Talbot 1995 PDF

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Regulating the Coffee Commodity Chain: Internationalization and the Coffee Cartel
Author(s): John M. Talbot
Source: Berkeley Journal of Sociology, Vol. 40, Globalization (1995-1996), pp. 113-149
Published by: Regents of the University of California
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Chain:
RegulatingtheCoffeeCommodity
Internationalization
and theCoffeeCartel^
JohnM. Talbot
Introduction
Li almosteverycityintheUS today,thereis a specialty
coffeeshopselling
roasted
coffee
beans
from
countries
around
the
world:
CostaRica,
freshly
and
to
name
but
a
few.
Is
this
sudden
Indonesia,
Kenya,
growthof the
coffee
market
another
of
the
ofeconomic
specialty
just
aspect
globalization
Not
because
the
coffee
chain
has
activity? really,
commodity
alwaysbeen
In
the
recent
of
globallyorganized. fact,
popularity specialtycoffees
in
a
a
reaction
ofthecoffee
represents, sense,
against
globalization
industry.
Butthemostsurprising
reaction
was theformation,
in
againstglobalization
of
a
coffee
cartel
which
to
raise
world
August1993,
producers'
attempted
marketpricesof coffee.This paper exploresthe natureof the coffee
chainandthereasonsfortheserecent
commodity
developments.
Two promising
the globalization
of the world
approachesforstudying
haverecently
The commodity
chainapproach(Gereffi
economy
emerged.
andKorzeniewicz,
oftheglobalnetworks
1994)focuseson thestructures
of production
whichresultin production
of
processesand transactions
The regulationapproach
particulartypes of finishedcommodities.
(McMichaelandMyrhe,1991;McMichael,1992) focuseson theroleof
states and multilateral
institutions
in regulatingglobally-organized
of these two
productionsystems.This paper proposes a synthesis
calledtheregulating
thecommodity
chainapproach.This
perspectives,
chainas theunitof analysis,
butfocuseson
approachuses thecommodity
lrThe research reported here was partially supported by NSF Dissertation
ImprovementGrantNo. SBR-9300877. Portionsof this analysiswere presentedat
the annual meetingsof the Associationof AmericanGeographers,San Francisco,
March 29 - April2, 1994, and thePacificSociologicalAssociation,San Diego, April
14-17, 1994. I would like to thankthe discussantsat those sessions,TerryMarsden
and Walter Goldfrankrespectively,
for theircommentson those presentations.I
would also like to thankPeterEvans, Brian Wright,and Laura Enriquez fortheir
commentson an earlierdraftof this paper. Finally,I would like to thankC. P. R.
Dubois, Marianne Bradnock, Rebecca Adams, and Trevor Nash of the ICO
SecretariatStafffor theirassistancewith my researchat the InternationalCoffee
Organization.Of course, none of the above bear any responsibilityfor the
and conclusionspresentedhere.
interpretations
114
BERKELEY
JOURNAL OF SOCIOLOGY
in regulatingthe nodes and

institutions
the roles of statesand multilateral
linksof the chain. This approachis illustrated
throughan analysisof the
coffeecommoditychain.
The commoditychain approach highlightsthe role of transnational
corporations(TNCs).2 The TNCs exercisecontrolover commoditychains
throughtheiraccess to capital,theirdominancein R&D and technology,
networksin the core
and/ortheir oligopolisticcontrol of distribution
markets.Throughthiscontrolover key nodes of the chain,theyorganize
of the chain
global productionand have the power to changethe structure
or the location of its nodes. They use this controlto appropriatethe
majorityof the surplusgeneratedalong the chain. The commoditychain
approach acknowledges the importance of state action in shaping
commoditychains,buttendsto focuson the actionsof individualperipheral
to counteractor adaptto the global
statesas theyattempt
or semiperipheral
TNCs.
of
the
productionstrategies
For example,Gereffiand Korzeniewicz(1989) and Gereffi(1994) analyze
the dynamicsof "buyerdriven"chainsorganizedby the TNCs thatcontrol
the core marketsfor footwearand appareL The apparel TNCs organize
global networksthatproducethevarietyof apparelitemsthe
sophisticated
TNCs market.Productionis allocated between countriesbased on some
for timely
combinationof labor costs, qualityof output,and reliability
betweena "semi-core"of the "fourtigers"
delivery.The TNCs distinguish
(Taiwan, South Korea, Hong Kong and Singapore)which produce high
levels of
qualityon time,but at higherlabor costs, and several different
by theirlabor costs, consistencyof quality,and
periphery,differentiated
reliability
(Gereffi,1994: 111). This global sourcingstrategyallows the
TNCs to obtainthe mix of different
qualitiesof apparelitemstheyneed to
supplytheirmarkets,on time and at the lowest possible cost, thereby
maximizingtheirprofits.Third World states enact policies intendedto
integratelocal productionintothisnetwork,and to move up closerto the
semi-core.At stakeis the largershareof value added and surpluswhichis
located at thoselevelsclosestto the semi-core,althoughitrepresents
onlya
and
value
added
of
the
total
share
small
surplusgeneratedalong
relatively
the entirechain.But theseactionsby ThirdWorld statesare reactive~they
oftheTNCs.
attemptto adaptto theglobal strategies
2This approach is best exemplifiedby the studies collected in the Gereffiand

Korzeniewicz(1994) volume, but also includes the earlier work of Gereffiand
Korzeniewicz(1989) and Hopkinsand Wallerstein
(1986). Arrighiand Drangel's(1986)
chainapproach
does notuse a commodity
oftheworld-economy
studyofthestratification
ofcore
chainis centraltotheirdefinitions
in itsanalysis,buttheconceptofthecommodity
activities.
and peripheral
TALBOT: COFFEE COMMODITY
CHAIN
115
The regulationapproach highlightsthe roles of states and multilateral

institutions(particularlythe World Bank and IMF).3 The multilateral
institutionsserve as regulatoryagencies for globally-organizedcapitalist
thenationalregulatory
production.They subordinate
attemptsof peripheral
statesto the global logic of capital,usingthe carrotof
and semiperipheral
access to internationalcredit and the stick of structuraladjustment.
Individual states lose the power to regulate the fractions of
globally-organized
productionprocesseswhichare locatedwithintheirown
borders.
For example,McMichael (1992) analyzesthe foundationsof a new global
food regime. He argues that they are "the related processes of
internationalization
of food productionand markets,on the one hand, and
the substitution
of global forlocal regulationon the other."(1992: 345)
Basic food grains are produced in the core and exportedto the Third
World, while ThirdWorld countriesincreasinglyspecialize in high-value
"non-traditional"
fruitsand vegetablesforexportto the core.One of the key
regulatory
agenciesthatforcedthischangewas the IMF. Duringthe 1980s
debt crisis,the IMF, on the one hand,forcedThirdWorld statesto open
theirmarketsto importedfood, and on the other,pushedthemto increase
their agriculturalexports in order to make payments on their debt.
Accordingto McMichael,the Uruguayroundof GATT (and by extension,
the new World Trade Organization) represents a furtherstep in
marketrule on a world scale" (1992: 348), thereby
c<mstitutionaliz[ing]
the
undermining abilityof ThirdWorld statesto providefood securityfor
theirpeople.
The regulationapproach acknowledges the central role of TNCs as
organizersof global production,but tends to conceptualizethem as an
undifferentiated
"global capital" which imposes its will through the
multilateralinstitutions.
When studies using this approach analyze the
modes of regulation(e.g.,
responsesof ThirdWorld statesto these shifting
Raynolds et al, 1993), theirapproach resemblesthat of the commodity
chainanalystsr-the
ThirdWorld statesare viewed as reactive.They attempt
to findnichesin the globalproductionsystem,but theydo not act to shape
theregulatory
regime.
These two approachesview theincreasingglobalizationof productionfrom
different
angles, althoughthey obviouslyhave much in common. They
highlightcomplementary
aspects of the global productionsystem The
3In additionto McMichael and Myrhe(1991) and McMichael (1992), this approach
includesthestudiescollectedin McMichael(1994), and growsoutofHarrietFriedmann's
pioneeringworkon foodregimes,e.g., Friedmann(1982, 1991, 1993); Friedmannand
McMichael(1989).
116
BERKELEY JOURNALOF SOCIOLOGY
chainapproachfocuseson thelocationsof specific

production
commodity
them,whichareaffected
by
processesandthenatureoftheflowsbetween
focuseson
statesandTNCs.Theregulation
theactionsofspecific
approach
the largerpolitical-economic
systemwithinwhichtheseprocessesare
and enforcedby
on the regulations
situated,particularly
promulgated
oftheseapproaches
institutions.
multilateral
However,neither
incorporates
the
statesto challenge
actionbyperipheral
forcoordinated
thepossibilities
nor do
role of transnational
institutions;
capitalor multilateral
regulatory
theirindirect
influence
as
a roleforcorestates,asidefrom
theyincorporate
hi the analysisof specific
institutions,
exertedthroughthe multilateral
ofthesediverseinstitutional
andstrategies
chains,theinterests
commodity
institutions4~must
be takeninto
multilateral
and
states,
actorsr-TNCs,
all
of
these
institutional
actors
account.The politicalinteractions
among
ofregulatory
andmodification
resultintheconstruction
regimes
governing
linkedsetsofproduction
processes.
chainand regulation
In thispaper,I combinethecommodity
approaches
actionby groupsof states.I use thissynthetic
witha focuson collective
forms
to analyzethechanging
chain'9
thecommodity
approach
"regulating
In thecase of coffee,
oftheworldcoffeemarket.
ofregulation
producing
a different
statesconstructed
andconsuming
institution,
typeofmultilateral
CoffeeOrganization
the International
(ICO), to regulatethe marketby
of
a
quotas.Becausethequotaswerepolitically
administering
system export
the
ICO
regimecaused reactionsalong the
regulatory
negotiated,
The collapseof
theregime.
undermined
which
chain
eventually
commodity
in anunregulated
instabilities
revealedtheinherent
theICO regime
market,
of
whichreverberated
alongthe chainand createda new commonality
international
statesinrenewed
interests
regulation.
amongcoffee-producing
to a global"free
committed
Thecoffee-consuming
states,
bythistimefirmly
statesresponded
to cooperate.The producing
trade"regime,refused
by
Countries
ofCoffeeProducing
theAssociation
(ACPC),thecoffee
forming
cartel.
Chain
The CoffeeCommodity
andmostof
Coffeeis a tropical
crop;itis growninThirdWorldcountries,
It is the secondmostvaluableprimary
it is consumedin core countries.
afteroiL The coffee
countries,
exportedby "developing"
commodity
case
for
thus
an
excellent
is
chain
analysisof the conflicts
commodity
as unitary
aregenerally
treated
institutions
4Inthisanalysis,TNCs, states,and multilateral
actors"to emphasizethattheyare all complex
actors.I use the phrase''institutional
divisionsor agenciesofthesebureaucracies
and thatdifferent
bureaucratic
organizations,
Theseconflicts
arebeyondthescopeofthisanalysis.
interests.
mayhaveconflicting
CHAIN
117
betweencore and percheraiactorsover controlof the chainand theprofits

