Casual drinkers are likely unaware that the world of coffee extends far beyond the counter of their local cafe. Many never realize the politics, history, or bureaucracy behind their favorite caffeinated drink, but coffee is big business and the International Coffee Organization is a major player. This international governing board decides the prices and quotas of coffee for countries that import and export the crop. Recently, Guatemala, the world’s ninth-largest coffee producer, has announced its plans to leave the agreement, making it the only major coffee-producing country to not be part of the organization.
The International Coffee Organization was founded in 1963 in London following the International Coffee Agreement of 1962, recognizing the growing global economic importance of coffee. The organization is composed of coffee importers and exporters — there are 43 exporting members and six importing, though the entirety of the European Union is considered one importer. Coffee generates about $42 billion dollars of economic activity annually, and in the US alone coffee is responsible for 1.6% of the gross domestic product, or GDP, and more than 1 million coffee-related jobs.
Because of the economic impact and changes in the global coffee markets and producers, six more International Coffee Agreements have been established since 1962, most recently in 2007. These agreements stabilize the coffee markets for importers and exporters, and they particularly aim to strengthen the development of coffee growth and distribution in even small coffee-producing countries.
“The 2007 Agreement will strengthen the ICO’s role as a forum for intergovernmental consultations, facilitate international trade through increased transparency and access to relevant information, and promote a sustainable coffee economy for the benefit of all stakeholders and particularly of small-scale farmers in coffee-producing countries,” reads an official post on the International Coffee Organization website.
The ICO is the only intergovernmental board in the world highlighting both importing and exporting coffee companies. Guatemala’s forthcoming withdrawal follows the 2018 exit of the largest coffee-importing country in the world and a founding member of the ICO — the United States.
“The representatives of the USA responded that the decision to withdraw was final and that ‘an internal review had concluded that the resources and efforts of the US Government to support the international coffee sector would be most efficiently utilized outside the Organization,’” said the ICO in its 2018 annual report.
The United States makes up about 19% of the world’s coffee-import market, importing nearly 1.5 million metric tons of coffee each year. As such, the ICO lost much of its year-over-year funding and support, though members such as Japan, Russia, Switzerland, the EU, and Tunisia have increased their contributions to make up for the loss.
Besides the budgetary issues for the ICO, the United States’ exit contributed to another shake-up, as it was also the largest importer of Guatemalan coffee — it left Guatemala, whose coffee industry was already struggling, even more insecure. While Guatemalan coffee is world renowned and receives consistent high reviews, its prices have been flatlining.
A 2020 US Department of Agriculture report on Guatemala’s agriculture noted many of the small coffee farmers in the country are operating at a loss.
“Although Guatemalan coffee continues to be recognized for its superior quality and receives premiums of $30 on average above the international base price per 60-Kg bag, the differential has not been enough to cover the costs,” the report states, even though nearly 97% of the coffee producers in Guatemala are smaller farms.
Guatemalan officials told Reuters that the reason for leaving the agreement was a lack of protection from falling prices amid the coronavirus crisis. The same officials have said that they want to seek alternative routes to prop up their coffee industry among global price drops.
“The ICO had lost its way,” said Ricardo Arenas, head of the board of directors at Guatemalan coffee association Anacafe. “It has needed to be restructured.”
Arenas and his group urged the Guatemalan government to leave the ICO because the organization didn’t protect the producers’ interests enough, though the ICO hopes to renegotiate a pact with Guatemala to keep them in.
“We hope that these rumors will not materialize,” ICO said in a statement.
Much of the economic insecurity can be traced to the continuing impact of COVID-19. Lockdowns and shelter-in-place orders have affected the coffee industry in ways that are still being explored. According to a recently released ICO paper discussing the implications of the coronavirus, coffee-buying habits may change and shift with the stiffening economy and struggling people.
“A more profound effect on global coffee demand can be expected as the result of a global recession triggered by the direct and indirect effects of the COVID-19 pandemic,” the paper states.
“Reduced household incomes could translate into lower demand for coffee in volume terms,” the ICO continued. “In addition, price-sensitive consumers may substitute higher-value coffee by lower-value blends or brands.”
The long-standing effects of COVID-19 on the coffee industry have yet to be realized, as well as the potential fallout from Guatemala’s departure from the ICO. These two major factors could shake up the entirety of the coffee world, and the ICO is looking for potential workarounds and solutions.