| Demitasse of Interest |
2 June 2003
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Rabobank Offers Interest in Coffee
The price of coffee hasn't been this low in ages. Which is good news for the consumer but is dreadful news for coffee farmers. There are a great many kind thoughts and statements of support coming out, but a Dutch bank, Rabobank, has actually done something about it. One can get paid interest, not in Euros, but in coffee. The gimmick may not solve the problem, but it is action of the right sort. The problem is that it does not increase demand, rather it shifts the purchase from one transaction base to another.
The supply of coffee in the world is outstripping demand, making prices fall -- simple, basic economics. The solution is either to decrease supply or increase demand. Rabobank's efforts focus on demand, but the idea falls short because people will not necessarily drink more coffee but rather they will collect it from the bank rather than buy it at the supermarket.
The ugly fact remains that there are simply too many coffee farmers. Alternative crops either don't bring in the same amount of cash (although falling coffee prices may encourage diversification) or are illegal. What must happen, oddly, is an increase in manufacturing jobs and other industries other than farming. Agricultural technology has reached the point where a couple of percent of the human race can feed us all, including luxuries like coffee, tea and chocolate.
The story here is a great success, if mankind can find a way to use the labor that has been freed from farming. Education will solve the problem -- in twenty years. Until then, and only if money is spent on schools and teaching, infrastructure projects in the developing world can be used to employ the ex-farmers. Paved roads, clean water systems, and port development are just a few things that need doing (and not just in the Third World). Rabobank should get credit for trying, but the real solution is in large-scale development.