it generates.Figure 1 presentsa simplified
pictureof the coffeecommodity
chain;thereare fourmajorprocessingstages,shownon therightside of the
Figure.Coffeeis producedby growersin the formof a red cherry.When
coffeebeans remain.
the fruitis strippedof two seeds or '"parchment"
Next, the whiteshellof the parchmentis milledofleavinga greencoffee
bean, the formin whichmostcoffeeis tradedon theworldmarket.Finally,
greencoffeeis processedintoroastedand ground(R&G) or instantcoffee
forfinalconsumption.
the structure
ofthe chain.
actorsinfluence
Threemajortypesof institutional
The TNCs dominatethe chainthroughtheircontrolof keynodes - some
are oligopsonistic
buyersof greencoffee,and othersare oligopolisticsellers
of processed coffeeproductsin the core consumermarkets.The importers
buy coffee froma large numberof producingcountries,ship it to the
consuming countries, and sell it to the coffee manufacturers.The
blendcoffeesfromseveraldifferent
manufacturers
originsand manufacture
roasted or instant coffee. This blending allows the manufacturerto
substitutecoffeefromone originfor that fromanotherin response to
while maintaining
a consistenttaste in the
changesin price or availability,
thusrequireTNC importerswho
finalproduct.TNC coffeemanufacturers
can deal in largevolumesof coffeefrommanydifferent
producingcountries
varietiesof coffeeneeded by manufacturers.
The
and supplythe different
coffeecommoditychainhas been globallyorganizedby TNCs since at least
the 1950s, throughwhat Friedmann(1991) has called global sourcing,
sourcesfor
obtaininggenericraw materialinputsfroma varietyof different
use in industrial
foodproduction.
Third World producingstates influencethe structureof the chain both
boards,and indirectly,
directly,
throughtheirstatemarketing
throughtheir
regulationof coffeeproductionand exports.Marketingboards,commonin
Africaand also foundin some Asian countries,have legal monopolieson
coffeeexporting.They set prices and qualitystandardsand buy all coffee
destinedfor export fromthe growers. They also do some processing,
to greenform,and thendeal directly
withcoffee
usuallyfromtheparchment
importersto sell the country'scoffee.State coffeeagencies,foundin most
Latin Americancountries,oftenset prices and qualitystandards,and they
may buy and exportsome coffee.But theymainlyregulateprivateexport
theamountsthattheyare allowedto exportand collecting
firms,controlling
taxes.
export
Through this regulatorycontrol,they may indirectlyset
minimumexportprices for the privatefirms.Consumingstates are less
withboth TNCs and producing
visiblein thispicture,but theirinteractions
states,and theirregulationof coffeeimports,processing,and sales, also
of the chain.These threetypesof institutional
influencethe structure
actors
and sometimesconflicting
interestsin relationto
each have contradictory
118

Figure 1: The CoffeeCommodityChain
Coffee
Consumers
/,
R&G
1
I
1
CoffeeManufacturers
Roasted/Ground/Instant
s&
CoffeeImporters
andTraders(TNCs)
x/
X.
CORE
/
PERIPHERY
x
Coffee
'.
Private
Exporters
Marketing
Boards
'
'
Traders
andBrokers
Green
Instant
/
/
/
Intermediaries
Coops/Traders/Agents/
'
'
'
/
/
Parchment
~ -
Coffee
Cherries
Coffee
Growers
CHAIN
119
the regulationof different

stages of the chain, and in particular,to the
international
regulationoftheworldmarket.5
Coffee-consumingcore states, particularlysince the early 1980s, are
"freetrade" regime.This is
generallychampionsof a liberalinternational
also usuallyin theinterests
of TNC coffeetradersand coffeeroasterswhich
are based in these same core countries.However,the inherent
of
instability
a "free"world coffeemarket,and the serious effectsit can have on the
economies of peripheralproducingcountries,can provide a geopolitical
rationalefor core statesto supportpoliticalregulationof the market,in
order to stabilize client percherai states. Similarly,the TNCs which
dominatethecoffeecommodity
chaintendto prefera "freemarket"regime.
But theyalso requirestablesuppliesand consistentqualitiesof coffeeto be
availableon themarket,andtheserequirements
can be jeopardizedby either
the economic instability
of the marketor the politicalinstability
of major
countries.
Thus
TNCs
at
times
also
share
the
producing
may
geopolitical
interestsof theirhome statesin supporting
politicalregulationof the world
market.
ThirdWorldstateshave themostcomplexset of interests
Coffee-producing
regardingregulationof the market. They generallyfavor a politically
regulatedmarketif it will stabilizeand raise the generallevel of world
prices, because coffeeis a labor-intensive
crop which provides a major
source of ruralincome and employment
in most producingcountries.In
addition,exporttaxes on coffee,or marketingboard profits,are oftena
revenues.But politicalregulationofthemarket
majorsourceofgovernment
has historicallybeen accomplishedthroughexport quotas, which limit
to purchaseand maintain
exportsand necessitategovernment
expenditures
coffeestockpilesin orderto meettheirquota obligations.Dependingon the
relative sizes of a country'sproductionand its export quota, political
regulationmay impose costs on the state which outweighthe benefits
obtainedthrougha higherworldprice.Further,
thefactthatcoffeerevenues
provide a major source of income to both coffeegrowers and the state
meansthatthe divisionof theserevenuesmaybecome a source of conflict
withintheproducingcountry.
The resultof thesecontradictory
and conflicting
interestsof the threetypes
of institutional
actors has been alternating
periods of "free market"and
forms
of
of
the
coffee
"political"
regulation
commoditychain.In a previous
^he ICO and ACPC are also institutional
actorsin this story.However,because the
administered
betweenthe producing
regulations
by the ICO werepoliticallynegotiated
and consumingstates,and the ACPC regulations
are politicallynegotiatedamongthe
producingstates,neitherthe ICO nor the ACPC are consideredas independent
institutional
actorsin thisanalysis.
120
interests
led froma
paper(Talbot,1995a),I showedhowtheseconflicting
afterWorldWarH, to a regulated
market
"freemarket"
periodbeginning
CoffeeAgreements
two International
underthefirst
(ICAs) from1962to
whichlasteduntil1980,whenthe marketwas
1972,to a deregulation
and fourth
ICAs. In thispaper,I showhow
under
the
third
reregulated
1980s
undermined
themostrecentICA regulatory
the
during
developments
in
1989
a pricecrash.I then
and
to
its
precipitating
leading
collapse
regime,
led first
to attempts
ofa "free"market
instabilities
showhowtheresulting
ofthecarteLTo provide
to renegotiate
theICA, andthento theformation
the contextfor this stoiy, the next section describesthe new
since1980.
ofthecoffee
industry
processing
since1980
ofCoffeeProduction
The Internationalization
The regulationapproach focuses attentionon four aspects of
of capital,the
the increasing
internationalization:
role of
the
of
finance
important
capital, increasingly
increasing
power
of
states.
This
and
the
multilateral
institutions,
reorganization percherai
twoaspects,as wellas on a segmentation
on thefirst
sectionconcentrates
and
tradein coffeewhichbothreflects
ofinternational
institutions
and
roles
of
multilateral
it.
The
a
reaction
against
represents
would
be
for
coffee
than
different
somewhat
states
are
expected
peripheral
thesearedealtwithinthefollowing
onthebasisoftheregulation
literature;
sections.
hasbeenmanifested
ofcoffee
Theinternationalization
primarily
production
and
andcoffee
ofTNC coffee
intheconcentration
firms,
importing
roasting
their increasingcontrolover marketsin all consumingcountries.
in
was wellunderway
markets
intheconsuming
ofroasters
Concentration
of
the
rash
It
accelerated
the 1960s and 1970s (Talbot,1995a).
during
thefreemarket
andbuyoutsofthe1980s,andcontinued
through
mergers
coffee
of
concentration
the
1990s.
of
the
Meanwhile,
importers
early
period
accelerated
anditwas greatly
was alsoincreasing,
bythe1989pricecrash.
FiveTNCs now accountforwellover60% oftotalcoffeesalesacrossall
The largestis Nestl,theworld'slargestfood
markets.
majorconsuming
intheUS
coffee
It
has
alwaysbeena leaderininstant
company.
processing
and
of
roasted
its
share
has
andinrecent
andEC markets,
years expanded
and
Chase
has
Nestl
In
the
markets.
Sanborn,
US,
acquired
(R&G)
ground
HillsBros.,MJB,and Sark's,and in Europeit has acquiredZoegas, a
Nestlalsohas
markets.
withlargesharesof Scandinavian
Swedishroaster
Close
markets.
instant
andcannedcoffee
shareoftheJapanese
a significant
outoftobaccoandinto
Nestlis PhilipMorris.Itbeganto diversify
behind
of Kraftand General
in the 1980s,withits acquisitions
foodprocessing
It
Foods,ownerofMaxwellHouse,longtheleaderintheUS R&G market.
CHAIN
121
also acquiredJacob Suchard,one of the largestroastersin France,with a

large shareof the EC market,and Gavalia, anothermajor Swedishroaster.
GeneralFoods, in a jointventurewithfood processinggiantAjinomoto,is
also thelargestcoffeecompanyin Japan.The thirdlargestcoffeeprocessing
TNC is Proctorand Gamble,whichowns Folgers,the second-largest
coffee
companyin the US market.Procterand Gambledoes not have large coffee
sales outside the US. Fourthis Sara Lee, the US food processinggiant
whichowns SuperiorCoffee,and whichacquiredDouwe Egberts,a Dutch
roasterwithlargemarketsharesthroughout
NorthernEurope, whichitself
had previouslymergedwithVan Nelle, anothermajor Dutch roasterand
food processingconglomerate.Finally,Coca Cola is a major manufacturer
of instantcoffeein all core markets(Tea and CoffeeTrade JournalJanuary
1989: 16-17; April 1989: 7; September1991: 58; November1992: 40, 76;
April1993: 76; WorldCoffee& Tea January1990: 28-30; March 1990: 23;
January1991: 26-3l;Landell Mills,July1991; Talbot, 1995b).
All five of these TNCs are multi-product
conglomerates,and despitethe
factthattheyare thelargestcoffeemanufacturers
in theworld,coffeeis not
their main product. These statisticsunderestimatethe degree of TNC
control,since,in some of the major markets,coffeeand food-processing
TNCs of onlyslightlysmallerscale also have significant
marketshares,for
instanceTchibo and Eduscho in Germany,and Ueshimaand Key Coffeein
Japan.Italyis the major exception,withmanysmallregionalroasters,but
even thatis beginningto change(World Coffee& Tea, August 1992: 68;
Tea and CoffeeTradeJournal,August 1990: 52; January1991: 52-6; June
1991: 16; February1992: 47; October 1992: 56; F.O. licht, 23 December
1993; ANECAFE, 15 May 1993).
Throughthe 1980s, the increasingconcentrationof coffeeroastersand
instant coffee producers in consuming markets began to lead to
concentration
of coffeeimporting
firms.The fewlargemanufacturing
TNCs
or to deal witha fewlargeimporters
preferto buytheirown coffeedirectly,
who can providethefullrangeof coffeesand thefullrangeof servicesthey
require.Most of thetime,theydeal withthe TNC tradingfirms,whichcan
assume the risks involved in internationaltrading, such as currency
late or smallharvestsin producingcountries,shippingdelays,
fluctuations,
or poor qualitycoffee sold as high quality.This tends to drive out of
businessor marginalizesmallerimporters
who areunableto competeforthe
highvolumesales to TNCs.
the 1989 price crash drove manyimporters,
Additionally,
large and small,
out ofbusiness;some of themwere alreadyin precariouspositionsafterthe
October 1987 stock marketcrash (F.O. licht, 3 November 1987). Some
were holding large stockpilespurchased at high quota prices, which
in value afterthe end of the quotas, and had to be
declinedprecipitously
122
BERKELEY
sold at a loss.Otherswere holdinglarge speculativepositionsin the futures

