THE IMPACT OF BRAZILS COFFEE PRODUCTION FLUCTUATIONSON THE
WORKFORCE AND ON GLOBAL IMPORTS
IS COFFEE ONE OF THE COMMODITIES THAT CREATES THE BASIS FOR
EXPORTS IN BRAZIL? Brazil is an uncontested coffee producer,
remarking herself as a leader in the world exports share and value.
Since coffee production requires particular altitudes, temperature
ranges and certain rainfall conditions, it is cultivated mainly in
the countries located within the Tropic of Cancer and the Tropic of
Capricorn. However, geographical and growing conditions werent
enough to make this commodity the second most valuable traded one
after petroleum. Taking into consideration the labor intensive
process required for the coffee production, Brazil leadings
position can be also sustained by its demographic profile - the
availability of cheap labor force. As a remarkable pool for
immigrants, this country is the prime destination for migrants from
Argentina, Andean countries and Chile, most of them being unskilled
illegal immigrants who work especially in coffee cultivation.
Statistics regarding the production of coffee in Brazil represent
relevant empirical evidence for supporting the remarkable position
of this country among the other coffee producers. During the time
span 1990-2008 the production in Brazil increased by 7%, whereas
the other regions Africa, Colombia, other Latin American countries
- experienced a decrease in their shares, the only exception being
Asian countries, whose share also increased (Graph 1 and Graph 2).
Updated data, up to 2012 (Table 1) supports the same production
pattern, Brazil producing 28 000 more bags than the second world
producer - Vietnam. The leaders in exports are the same countries
which were major producers, in 2012 Brazils coffee exports
representing 2.6% of total exports, bringing a value of 5.3 billion
dollars. Some may argue that this share is a small one, but taking
into account the share of 5.5%[footnoteRef:1] constituted by the
first agricultural exported product soya beans, the amount of money
shouldnt be neglected. Differences in productivity among coffee
producing countries, owed to their different resource endowments
and the efficiency of the labor force, represent the main sources
of trade for Brazil, fact that support the validity of the
Heckscher Ohlin trade model. [1: The Observatory of Economic
Complexity, 2010]
TRADE PATTERNS WHICH ARE THE COUNTRIES THAT RELY ON BRAZILS
COFFEE EXPORTS? As highlighted above, the main producers and
exporters of coffee are developing countries, Brazil being one of
the emerging economies striving for the economic recovery.
Different from exporters, the top importers are developed economies
and this is the main reason why we can assume a higher value for
this commodity, converting it into a luxury good. Brazil is the
major supplier of coffee for US, Germany and Italy (Graph 3, Graph
4, Graph 5), and this is not only owed to the quantity this country
is able to provide, but also to the quality and the historical
label that it possesses. Staying consistent with this idea, Table 2
marks the stable position of developed countries as main coffee
consumers, dependent on big amounts to be delivered from Brazil in
2010 the US was the biggest importer (the value of the imports was
$4 121 228), followed by Germany ($3 344 098) and Italy ($1 382
895).THE CAUSES THAT LIE BEHIND BRAZILS COFFEE PRODUCTION AND
EXPORTS FLUCTUATIONSThis section focuses on the reasons that
explain the divergence between the importers stable demand and the
Brazils unstable supply, taking as point of departure the switch
made by Germany importing more from Vietnam during 2000 2007 and
then considering Brazil too, the main proof being the data
encompassed by Table 2 and Graph 4. In 2003 and 2005 the production
in Brazil decreased, as a response of the coffee plants
productivity to climate changes and unfavourable weather conditions
and the quantity imported by Germany was supplemented with that
imported from Vietnam.Brazils coffee production capacity depends on
the vulnerability of coffee plantations to climate changes and on
the unique pattern of growth of coffee trees - the possibility of
increasing the exportable supply is limited because of the
gestation period of 4-5 years. Major shortfalls in production were
caused also by severe frost damages, as those that occurred in
1975, 1976 when 73.5% of the crops were affected, 1985 and 1994
(Graph 6, Graph 7, Table 3).CHALLENGES ENCOUNTERED BY THE OTHER
SUPPLIERS, AIMING TO PROVIDE THE SAME QUALITY AND QUANTITY When
Brazils ability to supply the world market, especially its major
trading partners the US, Germany and Italy, is distorted by
biological and geographical factors as those mentioned before,
other major players have to deal with the demand of developed
economies. Even though top producers and exporters Vietnam,
Indonesia, Colombia have the potential to expand their production
capacity and to compete in the future with Brazils potential, the
biggest challenge they have to cope with is to provide the same
quality for this commodity. The enhancement of quality isnt as easy
to achieve as it seems, for 2 main reasons. First of all, this
improvement has to be made through suitable mechanisms, which
require major capital investments and a complex process of
implementation. Since the top exporters are developing countries,
marketing research, preparation methods suitable for high quality
coffee, protection against diseases and contaminations would impose
great costs that these nations wont be able to cover. The
fundamental values that give Brazil an initial advantage in the
coffee industry which further gets locked in by external economies
of scale are the historical tradition, knowledge and
experience.(Krugman, Obstfeld, Melitz, 2012). Therefore, the other
