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April 25, 2003
The Answer to the Coffee Crisis? Farmers Want Fair Price, Kraft Says Increase Demand
    by William Baue

Calls for fair prices and Fair Trade Certified coffee by social investors, coffee farmers, and Oxfam go unheeded by Kraft.


At the Kraft (KFT) Annual General Meeting (AGM) earlier this week, Board Chair Louis Camilleri revealed that not all, but the "vast majority," of coffee the company buys complies with International Coffee Organization (ICO) quality standards.

ICO Resolution 407 enacted these standards in February 2002, setting a maximum moisture level and a minimum quality threshold for export coffee to help solve the coffee crisis, so-called because of the global glut of low-quality coffee. Destroying the estimated 5 million bags of coffee on the current global market that do not meet such standards would simultaneously lower supply and raise quality, potentially reversing the trend whereby farmers pay more to produce coffee than they make on it.

Mr. Camilleri said Kraft buys coffee that does not meet these quality standards from Vietnam and Indonesia. Kraft has programs in these two countries to bring quality up to ICO quality standards, he said, though Kraft Communications Director Patricia Riso subsequently corrected the record for SocialFunds.com that the company has no such program in Indonesia. It would be unfair of Kraft to cut off those farmers because they are not meeting quality standards at present, he stated.

Kraft's solution to this regional problem as well as to the global coffee crisis of oversupply is simple.

"Our duty is to increase demand," said Mr. Camilleri. Kraft, which retails Maxwell House and Gevalia brand coffee, is one of the world's two largest coffee companies and exerts a huge influence on the global coffee market.

Representatives from Oxfam America who attended the Kraft AGM in affiliation with MMA Praxis, a socially responsible investment firm, offer a contrary perspective.

"Mr. Camilleri's concern for Vietnamese and Indonesian coffee farmers is valid, but as for a solution, Kraft has got it backwards," said Simon Billenness, Oxfam America's private sector engagement consultant. Oxfam, which is on the foremost nongovernmental organization (NGO) dealing with the coffee crisis, has been in dialogue with Kraft about these issues since long before the AGM, even though there is no shareowner resolution there. "Current mass market prices are simply not sustainable."

"The simplest way to solve this problem is to pay a fair price for coffee," Mr. Billenness told SocialFunds.com.

This opinion was echoed by the coffee farmers themselves.

"We need a fair price for our coffee. That's the solution," said Dessalgn Jena, a coffee farmer who was flown in from Ethiopia to represent the grower's perspective at the AGM. "Right now, Kraft's profit is our loss."

Many socially responsible investors agree. They have filed a shareowner resolution at another of the four major coffee companies, Procter & Gamble (PG), addressing the coffee crisis.

"Helping to increase the demand for coffee relative to supply is not the only solution to the falling prices paid to coffee farmers," reads a letter in support of the resolution signed by more than 30 religious organizations and SRI firms. "As investors, we consider that a major part of solving this crisis lies in international efforts to better balance supply and demand that will lead to an increase in the share of the retail price of coffee that is paid to coffee farmers . . ."

The letter cites one of Oxfam's suggested solutions to the coffee crisis: Fair Trade Certified coffee, which guarantees a living wage price for farmers. Kraft currently does not purchase any Fair Trade Certified coffee.

"At present, we don't see the demand," stated Kraft representatives at the AGM.

Mr. Billenness respectfully disagrees.

"Over the past two decades, the major coffee companies have failed to increase demand in the mass market. The only arena where demand has grown is in the premium market."

Oxfam proposes that Kraft should commit to buying five percent of its total coffee from Fair Trade Certified suppliers within three years. This move, says Oxfam, would enable farmers to make a decent living and would also create competitive advantage for Kraft. The shareowner resolution submitted to Procter & Gamble makes the same proposal.

"Sara Lee (SLE), another of the four major coffee roasters, is selling Fair Trade coffee," said Mr. Billenness. "If Nestle (NESZn) and Procter & Gamble get into this market, as I expect they will by the end of this year, they're going to eat Kraft's lunch on Fair Trade."

 

 
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