workon percentage
markets,and also took largelosses. But mostimporters
commissions,and when the price fellby 50%, so did theircommissions.
Thus by 1992, the fivelargestcoffeeimporters
(Neumann,Volkart,ED&F
Man, Cargill,and J. Aron) controlledover 40% of total world imports
(ANECAFE, 15 May 1993). Neumann,alreadya large multi-commodity
trader,became the largestaftertakingover anotherof the largestcoffee
Rothfos.ED&F Man is theworld'slargestcocoa trader,and also
importers,
a majorsugarimporter.
became one ofthe
Cargill,thegraintrader,instantly
world'slargestcoffeeimporters
whenit purchasedACLI Coffee;J.Aron is
now owned by Goldman,Sachs, In addition,the largestsogo shosha, C.
Itoh,Marubeni,and Mitsubishi,controlmostcoffeeimportsintoJapan.All
TNC traders,and again,
of these importersare large muM-commodity
are
the
world's
coffee
coffeeis generally
not
largest
althoughthey
importers,
and
Trade
theirmostimportant
Journal,July1990;
commodity
(Tea
Coffee
December 1990; January1992; WorldCoffee& Tea, January1991; F.O.
licht 15 December 1987; 11 June1993).
oftheregulationtheorists,
thisconcentration
Consistentwiththe arguments
with an
of coffeeimportingand processingTNCs has gone hand-in-hand
of
role
for
finance
Access
to
amounts
capital
large
capital is
increasing
crucial for the TNCs, both for pursuitof theirmergerand acquisition
the purchasesof the huge volumes of coffee
strategies,and forfinancing
has been particularly
for
withwhichtheydeal This requirement
important
Sachs'
and is best exemplified
the coffeeimporters,
Goldman,
by
acquisition
of J.Aron.At the same time,thelargebanks and financialhouses preferto
deal withthe largetradingTNCs withwhichtheyhave ongoingrelations;
this furtherdisadvantagessmallerimportfirmsand reinforcesthe trend
towardconcentration.
role playedby financecapitalis in the coffeefixtures
The otherimportant
markets.The futuresmarkets,in New York and London,have been a part
oftheworldtradein greencoffeesincethe early1900s. But sincethe early
TNCs have increasingly
1980s,theimporting
peggedthepricestheypay for
York
or
London
price on the day the purchase
green coffeeto the New
of the futuresmarkets
increased
the
This
has
is
finalized.
contract
centrality
and exportersfollowtrendsin
to the coffeetrade.Not onlymustimporters
themarket,buttheymustbuy and sell futuresto protectthemselvesagainst
any changes in the price which occur betweenthe time the contractis
Once again, followingand
finalizedand the time the coffeeis delivered.
on
or
in
markets
a
the
fixtures
daily, evenhourlybasis,requires
participating
financialexpertiseand access to capital,givinga further
advantageto the
TNCs.
largest
CHAIN
123
This developmenthas also given financecapital a largerrole in setting

coffeeprices. The volume of coffeefuturestransactionssoared duringthe
1980s, due in large part to the activitiesof commodityfunds, huge
conglomerationsof financialcapital seekingthe highestand most rapid
fixtures
profitsavailable,by tradingin financial,oil, metals,and agricultural
markets.These fundsshiftlargeamountsof moneyin and out of the coffee
futuresmarkets,forreasonswhichare usuallyonlymarginally
relatedto the
actual global situationof supplies o and demand for, coffee. This
combinationof peggingthe price of coffeeto the fixtures
marketsand the
increasedweightof the commodityfundsin these markets,has probably
increasedthe instability
of world marketprices (Marazzi, 1984; Kuchiki,
1990).
The other aspects of internationalization
identifiedby the regulation
the
role
of
multilateral
institutions
and the reorganizationof
approach,
have
been
different
for
coffee
thanformanyother
percherai states,
quite
commodities.As we will see in thefollowingsections,structural
adjustment
programspushedby theWorldBank and IMF did not have mucheffecton
producingstates'regulationofthe earlystagesof the commoditychainuntil
the coffeecrisisof the early 1990s. State coffeeagencies and marketing
boards continuedto exercise controlover coffeegrowingand exporting
institution
throughthe 1980s. And the primarymultilateral
regulatingthe
worldcoffeemarket,theICO, continuedto function
this
during time.
The other importantinternationalization
tendencyin coffee production,
whichis not consideredby theregulationtheorists,
involvesa segmentation
of the world market.A new tradein industrialcoffeeproductshas grown
'traditional"tradein greencoffee;and
rapidlyalongsidethe still-important
the greencoffeetradeitselfhas become segmentedwiththe growthof the
specialtycoffeemarketin the consumingcountries.The formeris theresult
of internationalization,
but consists of finishedproducts ratherthan the
industrial
inputswhichare thefocusoftheregulationapproach.The latteris
a reaction against it, which provides hand-craftedcoffees to the
upper-middleclasses of the consumingcountries.In the face of a creeping
standardizationof class diets (Friedmann,1991), coffee consumption
becomes a means for elites in certaincore countriesto reassert class
differences.
The new trade in industrialcoffee products is linked, in part, to the
increasingconcentrationof coffee processing TNCs in the consuming
markets.As theyhave acquiredsignificant
sharesin a numberof markets,
have
rationalized
their
they
operations,closingroastingor instantcoffee
with
small
or
outdated
plants
capacity
equipment,and expandingtheirmore
modernplantsor bundingnew state-of-the-art
facilities.These new plants
are strategically
locatednearmajorportsand are oftendesignedto produce
124
BERKELEY JOURNAL OF SOCIOLOGY
formajormarketsin severaldifferent
consumingcountries.In international
trade statistics,this rationalizationshows up as an increased trade in
processedcoffeeproductsamongcore consumingcountries.Thus, exports
ofprocessedcoffeebyimporting
membersoftheICO increasedfroma little
over two millionbags (green bean equivalent)in the early 1970s to just
underfivemillionin the late 1980s. In the early1970s, about three-fourths
of these exportswere instantcoffee;by the late 1980s, theywere evenly
dividedbetweeninstantand roasted.
of coffee manufacturers
The concentrationand internationalization
has
increasedthe demandforgreencoffeeas an industrialinput,produced in
large quantitiesat the lowest possible price. Some coffeegrowingstates
have responded to this demand by promotingthe adoption of new
varietiesof coffee.These new varietiesproducelargevolumes
high-yielding
inferior
to thetraditional
varietieswhich
of coffee,buttheirtasteis generally
they replace. This standardizationof coffee for a global market has
sacrificedquality for quantity.But this trend has also generated a
in the growthof the specialtymarket.Specialtycoffeesare
countertrend
traditionalvarieties produced in regions which are
carefully-tended
well-suitedto coffeegrowing,such as the Antiguaregion of
particularly
Guatemalaor the SulawesihighlandsofIndonesia.Combinationsof soil and
in theseregionsproducefinecoffeeswithdistinctive
climatecharacteristics
flavorsof winesproduced
flavorcharacteristics,
analogousto the distinctive
in famousEuropean wine regions.And particularcoffee"estates"in these
regionsare beginningto gain reputationsas the producersof the world's
finestcoffees;probablythe most famous of these is La Minila in Costa
Rica's Terrazuregion.
Specialty coffees are traded in much smaller quantitiesthan industrial
coffees,generallyby relativelysmall exportand importfirms,which are
more likelyto trade onlyin coffee.And as smallroastingcompanieshave
been drivenout of the mass marketby the TNCs, the specialtymarkethas
created a niche for small roasterswho regardcoffeeroastingas an art.
Peet's Coffee,whichwas startedin Berkeleyin the 1960s by coffeeexpert
AlfredPeet, was a pioneer of this marketsegment.These roastersare
willingto pay higherprices to obtain the highestqualitygreen coffees
available,and are also able to chargetheircustomersmuchhigherpricesfor
theirhand-craftedsingle origincoffeesthan the TNCs charge for their
blends.
standardindustrial
the
The specialtycoffeesegmentwithinthe consumingmarkets,particularly
sales of the TNCs' industrial
US, is a growingsegment,while supermarket
coffeesare declining.This segment,which also includesflavoredcoffees
and the sales of espressobars and carts,now accountsforover 15% of the
US market.But as this marketsegmenthas become a largerand more
CHAIN
125
profitablepart of consumingmarkets,the degree of concentrationis