exporters have to face Brazils pattern of specialization, which was
established by historical circumstances. Brazilian coffee is a
premium product, owed to the high quality of raw materials used and
the regional diversity and even if other producing countries could
incur lower costs, the demand or their products wouldnt be as
stable and high as it is for the Brazils coffee. Hence, the
appropriate synonym for spillover of knowledge, term used by
economic analysts to describe the continuous advantage of some
countries on the international market, would be tradition. Moreover
changes in consumer preferences describe a new tendency towards the
high quality coffee gourmet which is produced mainly in Latin
America. One more time, in the periods with lower production
capacity in Brazil, its rivals will have to confront with the
problem of quality, attributed to variations in age structure and
increases in the incomes of some social categories.PRODUCTION
OSCILLATIONS AND COFFEE PRICEFluctuating prices are not perceived
anymore as a difficulty they are considered to be a tool of the
imbalanced markets with which producers have to deal. They result
for the common delay between changes in price and production,
because supply cannot immediately react to an increase in prices.
To put it simply the coffee market follows a cyclical trajectory,
which cannot be synchronized with the oscillations in production.
When the prices are high, the propensity is to increase the
production capacity, fact that will further lead to oversupply. In
order to adapt to market conditions, the prices will be balanced
toward lower ones, the production will drop, and the consumers will
face the under-supply situation. Farmers will choose make
significant investments during low prices period, instead of
switching towards new crops and when the prices will be high again,
they will have to expect 4-5 years, duration necessary for a
plantation to reach complete capacity. COFFEE PRODUCTION, CHILD
LABOR AND SCHOOL ENROLMENT A CYCLICAL PATH Coffee is a labor
intensive crop and this is why it is regarded as a valuable
generator of jobs. In Brazil it received the label of estate crop
due to the huge number of people working in coffee cultivation and
this is why it has strong implications for living standards and
education enrolments. As mentioned before, the path of production
is not an established one, being strongly dependent on climate
changes and prices oscillations. This cyclical path has additional
implications, influencing the decisions of farmers and workers when
striving to pick the daily quota. They choose to rely on their
families labor and bring their children in the coffee fields to
help them reach the daily target. The situation is even more
alarming, because they arent actually employed and hence they have
to support the consequences of the deprivation of labor protection
measures. Paying a living wage meant to assure the purchase of the
typical consumer basket food necessities, health insurances and
education services should be enough to prevent child labor, but the
households decision regarding the enrolment of their child into
workforce is mostly influenced by the economic environment.
Empirical evidence reveals how in Brazils coffee producing areas
parents decide to take advantage of better economic conditions by
supplementing the labor force with the help of their own children.
To be more precisely I will evaluate the data provided in Table 4,
separately for boys and girls for a more accurate validation of the
cyclical path formed between the production and the school
enrolment. When the value of production increases by 10%, the
employment rate of middle income boys and also girls increases by
4%, proving that girls respond similarly to boys when production
capacity changes. Birth order, race and location represent also
important driving forces for the decision taken by households, in
the sense that younger boys and girls living in rural areas are
more likely to work than those white children, with younger
siblings, living in urban areas. In those regions in Brazil where
coffee production accounts for 5% of the GDP, the same increase of
10% reduces the middle-income boys schooling rate by 4% and 3%,
acknowledging the increasing labor demand when improvement in the
production chain are made.Future inferences shouldnt be overlooked
because when a child displaces school, his future income would be
later on affected and reduced, this situation being regarded by
Diana I. Kruger as a poverty trap farmers in Brazil involve their
children in the workforce, they impede them to benefit from
education opportunities and the likelihood of obtaining a high-wage
job in the future is notably diminished.. CONCLUSIONSThe
statistical analysis and the information exposed previously confirm
the validity of the impacts that oscillations in coffee production
in Brazil would have on the quantity desired by top importers, on
the quality they require and, very important, on the labor force
and school enrolments among children. Since Brazil is the major
exporter at the global level of high quality coffee Arabica, the
impact on the trade balance has to be taken into consideration,
especially by large exporters who encounter challenges in providing
this commodity at expected standards. Coffee cycle is characterized
by long term perspective, affecting the decisions taken by
suppliers, when they choose to rely also on child labor, worsening
the education outcomes (Duryea and Arends-Kuenning,2003). No one
can question the conveniences of production positive shocks, but
the matter of children not being subject to appropriate labor
conditions should raise a big question mark, because countries
cannot be defined as developed ones since they lack the means to
fight poverty and economic instability.
