Bryan Lewin, Daniele Giovannucci and Panos Varangis
The World Bank
March 1, 2004

About 20-25 million families—mostly smallholder farmers—in more than 50 developing nations produce and sell coffee. A number of them are facing considerable difficulties because of the dramatic decline in the price of coffee to 100-year lows in real terms. Since 1970, prices have averaged a 3 percent per year price decline for arabica coffees and a 5 percent decline for robusta. Nicaragua provides a stark example of the impact: Between 1998 and 2001 poverty rates increased by more than 2 percent among those farmers who remained in the coffee sector. In contrast, poverty rates among rural households as a whole fell by more than 6 percent. A similar picture emerges for primary school enrollment rates—falling by 5 percent for households that stayed in the coffee sector and increasing by 10 percent among all rural households.

In several coffee-producing countries, coffee accounts for at least 20 percent of the total export earnings. By some estimates, approximately 100 million people are directly affected economically by the coffee trade. It goes without saying that with a crop of such significance for some countries, the destabilizing effect of the price crisis sparks concern precipitating bank failures, public protests, and dramatic falls in export revenues.

The consequences of the crisis in each country and region have been different according to the industry structure of the country concerned. In Central America, for example, a region with relatively larger farms (compared to Africa) using higher amounts of additional nonfamily labor, there has been high labor displacement, as well as both a worsening of poverty levels among smallholder farmers and default problems in the banking sector. In regions such as Africa, the social costs, particularly for smallholder farmers, are also acute, and difficulties are aggravated at the national level due to balance of payments problems and lost revenues, jeopardizing broader government antipoverty measures.

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