increasing,and the TNCs are also enteringit. Starbucks,by farthe largest
specialtyroaster,has grown rapidlyover the last few years,throughan
aggressivestrategyof expansionand acquisitions.It has plansto open new
storesin the US at the rate of nearlyone per day through1996. Nesti has
moved into the specialtymarketwith its purchase of Sark's Gourmet
Coffees,and Proctorand Gamble has acquiredMillstoneCoffee.Both of
these brands are sold in special sections of supermarkets.Supermarket
chainssuchas Safeway,and discountchainssuchas Price Club and Costco,
have also developedtheirown house brandsof specialtycoffees.As these
developmentscreatea demandforlargervolumesof specialtygreencoffees,
qualitymay become compromisedin the same way it has been in the
brands.
supermarket
of coffeeproductionsince 1980 has displayedsome
The internationalization
of the aspects identifiedby the regulation approach with the new
of agriculture.
But it has also proceeded in some ways
not anticipatedby theseauthors,because theydo not take intoaccountthe
commoditiesmay be affectedquite differently
possibilitythat different
by
In
the
of coffee,because of the tropicalnatureof the
case
globalization.
commodityand the structureof its chain,the impactof globalizationhas
been limitedto theupperhalfof the chain,beginningwiththe importing
of
of the TNCs,
greencoffee(see Fig. 1). Here, the increasingconcentration
the globalizationof the scope of their operations,and the increasing
importanceof finance capital, are consistentwith predictionsof the
regulationapproach.The growthof tradein processedcoffeeproductshas
been facilitated
of tradepromotedby GATT, but this
by the liberalization
tradein greencoffee.The
developmenthas not supplantedthe ''traditional"
growthof the specialtytradeis a reactionagainstglobalization,but it has
occurredin a verydifferent
way fromthatforecastby Friedmann(1993),
because oftheinherently
globalnatureofthechain.
All of thisinternationalization
has leftthe lower halfof the chainrelatively
untouched. Coffee is still a labor-intensivecrop produced mainly by
peasants and small farmersin most countries,using methodsthat have
littlesincethe 1950s. Most important,
coffeeproducing
changedrelatively
stateshave maintained
controlovertheproductionand exporting
regulatory
of green coffee. This has led to a complex interactionbetween the
regulationof the early stages of the chain and the changingforms of
regulationoftheworldmarket.The storyofhow thisinteraction
developed,
ofthecoffeecartel,is toldinthefollowingsections.
leadingto theformation
126
1980-89
Undermines
PoliticalRegulation,
inthe 1950s,in an attempt
statesbeganto cooperate
to
Coffeeproducing
ledto thesigning
ofthefirst
haltfalling
worldmarket
prices.Theseefforts
betweencoffeeexporting
ICA in 1962. The ICA was an agreement
and
statesto regulate
worldmarket
the
coffeeimporting
pricesby controlling
Thiswas accomplished
flowofgreencoffeeontothemarket.
bymeansof
andconsuming
states
an exportquotasystemUndertheICAs,producing
whichimplied
a target
first
exports,
agreedona totalglobalquotaforcoffee
Iftheworldmarket
bytheagreement.
price
pricerangeto be maintained
in orderto
movedoutsidethisrange,thequotawouldbe cutor increased
into
thepricewithin
thisrange.Theglobalquotawas thendivided
maintain
countries;
exporting
quotacutsor
exportsharesallocatedto theindividual
in
Thisquotasystem
was reinstated
weresharedproportionally.
increases
under
the
fourth
ICA
1980underthethird
ICA andwas continued
signedin
1983.6
The divisionof quota shareswas alwaysa sourceof conflictamong
fora "freerider"problemThe
states,andcreatedthepotential
producing
in
werebestservedby a reduction
of coffeeexporters
interests
collective
thetotalquota,whichwouldlimitsupplyanddriveup theprice.Butwithin
statewantedto obtainthelargest
thetotalquota,eachindividual
producing
were
buthad
individual
shares
These
share.
determined,
politically
possible
of
in
order
to
secure
the
to be basedon some"objective"
criteria,
agreement
been somemeasuresof a
had traditionally
These criteria
all producers.
to produceand
worldmarket
"historic"
share,andits"capacity"
country's
incentives
forindividual
economic
the
ICAs
coffee.
Thus,
provided
export
sectors
to
maintain
or
in
intervene
their
states
to
coffee-growing
producing
inorderto demonstrate
theirexportcapacity
and
theirproduction,
increase
to limit
defendor increasetheirquotas.The regulatory
regimeattempted
conditions
underwhich
totalcoffeeexportswhilesimultaneously
creating
inexcessoftheamount
neededto
wouldtendto producecoffee
producers
filltheglobalquota(F.O. licht,22 March1988).
treatieswhich, strictlyspeaking,have been in force
^he ICAs are international
CoffeeOrganization
theInternational
since1962.Theyestablished
(ICO) as
continuously
fundedby its memberstates,to collectstatistics,
an international
promote
organization
and serveas a forumfordiscussionsamongcoffeeproducingand
coffeeconsumption,
theso-called
countries.
Duringtheperiods1972-1980and 1989tothepresent,
consuming
"economicclauses"of theICAs, whichestablishthe quota systemand the rulesforits
havebeen suspended.This allowsforthecontinued
operationoftheICO, but
operation,
on theworldcoffeemarket.I datetheperiodsof ICA regulation
removesall regulation
The
and of the '"freemarket"on thebasis of whetheror notthe quotaswerein effect.
the1980sexcept
ICAs werein effect
through
quotasas definedunderthethirdand fourth
fora briefperiodin 1986-87whentheyweresuspendedfollowinga severedroughtin
ofcoffeeon theworldmarket.
Brazilwhichcauseda temporary
shortage
CHAIN
127
of coffee
During the 1970s and 1980s, therewas an internationalization
consumption,as Westernpatternsof coffee drinkingspread to Eastern
ThirdWorldcountries.7
The ICA quotas were
Europe and themoreaffluent
members
importers(Le., the originalimporting
policed by the "traditional"
who had signedthe 1962 agreement),who monitoredtheirimportsand
reportedto the ICO. The ICO issued exportstampsto exportingmembers
membersagreedto refuseto accept coffee
based on theirquotas; importing
coming fromexportingmembersthat was not accompaniedby an ICO
stamp.Theyalso accepteda limiton theamountof coffeetheycould import
fromnon-memberexportingcountries.The ICO could thenkeep trackof
totalexportsof each exportingmemberand sanctionanyexportingmember
which attemptedto exceed its quota. But these new coffee-consuming
countrieswere not ICO members;therewas no limiton exportsto these
forthe use of ICO exportstamps,and they
countriesand no requirement
were not obligatedto monitoror reporttheirimportsto the ICO. The ICAs
providedincentivesfornew producersto join (access to major consuming
markets),but no incentivesfor new consumers.The firstICA had been
signed by 25 consumingcountriesaccountingfor 94% of world coffee
imports;thefourthICA of 1983 was signedby 27 consumingmembers,but
by 1989 theyaccountedforonlyabout 80% of worldimports.Meanwhile,
theproducingmembership
oftheICO grewfrom37 in 1962 to 48 in 1983,
and in 1989 producingmembersstillaccountedfor about 98% of world
exports of green coffee8(Fisher, 1972; Akiyama and Varangis, 1990;
Bohmanand Jarvis,1990; Mwandha,et al., 1985; ICO documents).
The increasingimportanceof non-member
importersin the world market,
combinedwiththe freeriderproblemof the quota system,undermined
the
7Thiswas partafa larger"standardization
ofclass diets"identified
byFriedmann(1991)
as one ofthemajortrendswhichundermined
thesecondfoodregime.
8Membersof the 1962 ICA were,as exporting
members:Brazil,Burundi,Cameroon,
CentralAfricanRepublic,Colombia,Congo-Brazzaville,Congo-Leopoldville
(Zaire),
Costa Rica, Cote d'Ivoire,Cuba, Dahomey(Benin),DominicanRepublic,Ecuador,El
Salvador, Ethiopia, Gabon, Guatemala,Haiti, Honduras,India, Indonesia,Kenya,
MalagasyRepublic(Madagascar),Mexico,Nicaragua,Nigeria,Panama,Peru,Portugal
(Angola),Rwanda,SierraLeone,Tanganyika(Tanzania),Togo, Trinidadand Tobago,
members: Argentina,Australia,
Uganda, Venezuela,and Yemen; and as importing
Austria,Belgium,Canada, Cyprus,Czechoslovakia,Denmark,Finland,France,West
New Zealand,Norway,Spain,
Israel,Italy,Japan,Luxembourg,
Netherlands,
Germany,
Sweden,Switzerland^
Tunisia,UnitedKingdom,UnitedStates,and USSR By 1983,
Bolivia, Ghana, Guinea, Jamaica,Liberia, Malawi, Papua New Guinea, Paraguay,
SriLanka,Thailand,and Zimbabwehadjoinedas exporting
while
Philippines,
members,
Yemen droppedout. In the late 1980s,EquatorialGuinea,Vietnamand Zambia also
members.Therewas moreturnover
joined as exporting
members,as
amongimporting
Tunisiaand USSR had droppedoutby 1983,whileGreece,
Czechoslovakia,
Argentina,
and Yugoslaviawereadded.
Ireland,Portugal,
Hungary,
Singapore,
128
BERKELEY
ICA World exportableproductionexceeded total exportquotas through

most of the 1980s, and producingmembercountriesbegan to competefor
sales to the new non-quotamarketsby offering
discountsfromthe prices
thatwere being paid by memberimportersin the quota markets.For the
producingcountries,it was preferableto sell the coffeethat they were
producingin excess of theirquotas, even at a discount,ratherthanpaying
the costs of stockpilingit, or simplylettingit deterioratein storage and
gettingnothingin returnforit. As productioncontinuedto exceed demand
in the quota markets,the stocksin exportingcountriesgrew,and so did the
discounts,reaching50% by the mid-1980s accordingto some estimates.
This two-tiermarket,in whichICO-memberconsumingcountriesin effect
subsidizedexportsto non-member
importingcountries,turnedconsuming
statesand TNCs againsttheICA (Akiyamaand Varangis,1990).
But at the sametimethatthecoffeeTNCs were complaining
to
vociferously
theirhome states about this unfairsubsidy,theywere also attempting
to
take advantageof the existenceof thetwo-tiermarketto buy some of their
coffeeat a discount.Some ofthe exportsshippedto thenon-quotamarkets
were re-exportedto the quota marketsin ways whichwere difficult
forthe
ICO to trace. This so-called "touristcoffee"(because it visited several
countrieson itsjourney)had alwaysbeen a problemin the ICAs, but the
increased importanceof the non-membermarket and the large price
differential
which opened in the 1980s made it an increasingly
significant
ofthemostcommonmethodsforaccomplishing
One
thisdiversion
problem
was foran exportingcountryto trans-shipcoffeeostensiblydestinedfora
non-member
marketthroughone of theworld'smajorcoffeeports,such as
or
coffee
Hamburg Singapore.While the coffeewas in port,high-quality
destined for a non-membermarket could easily be switched with
low-qualitycoffee destined for a member market,thus providing an
effectivediscount.The coffee could also be suppliedwith forged ICO
export stamps, or authenticstamps could be purchased from another
coffeeto meetits quota for
exportingmemberwhichdidnothave sufficient
thatyear.Anothermethodwas to sWpfor'Inwardprocessmg"~thecoffee
would be importedintoa membermarket,supposedlyto be processedinto
roasted or instantcoffeeto be sold in a non-member
market.But once it
was impossibleto trace.
had enteredthemembermarket,itsfinaldestination
firmsin the quota marketsthatwere in the best
Obviously,the importing
to
take
advantageof these "tourist"routeswere the large TNCs
position
withofficesand warehousesin a numberofthemajorcoffeeports.But such
transactionsgenerallyrequired the complicityof both exporters and
on both sides of the
and therewas a high degree of creativity
importers,
market.
to get any data on
Because thiswas a clandestinetrade,it is verydifficult
thevolume of thetradeor the size ofthe discounts.The evidenceis largely
CHAIN
129
in the market,whose
anecdotaland mainlysuppliedby major participants
interests
were sometimesservedby dissemination
of misleadinginformation
on the extentof thistrade. That discountswere at times as high as 50%
seems to be generallyaccepted, and estimatesof the volume range from
about 1.5-2 millionbags peryear,or about2.5-3.5% oftheglobal quota,by
the mid-1980s.(F.O. Licht,3 November 1987 and 25 May 1988; Landell
Mills, December 1986 and Januaiy1987; ICO documentsEB3 159/89and
EB3 196/90.)
Table 1 presentssome imperfectdata on this trade, derivedfromICO
statistics.It shows the volume and value of exportsto ICO-memberand
non-membermarkets,beforeand afterthe impositionof quotas in 1980.
The data are imperfectbecause they are based on reportsby exporting
states.Some stateshad an interestin disguisingthe extentof the 'tourist"
trade;othersmayhave been deceivedby theirexportfirms.The data show
thatthe volume of exportsto non-member
marketsincreasedsharplyafter
1980, and their unit value also fell dramatically.Consumption in
non-membercountrieswas increasingduringthisperiod,but not as fastas
imports;ifwe assume an average annualconsumptionof 7 millionbags in
thesecountriesafter1980, thenthesedata indicatea 'tourist"tradeof over
2.5 millionbags per year. The qualityand price of coffee exportedto
non-member
marketsis generallylower thanat sentto the core member
but
this can not account for the huge differential
of 20-40%
markets,
betweenmemberand non-member
1981-85.
Events
of 1985pricesduring
86 confirmed
thatthese changesin volumesand value of exportswere due
to the quotas. In the middleof the 1985-86 coffeeyear,quotas were again
marketsquicklyfellfromover 11
suspended.Exportsto the non-member
millionbags to just under7 million,and thepricedifference
fellto less than
10%.9 Relative to total coffee exports of about 70 millionbags, these
quantitiesseemrathersmall.But combinedwiththelargepricedifferentials,
thesequantitieswere largeenoughto providea significant
competitiveedge
to the TNCs willingor able to take advantageofthe'tourist"trade.
The second developmentthatundermined
the ICA duringthe 1980s was a
change in "selectivity"~ashiftin world demand away fromthe robusta
coffeesproducedmainlyin Africaand Asia, and towardarabicasproduced
mainlyin CentralAmericaand Colombia(also Kenya,Indonesiaand several
other countries). The ICA also indirectly set, as a result
9In addition,foralmosta year afterquotas were reinstated

