The Productivity miracle…

…Bala, contentedbloke, has talked often about the pitfalls of productivity led growth. Here is another example of the same.

I am beginning to become profoundly disturbed by the accepted notion that short-term consequences don’t matter as long as long-term growth is assured.

You wouldn’t know it from the price of a cafe latte at Starbucks, but wholesale coffee prices are so low that growers have to sell at a loss.

The situation is so dire that many of the world’s 25 million coffee growers — including millions of “smallholders” — are facing humanitarian crises.

At the heart of the issue is technology, which has increased productivity, leading to increased supplies of coffee. This in turn drives grower prices down. According to a McKinsey Quarterly study:

“During the past ten years, the industry’s cost structure has shifted as a result of Brazil’s productivity-enhancing innovations (including the cultivation of less frost-prone areas, better mechanized harvesting, and increased irrigation) as well as competition from cost-efficient new entrants such as Vietnam. The increasing demand for coffee made from the cheaper robusta bean (a development driven by steam-cleaning technologies that can better mask its bitter taste) and rising consumption by price-sensitive consumers have also had an effect. Arabica beans, which roasters consider a better-quality product, are used in higher-end specialty coffees but have become a shrinking component of mass-market brands….”
Essentially, what the McKinsey study shows is that due to technology bringing productivity improvements, there is no longer a need for as many coffee farmers.

And just like in other industries experiencing improved productivity, coffee growers are going to have to change in order to survive. McKinsey recommends that some growers specialize in the high-end specialty coffee market. Others will have to diversify into areas such as tourism (ecotourism and agrotourism) and light manufacturing, or start growing other crops.

In essence, coffee farming is facing the same issues as manufacturing and many other industries. Technology has brought about fundamental changes and productivity improvements, replacing the need for labor. And like other industries, the coffee industry is going to have to evolve and renew itself. Groups like Technoserve, the non-profit that sponsored the study, provide technical and other assistance to ease the farmers’ transition as they move into other businesses or otherwise transform.

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Posted on April 14, 2004, in Uncategorized. Bookmark the permalink. Leave a comment.

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