Consumers as Global Citizens

I watched the documentary, Life and Debt this morning. I can’t say I liked the tone used to tell this story. Clearly, the target audience was Americans, and yet the narrator intentionally insults her audience in the way the story is framed with regards to tourists. The insults distract from the point, making it hard to focus on the true message. As such, I feel my response is more confrontational and contradictory than I would have expected.

Local markets, especially for agriculture are a tough thing; even in the US, local producers face stiff (and some claim unfair) competition from imported goods. While there is no doubt that the government’s fiscal policies and interactions with other countries and world organizations are a huge factor in this, consumers have a responsibility as well (beyond just who they select as their government representatives). A century ago, Americans spent nearly half of their disposable income on food. As markets have opened up, food has become comparatively cheaper and American consumers now expect to pay far less. In fact, according to Gallup, Americans spend 25% less on food today (inflation-adjusted) than they did in 1944 (source). When this gets factored in with other changes, Americans now spend 13.3% on food (source). If consumers want to see a stronger market for domestic goods, they must choose to spend accordingly.

My wife and I intentionally pay a premium for local goods, especially meat and produce. For example, we pay ~$35 for a whole frozen chicken, several times over the price of chicken at the local supermarket. This takes more than just budgeting your finances to spend a greater % on food. It also means eating seasonally and/or canning. If you live in New England and want a strawberry in January, you can get one at the supermarket from Peru, from you freezer/can, or just go without. To put it another way, consumers must make the mental shift from thinking of food items as commodities (all onions are the same) and shift to think of a local onion as something entirely different than an imported onion.

I believe my American experiences conveyed above hold true to Life and Debt’s Jamaica. The documentary showed many Jamaicans lamenting the fact that people are consuming imported food. The Jamaicans have limited funds and when evaluating the value proposition of an onion, they are choosing the imported one as it appears to be more onion for less money. Consumers must learn to see the difference in the good itself as well as the value to the larger economy that can come of it.

However, in the global economy, not everything can be made locally in quantity. When the movie delved into the banana trade, they spoke about how it costs Jamaicans $11 to produce 40lbs of bananas while the South American countries can produce the same for $5. What to do? Why would a non-Jamaican consumer (or 3rd party buyer) pay more than twice as much for a banana? It seemed that Europe offered a good deal to the Jamaicans to purchase those bananas at such a price, but that can’t be expected to last indefinitely. In fact you could argue that the banana policy that is good for Jamaica is having a negative impact to the lives of banana plantation workers in South America.

Other markets (take the US for example) have lost the majority of entire industries to foreign competition, but the US has been more successful (not by luck, but by the policies the US itself puts into place globally) in upskilling the workforce to do replacement work. This is how we like to think of globalization rising the water for all boats. While that may be true in a nation like the US with a great deal of natural resources, influence, and existing capital, life is clearly much more difficult for countries like Jamaica who have little of those benefits.

This brings us to the organizations like the WTO and IMF, which are not much different than the predatory banking institutes we discussed in Inside Job. These groups were formed by the 1st world countries for their own benefit and that mission continues. I wouldn’t go so far as to say that these organizations set out to hurt 3rd world nations, but they do what’s in the best interest of 1st world nations, whether it hurts or helps the poor. Clearly the “free market”, left as is, will not come to the aid of the Jamaicas of the world, nor will they be able to pull themselves out of their poor economies by themselves with the global economy and policies as is. Changing this dynamic will require the nations in power to move from entirely self-motivated policies to something more magnanimous; seeing themselves as stewards of the world’s citizens, not just those of their own country; taking us back to the consumer citizen. The governments in control of the global economy (and thereby WTO, IMF, etc.) are representative of their citizens (some much more than others) and are charged with caring for the interests of their constituents. These citizens must demand, as a group, that their representatives change their mission to look after the larger good. I know this is no small feat, but I see it as the only way to bring change to the system.

How to do it? Getting the word out to the 1st world’s citizens is key. Documentaries, such as this one are a great way to do that, but Life and Debt missed this opportunity in two key ways. First, they did not connect the dots sufficiently for the audience on what they can do to bring change. Raising awareness with no funneled action isn’t beneficial. The other problem is that the film is overly confrontational with the very people it is trying to get help from. One could easily walk away from this film with the impression that Jamaica doesn’t really want American tourism business (although I’m sure they do). Hopefully, future documentaries of the same type will find a better balance of challenging the viewer to drive engagement, without alienating them all together. For a good example of this done well, see Black Gold.