in 1987, the US had no
in place to allow it to refuseentryof anycoffee;it is estimated
customsregulations
that
about2 million"illegal"bags of coffeeenteredtheUS duringthatyear(F.O. Licht,8
February1989).
130
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CHAIN
13 1
of its individualcountryquotas, global limitson the availabilityof the

different
types of coffee.10The quota systemthus limitedthe abilityof
demandin consumingmembercountries.This
to meetthe shifting
importers
was a further
reason for TNCs and consumingstatesto turnagainstthe
the
ICA, but it also deepenedthe divisionsamong exporters.In particular,
CentralAmerican"othermilds"producersand Indonesiafeltthattheywere
in a positionto significantly
increasetheirworld marketsharesbecause of
the shiftin demand,and thattheywere beinglimitedby the quota system
But the evidencesuggeststhatonce again,as the TNCs and "othermilds"
producers complainedpubliclyabout this situation,some of them were
privatelyengagedin 'tourist"transactions
throughwhichadditional"other
mild"coffeefounditsway intoquota markets.
As a resultof these developments,when producingand consumingICO
memberstatesmetin late 1988 and early1989 to negotiatea new ICA (the
1983 ICA was set to expireon Sept. 30, 1989), it was impossibleto reach
an agreement.The consumers,led by theUS, demandedthatanynew ICA
put an end to thetwo-tiermarketand includea mechanismto automatically
of the quotas.
adjustforselectivity
changeswithoutrequiringrenegotiation
And by 1989, withthe SovietBloc crumbling,
theUS and otherconsumers
had fewergeopoliticalconcernswhichwould necessitateusingtheICA as a
means to provide aid to the producingcountries,which had been the
rationalebehindthe original1962 ICA Meanwhile,theissue of the division
of quota shares continuedto divide the producers. Brazil refused to
considerany reductionof its quota of about 30% of total world exports,
to increaseanyotherexporter'squota. At the same time,
makingit difficult
Central American producers and Indonesia were demandingincreased
quotas because of the increasingdemand for their coffees, and the
expansionof theirproductioncapacityduringthe 1980s. And no exporting
countrywas enthusiasticabout a selectivitymechanismwhich could
cutits quota withoutrenegotiation.
automatically
10Thereare fourbasic typesofcoffeerecognizedin thetrade: threeare arabicas,which
are further
subdividedintoBrazilianmilds,Colombianmilds,and othermilds;and the
fourthis robusta Colombianand othermilds are consideredbest for roastingand
grinding;robustasare consideredto be of lowerquality,but producea higheryieldof
instantcoffeethanthearabicas;and Brazilsare intermediate,
and are used in bothR&G
and instantcoffees.Colombianmildsare producedby Colombia,Kenyaand Tanzania;
Brazilianmildsare producedby Brazil,Paraguay,and Ethiopia.The othermildsgroup
includesall otherproducers
ofarabicas,butthemajorplayersin thisgroupare CostaRica,
Dominican Republic,Ecuador, El Salvador, Guatemala,Honduras,India, Mexico,
Nicaragua,Papua New Guinea and Peru. Robustasare grownin Africanand Asian
butthemajorplayersin thisgroupare Indonesia,Coted'Ivoire,Uganda,Zaire,
countries,
and Cameroun;bythelate 1980s,theincreasedproduction
ofThailandand Vietnamgave
themgreaterimportance
in thisgroup.Countriesare classifiedintogroupsbased on the
main type theyproduce,although,for example,Brazil also producesrobustaand
Indonesiaalso producesarabica
132
BERKELEY
The major divisionin the ICO had always been between producersand
consumers,but the divisionin 1989 pittedthe US and the "othermilds"
producers'group (see note 10) againstall otherproducersand consumers.
The US and the othermildsgroupfeltthattheyhad theleastto gain froma
to compromise.At the sametime,themajority
new ICA and wereunwilling
of producersand consumerswere not willingto capitulatecompletelyto
these minoritydemands.11Each side presentedits proposal at the final
negotiatingmeetingin June1989, but because the producerand consumer
divided,neitherproposalcould musterthedistributed
groupswere internally
70% majoritynecessaryfor adoption.12Having failedto renewthe quota
system,producersand consumersthenunanimouslyagreed to indefinitely
suspendthe quotas as of July4, 1989. The 1983 ICA was extendedfortwo
years,untilSept. 30, 1991, but withouteconomicclauses. This allowed for
the continuedexistenceof the ICO as a data collectionagencyand forum
discussionsbetweenproducersand consumers,but removed
forcontinuing
teeth
oftheregulatory
economic
the
regime.
The ICA regulatoryregimehad been underminedduringthe 1980s by a
Coffeeproductionspreadto new Third
peculiarformofinternationalization.
World countriesduringthisperiod,but contraryto the commoditychain
was not drivenby TNCs seekingnew
approach,this internationalization
sources of supply. Since the world marketprice was fixedby the ICA,
TNCs could not attemptto move productionto new locationsin searchof
lower costs. Rather,the new exportersenteredthe marketas a resultof
to expandexports.In partthiswas a response
ThirdWorld stateinitiatives
to a regulation
to pressuresfromthe IMF to expand exports,but contrary
of
"non-traditional"
an
not
to
led
these
expansion
only
pressures
analysis,
exportsfromthe ThirdWorld,but also to a spreadof 'traditional"exports
to countrieswhichhad not previouslyexportedthem.Thailand,Vietnam,
none had
the resultsof this internationalizationand Honduras exemplify
been major coffeeexportersbeforethe 1980s, but all became significant
exportersduringthatdecade. And all of themhad to prove theirabilityto
nBy this time,the US positionwas being decidedby the officeof the US Trade
to 'Iree trade."
all barriers
to removing
committed
(USTR), ideologically
Representative
Up until the mid-1980s,the coffeenegotiationshad been handled by the State
werestillcontrolled
In theEC and Japan,negotiations
by foreignministry
Department.
to usingtheICA quotasystemas a meansto
committed
whowerestillsomewhat
officials
countries.
aid toThirdWorldcoffee
producing
provideforeign
each have a totalof 1000 votes,
and consumers
12IntheICO CoffeeCouncil,producers
on thebasisoftheirshareoftotalworldexportsor imports.All
dividedamongcountries
and
and consumers,
ofbothproducers
decisionsmustbe approvedbyat leasta majority
theremustbe a distributed
suchas thetermsof a new agreement,
matters
on important
ICC 53-7.
ofat least70% ofeachside.See ICO document
super-majority
TALBOT: COFFEE COMMODITY CHAIN
133
deliverconsistent
on a timely
basisbeforetheTNCs wouldcommit
quality
to large,regular
oftheircoffees.
purchases
On the consumingside of the market,coffeeconsumption
spreadto
countries
whichhadnottraditionally
beencoffeeimporters;
andwithin
the
traditional
thecomposition
ofimports
was upgraded
countries,
consuming
towardthehigherqualityarabicas.Thesechanges,as wouldbe expected
based on the commodity
chainapproach,werelargelydrivenby TNCs1
searchesfornewmarkets,
andforincreased
in established
markets.
profits
Becauseoftheprovisions
oftheICAs,thenewproducing
statesjoinedthe
statesdid not. This situation
createdan
ICO, but the new consuming
economicincentive
forbothTNCs and producing
statesto promotethe
ofa "tourist"
tradewhichsubverted
theregulatory
growth
regime.
The tendencytoward overproduction
of coffeeemergedfromthe
of
nature
the
winch
contradictory
politically-determined
regulatory
regime,
incentives
forproducing
statesto maintain
abovetheir
provided
production
was equallydueto producing
stateresponses
to
quotas.Butthistendency
theorganized
of
coffee
to
maintain
pressure
growers
highinternal
pricesfor
coffee.The flip side of heavy economicdependenceon a primary
on thesocialclassesinvolved
in
commodity
exportis politicaldependence
itsproduction.
For a labor-intensive
like
this
meant
not
commodity coffee,
inthegrowing,
involved
andexporting
onlythatlocalcapitalists
processing,
ofcoffee
hada greatdealofinfluence
on statecoffee
but
policies; alsothata
cutbackofcoffee
or
a
in
decline
the
world
market
production
pricewould
have significant
effects
on
income
and
negative
agricultural
employment.
The responseof producing
statesundertheseconditions
was to support
coffeeproductioninternally
and turnto collectiveactionwrithother
to maintain
theworldprice.Thenew"freemarket"
producers
periodwhich
diehighcostsofa regulatory
which
4, 1989,revealed
beganon July
regime
tendedto reinforce
coffee
exportdependence.
The EconomicImpactsofDeregulation
UnderminetheFreeMarket: 1989-93
As theworldcoffeemarketenteredthenew freemarketperiodin July
crashed.Producingcountries
were anxiousto
1989,pricesimmediately
unloadthestocksthathadbeenaccumulating
underthequotasystem,
and
TNCs demandedprices closer to those whichhad prevailedin the
markets.
Attheselowprices,theTNCs wereeagerto stockup
non-quota
on coffee;andwithin
thefirst
fewmonths
ofthefreemarket,
therewas a
massivetransferof coffeestockpilesfromproducingto consuming
atbargain
ofthepricecrash.For
countries,
prices.Table2 showstheextent
mostmarket
the
failure
of
and
to agree
participants,
producers consumers
on a newICA byMarch1989signaled
thattheendoftheICA regimewas
134
near, and most coffeebuyersheld back on new purchases,expectingthe

thepricebeganto slideafterApriLThe JuneJuly
priceto fall Consequently
followed
pricedeclineshowsthemagnitudeofthe crashwhichimmediately
suspensionof the quotas, and the April-Octoberdecline shows the total
to the end of the quota
magnitudeof the loss which can be attributed
system-priceswere cutinhah0withinsixmonths.
of coffeeproductionhad solidifiedTNC control
over the core markets,whichtheyalreadydominated.As a resultof this
increasedcontrol,theywere able to maintainthe level of the retailprices
which they charged for their final processed coffee products in the
consumingmarkets,despitethe crashin worldmarketpricesfortheirmajor
raw materialinput,greencoffee.The overallaveragelevel of retailpricesin
ICO consumingmembermarketsdeclinedby only 1% in the two years
followingthe end of quotas, despitea declineof over 50% in greencoffee
prices(ICO EB 3338/92).
Producingstateswere able to partiallyoflsettheimpactofthepricecrashin
theiraccumulatedstockpilesof coffee,theycut
the shortrun.By exporting
these stocks,and earned some additionalincome
the costs of maintaining
throughthe increasedvolume of exports.Still,the total coffeeearningsof
all producingcountriesfellfrom$9.2 billionin coffeeyear 1988-89 to $6.7
billionin coffeeyear 1989-90, a 27% declinein earningsdespite a 13%
increaseinthevolumeof exports.Meanwhile,the TNCs used thisincreased
volumeto buildup theircoffeestockpiles,so thattheywere in no hurryto
buy additionalcoffeeunlessthepricewas right.These huge stockpilesheld
downwardpressureon world marketprices
by the TNCs exertedfurther
4
1990:
F.O.
22; ED&F Man 3 August 1989; World
Licht,
April
(ICO;
1989:
&
Tea,
8-13).
September
Coffee
Table 3 shows the effectsthat the coffeeprice crash had on the ten
countrieswhichdependedon coffeeformorethan30% oftheirtotalexport
earnings.El Salvador,Colombia, Guatemala,Rwanda and Tanzania were
the arabicaproducerswho were able to increasethevolume of theircoffee
exportsto partiallyoflsetthe declinein prices; but all of them,even El
Salvador,witha morethan 50% increasein volume,lost money.Robusta
producersUganda and Madagascar were hurtthe worst. Those countries
which were somewhatless dependenton coffeewere able to increase
exportsof othergoods to partiallyoflsetthe effectsof the M in coffee
decline in
prices,but the most dependentcountriessuffereda significant
totalexportearnings.
Prices recoveredsomewhatin 1990, afterthe sellingfrenzyby producers
had subsided,withthe ICO Indicatorpriceaveragingjust over 71 centsfor
theyear.But beginningin April 1991, and continuing
through1992, prices
135
Table 2: The 1989 CoffeePrice Crash

