THE IMPACT OF BRAZILS COFFEE PRODUCTION FLUCTUATIONSON THE WORKFORCE AND ON GLOBAL IMPORTS

IS COFFEE ONE OF THE COMMODITIES THAT CREATES THE BASIS FOR EXPORTS IN BRAZIL? Brazil is an uncontested coffee producer, remarking herself as a leader in the world exports share and value. Since coffee production requires particular altitudes, temperature ranges and certain rainfall conditions, it is cultivated mainly in the countries located within the Tropic of Cancer and the Tropic of Capricorn. However, geographical and growing conditions werent enough to make this commodity the second most valuable traded one after petroleum. Taking into consideration the labor intensive process required for the coffee production, Brazil leadings position can be also sustained by its demographic profile - the availability of cheap labor force. As a remarkable pool for immigrants, this country is the prime destination for migrants from Argentina, Andean countries and Chile, most of them being unskilled illegal immigrants who work especially in coffee cultivation. Statistics regarding the production of coffee in Brazil represent relevant empirical evidence for supporting the remarkable position of this country among the other coffee producers. During the time span 1990-2008 the production in Brazil increased by 7%, whereas the other regions Africa, Colombia, other Latin American countries - experienced a decrease in their shares, the only exception being Asian countries, whose share also increased (Graph 1 and Graph 2). Updated data, up to 2012 (Table 1) supports the same production pattern, Brazil producing 28 000 more bags than the second world producer - Vietnam. The leaders in exports are the same countries which were major producers, in 2012 Brazils coffee exports representing 2.6% of total exports, bringing a value of 5.3 billion dollars. Some may argue that this share is a small one, but taking into account the share of 5.5%[footnoteRef:1] constituted by the first agricultural exported product soya beans, the amount of money shouldnt be neglected. Differences in productivity among coffee producing countries, owed to their different resource endowments and the efficiency of the labor force, represent the main sources of trade for Brazil, fact that support the validity of the Heckscher Ohlin trade model. [1: The Observatory of Economic Complexity, 2010]

