Coffee is one of the most important agricultural products traded globally. While coffee production is concentrated in developing countries, its consumption mainly takes place in developed countries and emerging economies.
Two Southeast Asian countries – Vietnam and Indonesia – are among the world’s top five largest coffee producers. Coffee is also an important source of agricultural export earnings for Laos, earning the country US$72.5 million in 2021 (roughly 0.5 per cent of its gross domestic product). According to a report by the United Nations Conference on Trade and Development (UNCTAD) in 2020, more than 20,000 small farming families in Laos relied on the sales of coffee beans for their livelihoods. Additionally, over 300,000 people (about 6 per cent of the workforce) worked in the coffee industry.
Most coffee growers in developing countries are smallholders who often receive low prices for their produce. Coffee roasters and international traders, in contrast, dominate the global coffee commodity chain and capture significant shares of the profits, which do not trickle down to the farmers. There had been previous international collaborations to raise and stabilise coffee prices, perhaps most notably the International Coffee Agreement (ICA), established in 1962. However, after the ICA regime collapsed in 1989, due to a lack of support from member countries, international coffee prices became much more volatile and market concentration also increased, tilting the market in favour of the bigger players.
In response to this price volatility, some non-governmental initiatives, which aim to support farmers’ livelihoods and environmental sustainability by setting socio-environmental production standards in exchange for higher prices, have sprung up. One example is Fairtrade International – a transnational sustainability label programme that marks products with a Fairtrade symbol. Fairtrade products are often sold at higher prices because small-scale farmers are guaranteed a minimum price for their crop that will protect them from sudden price drops. Additionally, the farmers benefit from the Fairtrade premium – an extra payment on top of the selling price to be spent on socially beneficial purposes – paid to their groups or cooperatives.
Many Fairtrade coffee growers also have organic certifications that ensure environmentally sustainable production. In Indonesia, there are around 25 Fairtrade-certified coffee cooperatives and 98 per cent of them have organic certifications. Having organic and Fairtrade certifications increase market opportunities for coffee growers and enable them to fetch higher prices from consumers willing to pay a premium for sustainable coffee.
Coffee buyers can forge long-term trust and relationships with producer groups to eliminate the need for third-party certifications, which can be costly. Jhai Coffee Farmers Cooperative (JCFC) in Laos, for example, has been selling specialty coffee to a Japanese company – Alter Trade Japan (ATJ) – since 2010. Instead of asking for organic and Fairtrade certifications, ATJ sent 35 personnel to work with farmers and inspect the production process. ATJ also gives extra payments, similar to Fairtrade premiums, to the village fund.
Governments and non-government organisations can help newly formed producer groups, including by subsidising costly organic or Fairtrade certification fees, until these farmer groups are financially self-reliant.
Reflecting global trends, many Southeast Asians enjoy high-quality specialty coffee and café “ambience consumption”. The specialty coffee industry in Thailand, for example, started two decades ago and is still expected to grow rapidly in the next few years. Similar trends can be found in other Southeast Asian countries. In the cosmopolitan cities of Singapore, Jakarta, Bangkok, Kuala Lumpur, Ho Chi Minh City, and Manila, independent cafés and domestic coffee chains have flourished alongside international coffee chains.
Southeast Asian coffee chains sometimes distinguish themselves from international chains by selling ‘traditional style’ coffee like Vietnam’s cafe sua da and coffee mixed with yogurt or egg yolks, kopi tubruk in Indonesia, kafae boran in Thailand, and barako in the Philippines. Many cafes have become popular hang-outs with decorations especially designed for younger, Instagram- or selfie-oriented customers. Cafes situated near rivers or in farmlands around Bangkok see huge influxes of weekend domestic and foreign tourists seeking short breaks in natural surroundings, especially now that pandemic restrictions have eased. Specialty drinks and such “ambience consumption” enable these cafés to charge relatively high prices, but unfortunately, the profits do not necessarily translate to increased incomes for coffee growers nor to production sustainability.
Despite the high growth potential for the organic and Fairtrade coffee sector in Southeast Asia, certification costs remain rather high for small-scale coffee grower groups. Many of them struggle with the paperwork and to meet higher production standards. Governments and non-government organisations can help newly formed producer groups, such as by subsidising costly organic or Fairtrade certification fees, until these farmer groups are financially self-reliant. Additionally, ASEAN could encourage more intra-regional trading of coffee that will benefit coffee-producing and consuming countries.
Since many Southeast Asian consumers are already willing to pay higher prices for specialty coffee and café ambience, they might also consider supporting cafés that are committed to purchasing sustainably produced local and regional coffee, and to giving coffee growers fairer prices. Consumers can make conscious purchasing decisions to show solidarity with sustainable coffee growers.
Prapimphan Chiengkul is assistant professor at the Faculty of Political Science at Thammasat University in Thailand.
This article was first published by ISEAS – Yusof Ishak Institute as a Fulcrum commentary.