AverageMonthlyPrice
Type
of Coffee
April
June
Colombian
Othermild
Brazilian
Robusta
ICO Indicator
151
144
131
91
118
134
125
115
83
105
July October
94
88
79
65
77
PercentChange
June-July Apr.-Oct.
74
69
60
54
61
-30
-30
-31
-22
-27
-51
-52
-54
-41
-48
Source:International
CoffeeOrganization,
monthly
priceseries. Pricesin US
centsper pound. Colombianand Brazilianpricesare forNew Yorkdelivery;
othermildsandrobustapricesare averagesof delivery
pricesforseveralmajor
importing
ports. ICO Indicator
priceis a weighted
averageof theothermilds
androbustaprices.See note10 fordefinition
ofcoffeetypes.
Table 3: Effectsof the Price Crash
on the Ten Most Coffee-DependentCountries
Coffee
Countryand
CoffeeTypea
Dependence
1988-89b
Uganda(R)
Burundi(O)
Rwanda(O)
Ethiopia(B)
El Salvador(O)
Tanzania(C)
Guatemala(O)
Madagascar(R)
Colombia(C)
Nicaragua(O)
96.1
82.9
80.1
61.5
59.6
35.7
32.4
31.9
30.5
30.4
% Change CoffeeExports
1988/89-1989/90
Volume
Value
-24
-8
31
-1
53
14
22
0
34
5
-54
-41
-14
-34
-8
-36
-18
-48
-18
-30
%Change
Total Export
Value, 1988-89
-31
-50
-12
15
-8
-7
8
14
14
5
aCoffeeTypes:R = robusta,O = othermilds,B = Brazilian,C = Colombian

milds. See note10 fordefinition
ofcoffeetypes.
Value of coffeeexportsas a percentage
of value of all exports,
forcalendar
years1988and 1989.
cCoffee
years,Oct. 1 - Sept.30.
Sources:Coffeedependence
fromUNCTAD,Handbookof International
Trade
and Development
Statistics
1991; changein volumeand valueof coffeeexports
fromICO EB 3338/92;changein totalexportvalue fromIMF, Directionof
Trade StatisticsYearbook1993.
136
resumedtheirslide,reachinghistorically
low levelsby the summerof 1992,
when the ICO Indicatorprice fellbelow 50 centsper pound forthe first
timesince 1972. In realterms,thepriceof coffeewas lowerthanithad been
forover 100 years.Meanwhile,the TNCs continuedto maintaintheirretail
pricesat pre-1989levels,reapingwindfallprofitsof $2-3 billionperyear.
This prolongedperiod of low prices,combinedwithprotestsfromcoffee
growers,didmoreto deregulatetheearlystagesofthechainthantheWorld
Bank had done throughthe 1980s. World Bank structuraladjustment
programsduringthe 1980s pressuredmanyThirdWorld statesto devalue
in the
theircurrencies,
open theireconomies,and decreasetheirintervention
These
did
not
have
a
on
the
coffee
sectors
economy.
changes
majorimpact
of most ThirdWorld countries,and the Bank did not directlytargetthe
coffeesectorsforreform,
because theworldmarketwas beingregulatedby
the ICAs. But afterthe 1989 price crash,coffeegrowersbegan to protest
the low prices they were receivingfor theircoffee,and states became
concernedabout the effectsthatprolongedlow prices would
increasingly
have in the coffee growing regions. Most coffee-exportingstates
reduced theirexporttaxes after1989, althoughthis led to a
significantly
decrease of governmentrevenues.In Africanand Asian countrieswhere
coffeewas purchasedand exportedby statemarketing
boards,the boards
were eitherabolishedor theircoffeemonopolieswere ended, and private
exporterswere allowed to compete with them These changes allowed
growersto receivea largershareof the exportpricethantheyhad before
1989, and somewhatcushionedthe blow of the price crash. But these
changes also meantthatthe state could no longer affordto provide the
range of services that many growers had come to expect, such as
or forrenovation
extensionand creditsforimportedfertilizers
agricultural
of coffeetrees.These actionsby producingstatesmitigatedor delayedthe
fullimpactsof the price crashon growers,but as the period of low prices
draggedon, theirimpactsbegan to 'trickledown" to the coffeegrowers,
and
who respondedby cuttingback on theirvariablecosts: labor,fertilizers,
theircoffeetrees.
pesticidesused to maintain
Because ofthebiologyand economicsof coffeeproduction,thesedecisions
by growershad littleimmediateeffecton output.The "coffeeyear"begins
on October 1 of each year,nearthebeginningof the firstharvest,and runs
throughSeptember30 of the followingyear,witha second harvestin the
spring.Thus, as thefirsteffectsoftheend of quotas beganto be feltamong
growers,the 1989-90 crop was alreadyon the trees,and the floweringof
the 1990-91 crop was beginning.And because of producing states1
responsesto thepricecrash,growersin manycountriesdid not feelthe full
effectsof the low world prices until 1991, when the 1991-92 crop was
couldhave had a minoreffecton
alreadyon thetrees.Reduced maintenance
the output for 1990-91 and a somewhatlarger effectfor 1991-92, but
CHAIN
137
would not produce a seriouseffecton world supplyuntilat least 1993. As

the reportsof reduced maintenancereachedthe major participantsin the
worldmarket,producingstates,largegrowers,exporters,and some traders
and roastersbegan to warnthatcontinuedlow pricesthreatened
the quality,
and eventuallythe quantity,of coffeewhichwould be available{Tea and
CoffeeTrade Journal,June1992: 26). But in the shortrun,these effects
were minimal,and TNCs and consumingstatesgenerallysaw no reason to
be dissatisfiedwith the functioningof the free market,or to consider
renewedpoliticalregulation.
But on the groundin the producingcountries,the effectsof the prolonged
low worldmarketpriceswere devastating.Considerjust one examplefrom
one of the less coffee-dependent
countriesshown in Table 3, the country
withthe largesteconomyof theseten,and the one whichwas arguablythe
least affectedbythepricecrash-Colombia.
The municipality
of Lbano in the department
of Tournalies in the Central
CordilleraoftheAndes,in thelargestcoffee-producing
regionof Colombia.
Lbano was once the fifth-largest
in termsof total
producingmunicipality,
volume, in the country,withmost of this coffeegrown on smallpeasant
holdingsand familyfarms.As thepricespeasantswere paid fortheircoffee
began to decline,especiallyafter1990, manywere forcedto selltheirmules
to pay old debtsand supplement
theirsubsistenceproduction.
Then,in April 1992, the coffeeberryborerworminvaded.This is a parasite
thatburrowsinto the coffeecherryto lay its eggs on the coffeebeans,
them.By thistimemost of the growershad no money
therebydestroying
forthepesticidesneededto fightthecoffeeborer,and itrapidlyspreadto all
firmsin the area. Alreadyin debt,withno way to repayit, and withtheir
coffeetrees dying,manybegan to abandontheirfirms.Some went to the
townsto tryto scratchout a livingin theinformalsector;othersleftforthe
jungle to go to work in the drug trade. The repercussionsfrom this
out of
migrationdrove many other small businessesin the municipality
business. The communityorganized to demand assistance from the
but the government
officialshad few resourceswithwhichto
government,
provideassistance,and were facedwithsimilardemandsfromall sides. To
theleadersofthe community
the officialsseemed as sensitiveas
movement,
marblestatuesto theirplight.
The guerrillasof the ELN took control of much of the rural zones
Lbano. None of Colombia'svariousguerrillagroups,some of
surrounding
whichdate back to the early1960s,has everhad a verysignificant
presence
in the coffee-growing
zones of Colombia,because theyhave always been
ruralareas of the country.But the guerrillaswere
amongthe more affluent
the only force capable of stoppingthe banks fromconfiscating
peasants'
138
BERKELEY
farmswhentheirdebtswere declaredin default.Some oftheyouthfromthe

