The Reality of Plummeting Coffee Prices... Part 2

(Page 8 of 12)

Black Gold also addresses the conflict over coffee subsidies. Although the US and EU only have insignificant investments in the coffee growing business, they have applied tremendous pressure (via the WTO and other international fiscal institutes) on coffee producing nations to remove all coffee subsides.

In the free market, subsidies are seen as a block against economic efficiency. However, they are vital for protecting fledgling or temporarily unstable industries. Ethiopia has argued that they should be allowed to use subsidies for a period of time in order to stabilize and secure their coffee industry. However, institutions such as the WTO, IMF and the World Bank have not allowed Ethiopia to use subsidies.

The US and EU heavily subsidize their agricultural industry in order to protect their farmers (exactly the same argument Ethiopia has used regarding her coffee growers). Although neither the US nor the EU grows coffee, they subsidize other crops such as cotton that could be grown in Ethiopia or other nations. As a result, the price of the subsidized cotton in Africa can be so cheap that local African farmers are forced into bankruptcy. In the end, this means that African farmers have fewer available crops that they can profitably cultivate.