companies. Kraft, for example, owns the Maxwell House brand and is itself owned by a multinational called Altria, which was previously called Philip Morris before changing its name this year.
Growing inequalities are matched by a growing gap in power between the major multinationals and the producers on the ground. We estimate that four multinationals have well over 40%, perhaps up to 60%, of the global coffee market. Against that, there are 25 million producers scattered across the globe who are facing those four multinationals. The power imbalance is striking, particularly when one knows how many producers are in small co-operatives and have to bargain with multinationals, which use international hedge funds and all the panoply of powers that the international liberalised market gives them.
Farmers face huge barriers to entry and exit. It takes a major investment to both start and stop producing coffee. It takes approximately six years for a coffee bush to develop, which is a major investment for any small producer; so is the decision to tear it up. Farmers now get just 6% of the resale price of coffee.
How is this being addressed by the intern community? Not very satisfactorily. We began our campaign last September and joined other development organisations and coffee-producing organisations in an international coalition to work on this and other issues of international commodities. There has been some progress. The EU made some declarations through the EU General Affairs Council last October. The Council of Ministers asked the Commission for proposals to deal with the commodity crisis. Those are still due and we hope they emerge in the next month or so. There is an urgent crisis which requires action and those proposals would be very timely. It is urgent the Commission produce these proposal as soon as possible.
There was an ACB joint assembly resolution last week urging that the crisis be addressed and there is a similar motion before the European Parliament. There have been similar resolutions in the Spanish and Dutch Parliaments and the US Congress.
On May 19 there is a conference between the International Coffee Organisation, of which Ireland is a member, and the World Bank on this crisis. We hope that the EU will send a high level representative and submit substantial proposals to this conference to kick off an international response to the crisis. In February, Jacques Chirac said that he intended to put the coffee crisis and the general crisis in commodities on the G8 agenda and he produced some initial proposals on how to address the crisis.
What should happen next? Oxfam Ireland suggests that the Government become a leader and an advocate in the international community in terms of addressing this matter. The Government should push the European Commission to show leadership by adopting and implementing steps necessary to address the crisis. We have produced a paper which members will have received and which sets out the steps the EU needs to take to deal with this matter. One of these is the use of €11 billion in unspent European funds, which could be used to address problems in this area. We have proposals on how to use some of these funds to support coffee producers.
The EU can also support independent monitoring of the ICO quality scheme, which was adopted by the International Coffee Organisation last September to improve the quality of coffee in the international market. Oxfam supports this and we need to see independent monitoring. The European Union and the European Commission have agreed to monitoring, but through the European Coffee Federation; we want it to be monitored independently.
A practical short-term step the Oireachtas could take is to use coffee with the "Fair Trade" mark. Many Members will be aware of this and already drink coffee with that mark. Some Government Departments and local authorities already use fair trade coffee. It is the only independent guarantee that producers get a fair deal. It guarantees standards and rights of supply for producers in the south as well as environmental standards. It also comes at a basic price, which covers the cost of production, and there is a social premium on top. That could be done quite easily in the short-term.
We can address root causes of the coffee crisis, namely, dumping and protection. As part of its broader campaign on trade, Oxfam is calling for reform of the Common Agricultural Policy and the agreement on agriculture in order to prevent dumping of produce on markets in the south. This would open up economic avenues and alternatives to coffee production. We should also address price volatility. President Chirac's proposals offer at least a hope of some movement and show some initiative from international leaders. There should be support for farmers for alternatives to EBF funds. We should support developing countries in exporting more value-added goods. We recommend an end to tariffs on processed coffee coming into the EU. The EBA agreement, which allows many developing countries or LBC countries to export tariff-free, is already in existence and should be extended to other countries.