More like black tin

I recently watched a documentary entitled Black Gold, about the global coffee market and its impacts, specifically, on a group of farmers in Ethiopia as part of a macroeconomics class. Here are my thoughts in response.

                I found this documentary quite interesting from a variety of aspects. To me, the theme is that economics (global or local) is about politics … and vice versa. Take Mr. Tadesse at the eight minute mark of the documentary speaking to the crowd of farmers he represents. He walks them through the economics of how the average price for a cup of coffee is $2.19 and that a kilo of coffee beans produces 80 cups of coffee, thus a kilo of coffee beans is valued at $230. Yes, these farms are only paid $0.23 per kilo, implying that there is a 1,000% profit that is being consumed by the “middle man”. This argument clearly lays out to the farmers why they need Tadesse representing them as the head of the co-op, trying to remove the middle-man and thus bring further profits to the farmer. This could easily be a speech by a politician to a corn farmer in Iowa. Of course what Tadesse is leaving out is that the value of a kilo of unroasted coffee beans on a farm in Ethiopia is very different than the value of a cup of coffee. The middle men to in fact add value and deserve some profit in the process. Someone needs to hand-pick (at $0.50 a day) out the bad ones, then transport them to a shipping port, move them across the world to another port, unload and transport to the roaster, roast the beans and repackage them, transport that to the retailers who grind them and heat and water to make coffee. Coffee that is put in a cup, in an air-conditioned building with tables, chairs, and Wi-Fi. That’s a great deal of additional value provided along the way and it is reasonable to expect those value providers to make a profit doing it. But that doesn’t rally the farmers and convince them to pay Tadesse’s salary and travel expenses.

                Please don’t get me wrong, there’s a lot to be said for the farmers in this case. They clearly are not getting their fair share of the profit chain that they create. One can easily draw parallels to what is going on domestically with fast food workers and the minimum wage. Capitalism and the principles of economics teaches us how the invisible hand of the market will find the right wage and nobody can argue that even at the wages they make now (fast food workers and/or coffee growers) people are still willing to do the work, so the wage is balanced. Hopefully though, more and more consumers will realize that we are humans with a social contract with other humans and that paying people a living wage is in everyone’s best interest. We’ve read in our textbook how as wages go up, buying power increases, driving output which, if controlled properly, can grow overall GDP. The documentary makes this point towards the end by saying that if Africa’s share of world trade increased by 1% it would generate $70 billion, which is 5x the amount of aid the continent receives in aid. A compelling case, but it gets us back to politics. Every country tends to look out for the best interests of its own economy and it may end up being financially better for a country like the US to send aid to Africa instead of allowing them better terms in the global market. This is, of course, entirely different than what is morally right for the US to do.

                It’s a complex game as coffee beans are grown by farmers in dozens of countries, all with different currencies, cost of livings, etc. Yet, they all get funneled into the same global market. For most consumers, a coffee bean is a coffee bean, regardless of its origin, hence a global price per kilo is reasonable. If these farmers from disparate countries were to unionize (for lack of a better term), they could then attempt to set a global price that would be much higher, by controlling production of coffee in each of the countries. This is clearly what the International Coffee Agreement was designed to do when it was originally signed in 1962. Of course at that time, the demand for coffee was shrinking and the post-WWII politics of capitalism vs. communism were in full swing, so an agreement was made to not only limit production of coffee but also limit demand in countries like the US, thus increasing the price. However, as with so many other things, the market changes and when demand not only rose over the next few decades, but then changed to prefer a milder bean (Arabica vs. Robusta) caused the types of beans in demand to change, which impacted coffee-growing nations differently depending on which varieties they exported. For example, Brazil, a large producer of mostly Robusta beans was not pleased with the shift to Arabica beans. This conflict causes the ICA to breakdown in 1989, leading to the average indicator price to plummet to ~$50.

                The other issue that comes into play, as we learned in class, is the exchange rate. Even when the ICA was in place, you still had the issue of exchange rates. A global price of say $200 does not necessarily translate into the same standard of living for all coffee producers in all regions of all countries, unless all those nations pegged their currency to the dollar. Perhaps Tadesse was on to something: when the documentary was made, the global price was up to ~$110. In recent years, it spiked as high as over $300, but has since fallen back to $118 as of today. What I wasn’t able to determine was as those prices tripled did that mean the price paid to the farmer triple? Not necessarily.

                I do feel better about my decision to buy “fair-trade” products whenever possible. In fact, at ~27 minutes into the documentary, we saw one of my favorite roasters in Tadesse’s cabinet, Dean’s Beans. I’ll be sure to continue to do what little I can to help improve the system for these global farmers.