As coffee prices currently sit at historically high levels on the commodities markets, driven by supply concerns and growing demand, the economic benefits for green coffee producers might seem universally promising.
Yet a new policy report from the Food and Agriculture Organization (FAO) of the United Nations reveals a deeper, often overlooked reality in coffee pricing structures: the hidden costs of coffee production.
Behind the market price of coffee lie significant environmental and social impacts — from greenhouse gas emissions to widespread child labor and income inequality — casting doubt on whether these record prices reflect the “true cost” of coffee, according to the report.
Focused on coffee value systems in East Africa, the report follows a “growing recognition that significant costs associated with food systems remain unaccounted for in market prices,” according to the FAO.
The report defines many of these costs as “externalities,” or the indirect consequences of economic activities, such as environmental damage, social inequality and poverty.
Unlike direct costs — e.g., labor or fertilizers — externalities often go unnoticed and unaccounted for in pricing systems, while particularly affecting smallholder farmers and their communities.
The deeply researched 50-page report found that in Ethiopia, Uganda and Tanzania, such hidden costs are substantial. They include climate impacts, water pollution, child labor, gender wage gaps and the living income gap, which represents the difference between what coffee farmers earn and what they need for a decent standard of living.
The living income gap — which was particularly pronounced in Ethiopia — accounted for the largest share of hidden costs in the three countries studied. The gap is driven by low farmgate prices and limited profit margins, especially for robusta coffee producers. Environmental factors like greenhouse gas emissions and water usage also were found to add significant hidden costs to every kilogram of coffee produced in the three countries.
Specific social and environmental externalities
Externalities identified as having significant social and environmental costs included:
- Child Labor: Many children in Eastern Africa’s coffee farms engage in labor-intensive activities like cherry picking and sorting, often at the expense of their education. The study monetized these costs at up to $0.42 per kilogram of coffee, with the highest impacts observed in Uganda.
- Gender Inequality: Women in coffee production face a gender pay gap, earning significantly less than their male counterparts for similar work. This disparity, though not uniform across regions, reflects broader systemic inequities in the agricultural sector.
- Environmental Costs: Coffee farming contributes to deforestation, greenhouse gas emissions, and water pollution. The environmental hidden costs vary based on farming practices, with intensive systems generally producing more emissions but also yielding higher outputs.
Part of a broader set of background literature aimed at policymakers called The State of Food and Agriculture 2024, the complete FAO report on East African coffee is available here.
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