because theyat least offereda steadysalary
area wentto join the guerrillas,
(El Tiempo, 17 April 1994). This story,withvariations,could be repeated
zones of countriesaroundthe
thousandsoftimesoverinthecoffee-growing
world.
Colombia is the best example of a countrywith state coffee policies
controlledby large growers and exporterswhich has always had the
to such situations.Its Federacin Nacional
capacityto respondeffectively
de Cafeteros (FNC) has consistentlyfollowed both a countercyclical
internalpolicy goal, collectingheavytaxes while world prices were high,
which enabled it to maintainhigh internalprices for coffee,and in effect
providesubsidiesto growers,whenworldpriceswere low; and an external
policy goal of politicalregulationof the world marketto increase and
stabilizeprices(Cardenas, 1991). The FNC has used itsincometo investin
in coffee-growing
zones and to fundmajor researchefforts
infrastructure
varietiesof
and extensionservices.In the 1970s, it developedhigh-yielding
coffeeand providedcreditto growersso thattheycould replacetheirolder
varieties.In the 1980s, when coffeeleaf ruststruckin Colombia, it again
strains,and again providedloans to support
developed new rust-resistant
conversionto the new variety.It has maintainedan impressiveextension
effortto educate growers about proper cultivationtechniques.Through
1990 and 1991,theFNC cutexporttaxes and used its accumulatedreserves
to subsidizegrowers.But as the period of low prices draggedon and its
reservesdwindled,itwas forcedto lowerpricesto growersand cutback on
its services.By 1993, it was in such desperatestraitsthatit was forcedto
in theBanco Cafeteroand the Colombianshipping
beginsellingitsinterests
line,Flota Mercantil Grancolombiano,to obtainmoneyto pay its debts
(F.O. licht, 15 March 1993; Latin AmericanEconomyand Business,May
1993: 27; Osrio, 1994).
But through1992, world productionof coffeeremainedhigherthan the
stagnant levels of world consumption.TNCs maintainedtheir large
stockpilesof coffee,and these large stocks in the consumingcountries
depressedworld marketprices.By 1991, coffeegrowersworldwidewere
complainingthatthe pricestheywere receivingwere below theircosts of
production.13Producing states had liberalizedtheir coffee sectors and
exhaustedtheirreserves,and were less able to cushiontheirgrowersfrom
13Landell Mills CommodityStudies estimated,based on an exhaustivestudy of
productioncosts in most major coffeeproducingcountries,that most growerswere
about50-75% oftheirannualcostsofproduction
(i.e., notincludingtheinitial
receiving
lower for some
in plantingthe trees).This percentagewas significantly
investment
costs(Landell
and thushightransport
withpoortransportation
Africancountries
systems
Mills,April1992).
139
in themarket.Few new
fluctuations
thelow prices,or fromanyfuture
werebeingmadein coffee,and in some countries,
investments
growers
to uproottheircoffeetreesto plantothercrops.As the
werebeginning
domesticeconomicimpactsof low worldpricesbegan to spreadand
becomemoresevere,producing
statesincreasingly
turned
backto attempts
to construct
a newinternational
regulatory
regime.
FormationoftheCoffeeCartel
to organizea coffeecartelweresporadicanduncoordinated;
Earlyefforts
allproducers
hadbeencaughtoffguardbytheseverity
ofthepricecrash.
andone ofthemostseverely
Uganda,themostcoffee-dependent
country
withotherproducers,
in Africa,
affected,
began discussions
particularly
aboutthepossibility
offorming
a cartel,almostas soonas thequotashad
ended( WorldCoffee& Tea, December1989:27; Januaiy1990: 18). The
fiveCentralAmerican
whohadplayeda keyroleinthedemise
producers,
of the ICA and had expectedto benefit
froma freemarket,signedan
in
1989
December
to
withhold
15% of theirexportable
agreement
24
1990:
production(F.O. Licht,
Januaiy
133-4). But withoutthe
of
Brazil
and
this
initiative
had littlechanceof
Colombia,
participation
the
level
of
world
And
Brazil
and
Colombia
werein no
affecting
prices.
moodto cooperate
to ease thesuffering
ofthedissident
who,in
producers
withtheUS, hadbeenresponsible
concert
fortheendofthequotasystem
(F.O. licht, 2 June1989: 308; 20 October1989: 30). None of the
statesfeltthattherewas muchto be gainedfroma newroundof
consuming
so soon afterthe 1989 impasse.This situationcontinued
negotiations
madefeebleattempts
to reducetheir
through1990 and 1991-producers
littleinterest
in new negotiations.
The
exports,and consumers
displayed
mostthattheycouldagreeon was to continue
to extendthe 1983 ICA
(withouteconomicclauses)to keeptheICO aliveas a forumforfuture
discussions.
eventhe US, werebeginning
to be
countries,
By 1992,the consuming
concernedaboutthe economicimpactsof continued
low priceson the
and roasterswere
producingcountries.The TNC coffeeimporters
to reportthatthe qualityof coffeesavailableworldwidewas
beginning
as thereducedmaintenance
declining,
beganto have an effect
{Tea and
Trade
1992:
Journal,
Coffee
January
54). The US was beingpressured
by
centralrole in the Bush
Colombia, as it played an increasingly
Administration's
"war on drugs"in the Andeanregion;the Colombians
out
that
low coffeeprices
pointed
theywerelosingmoreincomethrough
thantheyweregainingin aid fromtheUS anti-drug
efforts.14
Theyalso
Committee
14"DrugPolicyin theAndeanNations,"JointhearingsoftheSenateJudiciary
and theCaucus on International
NarcoticsControl.This was themaintopicat thesecond
140
pointedout thatthe EC had exemptedthe Andean countriesfromimport

tariffeon coffeein 1990, to help supporttheiranti-drugefforts(World
Coffee& Tea, February1991: 22).
Through the spring and summer of 1992 and into early 1993, the
momentumtoward a new ICA seemed to be picking up. Producers
grudgingly
acceptedthe consumers'conceptof a ''universalquota," which
Thenthe consumers,
would cover all exportsregardlessoftheirdestination.
led by the US, refusedto play any role in the policingof the quotas or to
restricttheirimportsfromnon-memberexporters.Producersargued that
this would remove incentivesfor coffeeproducingcountriesto join the
ICO, and would create the conditionsfor a new two-tiermarket.A
compromisewas reachedwherebythe consumerswould be freeto accept
information
to theICO so that
all coffeeimports,butwould reportsufficient
it could determinewhetherproducerswere exceedingtheirquotas. Next,
theproducersacceptedconsumers'demandsfora selectivity
system,which
would adjustthe quotas fordifferent
of
coffees
types
dependingon world
broke down in March
demand for them But the negotiationsultimately
1993 over the issue of "continuity,"
or the power of the ICO Coffee
Councilto reviewand revisethe selectivity
mechanismConsumerswanted
to minimizethis power to make the agreementmore "market-oriented;"
producersfearedthatwithoutthispower,a new ICA would institutionalize
the prevailinglow level of world marketprices for the durationof the
agreement(F.O. licht, 7 July1992; 18 December 1993; 19 April1993).
The negotiatorsfor the producingstatesfeltbetrayedby the consuming
states' representatives.
They feltthat they had given in to most of the
consumers'demands,but had gottenlittlein return.The US, as the clear
leader of the consumersin this round, came in for particularlyharsh
criticism,
MylesFrechette,thehead of theUS delegation,admittedthatthe
producershad unilaterallyconceded to more than 90% of consumers'
demands,but defendedconsumers'intransigence
by statingthat,"according
turnto make concessions,
to the exporters'scorecard,it was theimporters'
regardlessof the magnitudeof the concessions,and whetheror not the
agreement."(F.O.
proposals were consistentwith a new market-oriented
licht, 26 February1993: 186) Colombiannegotiatorsin particularfeltthat
fromthe US to negotiatein good faith
theyhad had a firmcommitment
had put the interests
butthattheUS government
towarda new agreement,
session,January18, 1990, at whichthe Ambassadorsof Colombia,Bolivia,and Peru
testifiedIt is also mentionedin an exchangeof lettersbetweenPresidentBush and
as ICC 54-1, and in a letter
ColombianPresidentBarco in September1989, reprinted
theUS commitment
to
Gaviriain August1992,stating
fromBushto ColombianPresident
an newICA (F.O. Licht,7 October1992; WorldCoffee& Tea, August1992:
negotiating
27).
CHAIN
141
at crucialstages of the
of its own coffeeTNCs ahead of thiscommitment
15
negotiations(F.O. licht, 19 April1993).
This sense of betrayalunifiedthe producers, and after March 1993
towardunilateralactionbytheproducersbegan to buildrapidly.
momentum
Brazil and Colombia agreed to freeze their currentstocks, as well as
to retain10% oftheirexports.The CentralAmericans,including
continuing
even recalcitrant
Guatemala,agreedto retain15% of theirexports.And the
CoffeeOrganizationcalled a meetingforAugust in Kampala
Inter-African
ofthe cartel.Agreementwas reachedAugust 17, 1993
to discussformation
in Kampala, by 24 exportingcountries,soon joined by Indonesia,bringing
their share of world green coffee exports to 85%. They formedthe
Association of Coffee Producing Countries (ACPC), and agreed to
withhold 20% of their exportableproductionfrom the market. This
agreementwent into effectwiththe new coffeeyear on October 1, 1993
(Financial Times, 18 August 1993; Wall StreetJournal 18 August 1993;
F.O. licht, 27 September1993; 11 January1994).
The retention
planwas based on theleveloftheICO Indicatorprice,and set
If the price stayedabove 750 for 20 consecutive
a price floorof 750/tt>.
the
retention
days,
percentagewould be cut from20% to 10%. If the price
above
the
retention
would be cutto zero; and ifthepricestayed
800,
stayed
above 850, countrieswould be allowed to sell fromtheirretainedstocks
(Journalof Commerce 18 August, 1993; F.O. Licht, 12 October, 1993).
Giventhatpriceswere generallyover $1.00/Ib.throughthe 1980s underthe
quotas,thisseemedlikea verymoderategoaL
Even though the ACPC controlledabout 85% of coffee exports,some
and thiscreatedproblems
majorproducersremainedoutsidethe agreement,
foritspotentialsuccess.Mexico is thefourthlargestproducerand by farthe
largest one which did not join the ACPC, because it did not want to
jeopardize the passage of NAFTA (Journalof Commerce,8 July1993).
Ironically,the peasants of Chiapas, where about halfof Mexico's coffeeis
grown,did not thinkthatNAFTA was such a greatdeal, and the Zapatista
rebellionwhich began on January1, 1994, severelycut into Mexico's
on the
production,minimizingthe effectsof Mexico's non-membership
amountof coffeeavailable outsidethe ACPC (Journalof Commerce,20
January1994; 2 May 1994). The Zapatistarebellionwas in parta response
15Therewas also a change of US administration
at a crucial stagejust beforethe
brokedown.ButUS negotiators
insistedthattheyhad fullinstructions
from
negotiations
theirgovernment
and thatthe changewould not hampertheirparticipation.
This was
on domesticmatters,
and
probablyaccurate;Clinton'searlyfocuswas almostexclusively
his tradepolicies,coordinated
moreneoliberalthanhis
by theUSTR, were,ifanything,
predecessor's.
142
BERKELEY
to the structure
of the coffeecommoditychainin Chiapas. Peasantgrowers
who produce most of the coffeetherewere unhappywiththe low prices
theyhad always receivedfortheircoffee,fromagentsof the large coffee
processorsand exporterswho came in fromoutsidethe region.This sense
of exploitationwas obviouslyheightenedby the low world marketprices
which prevailed throughthe early 1990s. But the rebellionhad much
broaderand deeper roots thanjust this: racial discrimination,
widespread
and a fearthatthe openingof Mexico's
povertyand economicexploitation,
marketsunderNAFTA would devastatepeasantproducersoffood crops.
The otherlarge bloc of producerswhichdid notjoin the ACPC were the
Thailandand Vietnam{Journalof Commerce,
Asian countries,particularly
9 August 1993, 24 August 1993). These countrieswere '"non-traditional"
plantcoffeein the
exportersof coffee-theyhad onlybegun to extensively
1980s. Theircoffeeexportswere growingrapidlyin the early 1990s, and
to expand and
would have hamperedtheirefforts
agreeingto the retention
as
new
had
no historyor
their
exporters,they
diversify
exports.Further,
with
other
'faaditionaT
of
exportersin the ICAs,
experience cooperation
to theprincipleofproducers'collectiveaction.The
and no real commitment
largestAsian producer,and the thirdlargestproduceroverall,Indonesia,
because of concernsthatits abilityto expand
was reluctantto participate,
coffeeexportshad been stifledunderthequotas. Thiswas whyithadjoined
withthe "othermilds"groupin 1989 to oppose a new ICA. But Indonesia
experiencedsome solidaritywith otherproducers,and finallydid join the
on April1, 1994.
ACPC, and beganto complywiththeretention
World marketprices began to rise in the fell of 1993, even beforethe
wentintoeffect,and theycontinuedto risethroughthe springof
retention
1994. While the retentionundoubtedlydecreasedthe supplyof coffeeon
the market,its effectswere multipliedby decliningproductionworldwide,
the resultof threeyears of reduced maintenanceand uprootingof trees.
Duringthe secondweek ofMay 1994, futurespricesin bothNew York and
London hittheirhighestlevels sincethe end of the quotas fiveyearsbefore
{New YorkTimes,14 May 1994: 28). In earlyApril,theICO Indicatorprice
passed 850/Ib.,and the ACPC announcedthatit would begin a controlled
releaseof 50% oftheretainedstocks.As pricescontinuedto risein May, it
stocks{New YorkTimes,14 May
announcedplansto releasetheremaining
25
Financial
Times, May 1994). Then,in late Juneand earlyJuly,
1994;
two severe frostsstruckthe coffee-growing
regions of BraziL The true
extentof the damage would not be knownuntilthe 1995-96 harvestwas
underway,but earlyestimateswere thatas muchas one-thirdof the 199495 crop had been destroyed.By mid-July,the New York futuresprice for
arabicashad soaredto over$2.70/B).
CHAIN
143
Producingstatesand coffeegrowerswere able to beginto recoup some of