TRADE PATTERNS WHICH ARE THE COUNTRIES THAT RELY ON BRAZILS COFFEE EXPORTS? As highlighted above, the main producers and exporters of coffee are developing countries, Brazil being one of the emerging economies striving for the economic recovery. Different from exporters, the top importers are developed economies and this is the main reason why we can assume a higher value for this commodity, converting it into a luxury good. Brazil is the major supplier of coffee for US, Germany and Italy (Graph 3, Graph 4, Graph 5), and this is not only owed to the quantity this country is able to provide, but also to the quality and the historical label that it possesses. Staying consistent with this idea, Table 2 marks the stable position of developed countries as main coffee consumers, dependent on big amounts to be delivered from Brazil in 2010 the US was the biggest importer (the value of the imports was $4 121 228), followed by Germany ($3 344 098) and Italy ($1 382 895).THE CAUSES THAT LIE BEHIND BRAZILS COFFEE PRODUCTION AND EXPORTS FLUCTUATIONSThis section focuses on the reasons that explain the divergence between the importers stable demand and the Brazils unstable supply, taking as point of departure the switch made by Germany importing more from Vietnam during 2000 2007 and then considering Brazil too, the main proof being the data encompassed by Table 2 and Graph 4. In 2003 and 2005 the production in Brazil decreased, as a response of the coffee plants productivity to climate changes and unfavourable weather conditions and the quantity imported by Germany was supplemented with that imported from Vietnam.Brazils coffee production capacity depends on the vulnerability of coffee plantations to climate changes and on the unique pattern of growth of coffee trees - the possibility of increasing the exportable supply is limited because of the gestation period of 4-5 years. Major shortfalls in production were caused also by severe frost damages, as those that occurred in 1975, 1976 when 73.5% of the crops were affected, 1985 and 1994 (Graph 6, Graph 7, Table 3).CHALLENGES ENCOUNTERED BY THE OTHER SUPPLIERS, AIMING TO PROVIDE THE SAME QUALITY AND QUANTITY When Brazils ability to supply the world market, especially its major trading partners the US, Germany and Italy, is distorted by biological and geographical factors as those mentioned before, other major players have to deal with the demand of developed economies. Even though top producers and exporters Vietnam, Indonesia, Colombia have the potential to expand their production capacity and to compete in the future with Brazils potential, the biggest challenge they have to cope with is to provide the same quality for this commodity. The enhancement of quality isnt as easy to achieve as it seems, for 2 main reasons. First of all, this improvement has to be made through suitable mechanisms, which require major capital investments and a complex process of implementation. Since the top exporters are developing countries, marketing research, preparation methods suitable for high quality coffee, protection against diseases and contaminations would impose great costs that these nations wont be able to cover. The fundamental values that give Brazil an initial advantage in the coffee industry which further gets locked in by external economies of scale are the historical tradition, knowledge and experience.(Krugman, Obstfeld, Melitz, 2012). Therefore, the other exporters have to face Brazils pattern of specialization, which was established by historical circumstances. Brazilian coffee is a premium product, owed to the high quality of raw materials used and the regional diversity and even if other producing countries could incur lower costs, the demand or their products wouldnt be as stable and high as it is for the Brazils coffee. Hence, the appropriate synonym for spillover of knowledge, term used by economic analysts to describe the continuous advantage of some countries on the international market, would be tradition. Moreover changes in consumer preferences describe a new tendency towards the high quality coffee gourmet which is produced mainly in Latin America. One more time, in the periods with lower production capacity in Brazil, its rivals will have to confront with the problem of quality, attributed to variations in age structure and increases in the incomes of some social categories.PRODUCTION OSCILLATIONS AND COFFEE PRICEFluctuating prices are not perceived anymore as a difficulty they are considered to be a tool of the imbalanced markets with which producers have to deal. They result for the common delay between changes in price and production, because supply cannot immediately react to an increase in prices. To put it simply the coffee market follows a cyclical trajectory, which cannot be synchronized with the oscillations in production. When the prices are high, the propensity is to increase the production capacity, fact that will further lead to oversupply. In order to adapt to market conditions, the prices will be balanced toward lower ones, the production will drop, and the consumers will face the under-supply situation. Farmers will choose make significant investments during low prices period, instead of switching towards new crops and when the prices will be high again, they will have to expect 4-5 years, duration necessary for a plantation to reach complete capacity. COFFEE PRODUCTION, CHILD LABOR AND SCHOOL ENROLMENT A CYCLICAL PATH Coffee is a labor intensive crop and this is why it is regarded as a valuable generator of jobs. In Brazil it received the label of estate crop due to the huge number of people working in coffee cultivation and this is why it has strong implications for living standards and education enrolments. As mentioned before, the path of production is not an established one, being strongly dependent on climate changes and prices oscillations. This cyclical path has additional implications, influencing the decisions of farmers and workers when striving to pick the daily quota. They choose to rely on their families labor and bring their children in the coffee fields to help them reach the daily target. The situation is even more alarming, because they arent actually employed and hence they have to support the consequences of the deprivation of labor protection measures. Paying a living wage meant to assure the purchase of the typical consumer basket food necessities, health insurances and education services should be enough to prevent child labor, but the households decision regarding the enrolment of their child into workforce is mostly influenced by the economic environment. Empirical evidence reveals how in Brazils coffee producing areas parents decide to take advantage of better economic conditions by supplementing the labor force with the help of their own children. To be more precisely I will evaluate the data provided in Table 4, separately for boys and girls for a more accurate validation of the cyclical path formed between the production and the school enrolment. When the value of production increases by 10%, the employment rate of middle income boys and also girls increases by 4%, proving that girls respond similarly to boys when production capacity changes. Birth order, race and location represent also important driving forces for the decision taken by households, in the sense that younger boys and girls living in rural areas are more likely to work than those white children, with younger siblings, living in urban areas. In those regions in Brazil where coffee production accounts for 5% of the GDP, the same increase of 10% reduces the middle-income boys schooling rate by 4% and 3%, acknowledging the increasing labor demand when improvement in the production chain are made.Future inferences shouldnt be overlooked because when a child displaces school, his future income would be later on affected and reduced, this situation being regarded by Diana I. Kruger as a poverty trap farmers in Brazil involve their children in the workforce, they impede them to benefit from education opportunities and the likelihood of obtaining a high-wage job in the future is notably diminished.. CONCLUSIONSThe statistical analysis and the information exposed previously confirm the validity of the impacts that oscillations in coffee production in Brazil would have on the quantity desired by top importers, on the quality they require and, very important, on the labor force and school enrolments among children. Since Brazil is the major exporter at the global level of high quality coffee Arabica, the impact on the trade balance has to be taken into consideration, especially by large exporters who encounter challenges in providing this commodity at expected standards. Coffee cycle is characterized by long term perspective, affecting the decisions taken by suppliers, when they choose to rely also on child labor, worsening the education outcomes (Duryea and Arends-Kuenning,2003). No one can question the conveniences of production positive shocks, but the matter of children not being subject to appropriate labor conditions should raise a big question mark, because countries cannot be defined as developed ones since they lack the means to fight poverty and economic instability.

