Smell the coffee -- free trade good for the poor

Posted: Dec 03, 2002 12:00 AM
There is an emergency at the grocery store: A jar of Folgers coffee is cheap. This has sent anti-globalization activists into a tizzy of protest, and has prompted Congress to pass a resolution calling for action to end "the current coffee crisis." Lower prices mean less income for Third World coffee farmers, hence "the crisis" and the rush toward wrongheaded solutions. Anti-globalization activists love the idea of poor farmers being victimized -- the plight of many of them is indeed heart-rending -- by the forces of corporate capitalism. But it's just not so. Destitute Latin American farmers are mostly being "victimized" by destitute Vietnamese farmers. A decade ago, Vietnam was a coffee-bean-free zone. Since then, it has grabbed 12 percent of the coffee market and helped create a world glut. If you thought Friends of the Third World would exult at the good fortune of poor farmers in Vietnam, you would be wrong. Some Third World regions apparently matter more than others. In any case, the oversupply -- by one estimate, 5 million more 60-kilogram bags were produced than were consumed in the 2001-2002 crop year -- has created a predictable drop in prices. It doesn't help that American consumption of coffee has, despite the rise of Starbucks, declined steadily since 1946. So why isn't your tall cup of skim cappuccino any cheaper? Activists suggest that corporate interests are beggaring Third World farmers while pocketing massive profits. But what you pay for at Starbucks and other fancy outlets is mostly things other than coffee -- milk, sugar, flavorings, the cup, the wages of the guy with spiked hair behind the counter, downtown rent and so on. When coffee is the main event, prices have indeed fallen. According to a study of the coffee market by the Boston Federal Reserve, "The average store price for a pound of roast and ground coffee peaked at $4.67 in August of 1997 and then steadily declined to $2.86 in March of 2002." What you get might not taste so good, since companies are mixing lower-grade Vietnamese beans with the higher-end stuff from Latin America. Presumably, this is why coffee activist Bianca Jagger suggests "destroying lower-quality coffee stocks." Why not take the fight straight to Vietnamese coffee farms? Agent Orange, anyone? Activists really want a return to the days of the International Coffee Agreement. The United States ended its support for this cartel, which it had propped up as a Cold War initiative to stabilize Latin America, in 1989. The cartel was, as such arrangements always are, beset by cheating, as producing countries tried to take as much advantage as possible of the higher prices. Brazil, hungry for more market share, had a major role in blowing it up. A new cartel would, naturally, create artificially high prices for coffee. So, American consumers, including poor people, would pay more for their Maxwell House in an attempt to help poor people somewhere else (such are the priorities of American "progressives"). As the Cato Institute's Brink Lindsey points out, an artificially high price would also be self-defeating since it would encourage more production. The Vietnamese would be tempted -- horrors! -- to plant even more coffee. It is fine for activists to pressure Starbucks to pay more for so-called "fair trade" coffee as an act of international charity. But this is a Band-Aid, and the most desperate farmers are exactly those most ill-equipped to engage in the hassle of getting certified as "fair trade" growers. The only long-term solution is for Third World economies to wean themselves of dependence on commodities, which have been declining in price since the 1970s. That means fostering the rule of law and property rights to encourage growth in those countries. It means lifting U.S. tariffs that punish Third World industry. It means ending U.S. farm subsidies that give U.S. growers an unfair advantage in world markets. The operative slogan should be: "Free markets for the world's poor!" Somehow I don't think Bianca will like it.