REFERENCES
Global coffee industry, Duke University, Markets and Management
Studies, 2007
Kruger, D. (2007). Coffee production effects on child labor and
schooling in rural Brazil, Journal of Development Economics, pp.
448-463
Lovasy, G. (1962). The international coffee market: a Note,
Staff Papers International Monetary Fund, 9(2), pp. 226-242
Opportunities and challenges for the world coffee sector,
Multi-Stakeholder Consultation on Coffee of the Secretary-General
of UNCTAD, 2009
Recent trends on the world coffee market, United Nations
Conference on Trade and Development, 1995
APPENDIX
GRAPH 1 Coffee production 1990 - 1991
International Coffee Organization Osorio, N. (2009). Coffee
market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting
on Coffee
GRAPH 2 - Coffee production 2008 - 2009
International Coffee OrganizationOsorio, N. (2009). Coffee
market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting
on Coffee
TABLE 1 - Top Coffee Exporting Countries in the World(000)
bags
CountryCrop year2009201020112012
BrazilApr Mar39 47048 09543 48450 826
VietnamOct Sep17 82519 46722 28922 000
IndonesiaApr Mar11 3809 1297 28712 730
ColombiaOct Sep8 0988 5237 65310 000
International Coffee
Organizationhttp://www.ico.org/prices/po.htm
TABLE 2 - Top Coffee Importing Countries in the World 2010
having Brazil as main supplier
CountryImports in US $
United States of America4 121 228
Germany3 344 098
Italy1 382 895
France1 381 309
Japan1 272 614
Source: FAO Statistical Yearbook 2010
GRAPH 3 - USA imports of coffee by origin 2000-2007
Osorio, N. (2009). Coffee market outlook, UNCTAD
Secretary-generals Multi-Stakeholder Meeting on Coffee
GRAPH 4 - GERMANY imports of coffee by origin 2000-2007
Osorio, N. (2009). Coffee market outlook, UNCTAD
Secretary-generals Multi-Stakeholder Meeting on Coffee
GRAPH 5 - ITALY imports of coffee by origin 2000-2007
Osorio, N. (2009). Coffee market outlook, UNCTAD
Secretary-generals Multi-Stakeholder Meeting on Coffee
GRAPH 6 Production in Brazil 1989 - 2005
Kruger, D. (2007). Coffee production effects on child labor and
schooling in rural Brazil, Journal of Development Economics, pp.
448-463
TABLE 3 Coffee frost and drought history
DateSeverity (Damage)Coffee Frost or Drought
1902 (Late July/early August)DevastatingF*
1918 (June 24-26)SevereF*
1942 (Late June/early July)SevereF*
1943ModerateF*
1953 (July 4-5)SevereF*
1955 (July 30-August 1)Severeslight F
1957SevereF*
1962 (July 25-26)MinorF*
1963 (August 5-6)ModerateF and D
1965MinorF*
1966 (August 6)Severeslight F
1967 (June 8)MinorF*
1969 (July 9-10)ModerateF*
1972 (July 8-9)ModerateF*
1975 (July 17-19)Very SevereF*
1978 (August 13-16)ModerateF*
1979 (June 1)ModerateF*
1981 (July 20-22)SevereF*
1984 (August 25)MinorF*
1985 (August-November)MinorD
1988MinorF*
1994 (June 25-26 and July 9-10)Severe/Very SevereF and D
1999 (August to November)Severe (40% crop lost)D
2000 (July 17)Moderate (est)F*
International Coffee
Organizationhttp://www.coffeeresearch.org/market/frosthistory.htm
GRAPH 7 - Brazil: coffee production (tons) and area planted,
19902003.
Kruger, D. (2007). Coffee production effects on child labor and
schooling in rural Brazil, Journal of Development Economics, pp.
448-463
TABLE 4 Effect of value of county coffee production on
employment and schooling
* Significant at 10%.** Significant at 1%.*** Significant at
5%.
Kruger, D. (2007). Coffee production effects on child labor and
schooling in rural Brazil, Journal of Development Economics, pp.
448-463