REFERENCES

Global coffee industry, Duke University, Markets and Management Studies, 2007

Kruger, D. (2007). Coffee production effects on child labor and schooling in rural Brazil, Journal of Development Economics, pp. 448-463

Lovasy, G. (1962). The international coffee market: a Note, Staff Papers International Monetary Fund, 9(2), pp. 226-242

Opportunities and challenges for the world coffee sector, Multi-Stakeholder Consultation on Coffee of the Secretary-General of UNCTAD, 2009

Recent trends on the world coffee market, United Nations Conference on Trade and Development, 1995

APPENDIX

GRAPH 1 Coffee production 1990 - 1991

International Coffee Organization Osorio, N. (2009). Coffee market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting on Coffee

GRAPH 2 - Coffee production 2008 - 2009

International Coffee OrganizationOsorio, N. (2009). Coffee market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting on Coffee

TABLE 1 - Top Coffee Exporting Countries in the World(000) bags

CountryCrop year2009201020112012

BrazilApr Mar39 47048 09543 48450 826

VietnamOct Sep17 82519 46722 28922 000

IndonesiaApr Mar11 3809 1297 28712 730

ColombiaOct Sep8 0988 5237 65310 000

International Coffee Organizationhttp://www.ico.org/prices/po.htm

TABLE 2 - Top Coffee Importing Countries in the World 2010 having Brazil as main supplier

CountryImports in US $

United States of America4 121 228

Germany3 344 098

Italy1 382 895

France1 381 309

Japan1 272 614

Source: FAO Statistical Yearbook 2010

GRAPH 3 - USA imports of coffee by origin 2000-2007

Osorio, N. (2009). Coffee market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting on Coffee

GRAPH 4 - GERMANY imports of coffee by origin 2000-2007

Osorio, N. (2009). Coffee market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting on Coffee

GRAPH 5 - ITALY imports of coffee by origin 2000-2007

Osorio, N. (2009). Coffee market outlook, UNCTAD Secretary-generals Multi-Stakeholder Meeting on Coffee

GRAPH 6 Production in Brazil 1989 - 2005

Kruger, D. (2007). Coffee production effects on child labor and schooling in rural Brazil, Journal of Development Economics, pp. 448-463

TABLE 3 Coffee frost and drought history

DateSeverity (Damage)Coffee Frost or Drought

1902 (Late July/early August)DevastatingF*

1918 (June 24-26)SevereF*

1942 (Late June/early July)SevereF*

1943ModerateF*

1953 (July 4-5)SevereF*

1955 (July 30-August 1)Severeslight F

1957SevereF*

1962 (July 25-26)MinorF*

1963 (August 5-6)ModerateF and D

1965MinorF*

1966 (August 6)Severeslight F

1967 (June 8)MinorF*

1969 (July 9-10)ModerateF*

1972 (July 8-9)ModerateF*

1975 (July 17-19)Very SevereF*

1978 (August 13-16)ModerateF*

1979 (June 1)ModerateF*

1981 (July 20-22)SevereF*

1984 (August 25)MinorF*

1985 (August-November)MinorD

1988MinorF*

1994 (June 25-26 and July 9-10)Severe/Very SevereF and D

1999 (August to November)Severe (40% crop lost)D

2000 (July 17)Moderate (est)F*

International Coffee Organizationhttp://www.coffeeresearch.org/market/frosthistory.htm

GRAPH 7 - Brazil: coffee production (tons) and area planted, 19902003.

Kruger, D. (2007). Coffee production effects on child labor and schooling in rural Brazil, Journal of Development Economics, pp. 448-463

TABLE 4 Effect of value of county coffee production on employment and schooling

* Significant at 10%.** Significant at 1%.*** Significant at 5%.

Kruger, D. (2007). Coffee production effects on child labor and schooling in rural Brazil, Journal of Development Economics, pp. 448-463