the losses theyhad suffered
duringthe precedingfouryears.Of course,the
who heldlargestocksof coffeein late 1993 were not
TNC coffeeimporters
unhappywiththe price trendeither,as theyreaped huge windfallprofits.
Partofthisenormouspriceincreasewas drivenby speculation,and some of
thisspeculationwas also beingdone by thesesame TNCs; thusprices soon
began to fallback fromthispeak, stabilizingaround $2.00/Ib.in the Fall
in Novemberand December of 1994. In
beforebeginningto slide further
January1995, the ACPC decided to once again begin retainingcoffeeto
halt this slide. Through 1995, producerswere not as unifiedas theyhad
were more mixed.Prices
been in late 1993, and the resultsof the retention
declined slowly through 1995, but generallyremainedabove pre-1989
levels; at these prices,producershad less incentiveto complyfully.For
1995-96, worldwideexportableproductionwill be below demandforthe
thirdstraight
year,and pricesare likelyto remainrelatively
high.The next
real test of the solidarityof the ACPC will be whetherits memberscan
collectivelyrefrainfromplantinglargenumbersof new treesto tryto take
advantageofthe current
highprices.A new roundofplantingwill onlysow
the seeds of a new glut which will driveprices down at the end of the
decade.
The deregulationof coffeeproductionand exportingwhich followedthe
1989 price crashis partiallyconsistentwitha regulationanalysis.The free
trade regime that ensued forced producing states to cut back their
regulationof coffeeproduction.Theyhad to end manyofthepricesupports
and extensionservicestheyhad providedto theircoffeegrowers,and also
had to significantly
lower the revenues they had earned throughthe
boards or exporttaxes. But contrary
to the regulationapproach,
marketing
multilateral institutions played only a minor role in this
restructuring.
Organizedpressurefromcoffeegrowersseekinghigherprices
was moreimportant
in states1decisionsto restructure
boards and
marketing
lower exporttaxes thanwas pressureto liberalizefromthe IMF or World
Bank.
The commoditychain approachis bettersuitedto an analysisof how the
low world marketprices whichfollowedthe crash eventuallydestabilized
the market.By understanding
how productionprocesses and transactions
linkgrowers,processors,exportersand importers,
we can see how the low
4<trickled
down"
to
coffee
and
caused
them to reduce
prices
growers
maintenanceoftheirtrees.The structure
ofthe coffeechainhelpsto explain
whyit took severalyearsforthe impactof low pricesto reachthe growers
and for the impactof reduced maintenanceto trickleback up the chain,
in the availability
of lower quantitiesof lower qualitycoffeeon the
resulting
marketand drivingup the price. But contraryto the commoditychain
144
BERKELEY
ofthe efforts
by TNCs to
approach,thesechangeswerelargelyindependent
reorganizeglobalproduction.
Neitherof these approachescan account forthe formationof the coffee
cartel.The cartelmustbe understoodin the contextof over thirty
yearsof
states. Despite constantdivisions,
cooperation among coffee-producing
conflicts,and mistrust
amongtheproducingstates,theyhad cooperatedto
attemptto controlcoffeeexportsevenbeforethefirstICA in 1962. During
the 1972-80 period without export quotas, the major producers had
cooperatedin a seriesof attemptsto manipulateworldmarketprices.And
20 years when quotas were in effect,theyhad
duringthe approximately
been able to agree on how to divideup quota sharesunderthe ICAs.Over
this period, the producingstates had built up the collectivecapacityto
intervenein, and imposeregulationon, theworldmarket;the fouryearsof
low pricesbeginningin 1989 convincedthemthattheyhad to
disastrously
of the consumingstatesconvinced
use thiscapacity.And the intransigence
themthattheyhad to act unilaterally.
Conclusion
The coffeecommoditychain analyzedhere has a structure
very different
fromthose of previouslyanalyzedchains,In part,thisis a resultof the fact
that coffeeis a tropical,labor-intensive
crop which providesincome and
and farmlaborersin a
small
for
millions
of
farmers,
peasants,
employment
It
is
a
tree
countries.
number
of
crop and its production
peripheral
large
can't
be rapidlyincreased
to
signals-production
respondsveryslowly price
when prices rise, and trees keep producingwhen prices falL It is also a
fragilecrop which can be damaged by climaticchanges such as frosts,
and whichis attackedby a numberof pests
droughts,or excessiverainfall,
and diseaseswhichthrivein tropicalclimateswhereit is grown.Production
tendsto fluctuate,producingprice swingswhichare magnifiedby its low
price elasticityof supply. An unregulatedmarket thus inflictssevere
boom-bustcycles on the millionsof people in the ruralperipherywho
dependon itfortheirlivelihood.
of agriculturalproduction and the increasing
have
world
of
the
economyhave not changedthese fkctsr-they
integration
altered the structureof the lower half of the coffee
not significantly
by forcingthe removal of buffersplaced
commoditychain. If anything,
betweengrowersand the worldmarketby the producingstates,theyhave
allowed the shocks generatedat the producingend of the chain to be
more forcefully
transmitted
upward, into the consumingmarkets.These
shocks have been partly responsible, along with the general
of the upper half of the
trends,for the restructuring
CHAIN
145
and dominationof the

chain. The resulthas been increasedconcentration
statesstillregulatethe lower half
chainby TNCs. But the coffee-producing
of the chain;theircontrolover the segmentsof the chain occurringwithin
their own borders has been weakened by the TNCs and multilateral
And the interestsof the producingstatesin
but not eliminated.
institutions,
shieldingtheir growers and processors from the worst ravages of a
globalized coffee industryhas driventhem toward collective action to
attemptto imposeregulationson theworldmarket.
Neitherthe commoditychainapproachnortheregulationapproach,as they
have been developedthusfar,presentadequate frameworks
forthe analysis
of such a commoditychain. This is because neitherincorporatesthe full
actorsand the fidirangeof interactions
range of institutional
among them,
in
involved
and restructuring
thatare
structuring
commoditychains.These
approacheshave giventoo muchweightto the economicforce of capital,
and have not adequately incorporatedthe political force of states.
by no means implies a decliningimportanceof the
nation-state.To the contrary,
thispaper has arguedthatthe role of states,
and particularlyThird World states, in the constructionof regulatory
in previous
regimesfor a globalized economy,has been underestimated
studies. Third World states have thus fer been viewed as reacting
to the dictatesof TNCs or multilateral
institutions.
This analysis
individually
demonstrates
the centrality
of collectiveactionby ThirdWorld stateswith
common interests,in the constructionof regimes to regulate global
commoditychains. Therefore,in this paper, I have proposed a broader
frameworkcalled "regulatingthe commoditychain,"which combinesthe
insightsof the regulationand commoditychain approaches, but also
recognizes the political role of states in the constructionof regulatory
regimes.
A regulatingthe commoditychain analysisbegins withthe structureof a
particularcommoditychain. This involvesnot only the various nodes or
productionprocesses of the chain and the ways in which theyare linked
together,but also the regulatoryregimesgoverningthese processes and
links. It recognizesthat the "governancestructure"(Gereffi,1994) of a
chain may be quite complex-different
segmentsof the chain may be
institutional
actors: TNCs, core states,percherai
regulatedby different
states, and multilateralinstitutions.The structureof a particularchain
determines
a rangeofpossibilities
forconflictor cooperationamongvarious
actorsover how the chainand its governancestructure
willbe restructured
in the contextof a largerglobalizationof the world economyas a whole.
The developmentof a more comprehensiveanalyticalframeworkwhich
includes the fll range of interactionsamong all of the major types of
institutional
actorsin the world economyis essentialto understanding
not
146
has evolvedinthepast,butalsowhatforms
itwilltake
justhowregulation
inthefuture.
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149
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WallStreetJournal
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Maryland).
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Regents of the University of California

in regulatingthe nodes and

2This approach is best exemplifiedby the studies collected in the Gereffiand

TALBOT: COFFEE COMMODITY

The regulationapproach highlightsthe roles of states and multilateral

BERKELEY JOURNALOF SOCIOLOGY

chainapproachfocuseson thelocationsof specific

TALBOT: COFFEE COMMODITY

betweencore and percheraiactorsover controlof the chainand theprofits

BERKELEY JOURNALOF SOCIOLOGY

TALBOT: COFFEE COMMODITY

the regulationof different

BERKELEY JOURNALOF SOCIOLOGY

TALBOT: COFFEE COMMODITY

also acquiredJacob Suchard,one of the largestroastersin France,with a

sold at a loss.Otherswere holdinglarge speculativepositionsin the futures

TALBOT: COFFEE COMMODITY

This developmenthas also given financecapital a largerrole in setting

BERKELEY JOURNAL OF SOCIOLOGY

TALBOT: COFFEE COMMODITY

profitablepart of consumingmarkets,the degree of concentrationis

BERKELEY JOURNALOF SOCIOLOGY

TALBOT: COFFEE COMMODITY

ICA World exportableproductionexceeded total exportquotas through

TALBOT: COFFEE COMMODITY

9In addition,foralmosta year afterquotas were reinstated

BERKELEY JOURNALOF SOCIOLOGY

TALBOT: COFFEE COMMODITY

of its individualcountryquotas, global limitson the availabilityof the

TALBOT: COFFEE COMMODITY CHAIN

BERKELEY JOURNAL OF SOCIOLOGY

near, and most coffeebuyersheld back on new purchases,expectingthe

TALBOT: COFFEE COMMODITY CHAIN

Table 2: The 1989 CoffeePrice Crash

aCoffeeTypes:R = robusta,O = othermilds,B = Brazilian,C = Colombian

BERKELEY JOURNAL OF SOCIOLOGY

TALBOT: COFFEE COMMODITY

would not produce a seriouseffecton world supplyuntilat least 1993. As

farmswhentheirdebtswere declaredin default.Some oftheyouthfromthe

TALBOT: COFFEE COMMODITY CHAIN

BERKELEY JOURNAL OF SOCIOLOGY

pointedout thatthe EC had exemptedthe Andean countriesfromimport

TALBOT: COFFEE COMMODITY

TALBOT: COFFEE COMMODITY

Producingstatesand coffeegrowerswere able to beginto recoup some of

TALBOT: COFFEE COMMODITY

and dominationof the

BERKELEY JOURNALOF SOCIOLOGY

Divisionof Labor: Agri-foodComplexesand

'The PoliticalEconomyofFood: The Rise and Fall ofthePostwarInternational

TALBOT: COFFEE COMMODITY CHAIN

BERKELEY JOURNALOF SOCIOLOGY

TALBOT: COFFEE COMMODITY CHAIN

Tea and CoffeeTradeJournal(NewYork).

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