Implementation of Social Theory in Colombian Coffee Market

Introduction

The global coffee market today is indeed a complex and volatile system. For the most part, the coffee economy is influenced by a capitalistic structure. The coffee production is a precarious business, success in the industry depends on whether the actors involved can overcome some challenges. Key challenges in the global coffee market are climate change, economic sustainability and rural development. (CGTN America, 12 July 2017, #00:10). So, the unstable global coffee market is dependent on these challenging variables. When one variable changes, the spin-off effects can be detrimental for the farmers, while the living standards of the buyers is less vulnerable to changes. Coffee production is integrated in society within an uneven global system. Rural farming is becoming less viable since coffee has transformed into a tenuous component of the global economy. Since 1990, global production and consumption of coffee has increased with more than fifty percent. (McFalls, 2017: 1). Moreover, Colombia is the world´s third largest coffee producer in the world (after Vietnam and Brazil), and the world´s second largest Arabica producer. (SCP, 2014: 2). In the essence of a global market, coffee production´s importance has decreased over the past decades. Yet, exportation of coffee from Colombia is essential for the agricultural society. It engages over thirty percent of the rural employment and generate income for more than twenty percent of Colombia´s rural population. (SCP, 2014: 2).

The activities in the contemporary global coffee economy raises a debate of reducing poverty for the coffee farmers versus creating a sustainable environment for all the actors involved. Unfortunately, the farmers that harvest the coffee beans are widely disconnected from the regulation of global coffee prices. (McFalls, 2017: 1). As a consequence, there is a problem of distributive injustice of resources in the coffee market. This is not sustainable, since distribution of income is key to obtain social gain. And it is the poor rural farmers who suffer the most.

Problem Formulation and Research Question

The purpose of this essay is to assess and analyze the key challenges actors in the Colombian coffee market face. In regard to this, the research question follows: Can implementation of Economic Sociology and Social Theory contribute to create a sustainable coffee market in this global, technological environment that works for all actors involved? As Colombia has undergone a transition from a semi-integrated global economy to a much more integrated global economy, new challenges emerge at the marketplace. More specifically, by applying different concepts and theories from Economic Sociology and Fundamentals of Social Theory these problems will be analyzed from different angles.

Delimitations

The essay will mainly include concepts and theories from Polanyi, Marx and Schumpeter. This delimitation has been drawn due to my attempt to create a more in-depth analysis of the theories chosen. Indeed, I am aware of that this has led to an exclusion of many other theories, but I chose the theories I thought were most suitable to this case. Furthermore, this essay will focus on the position of the Colombian coffee trade in the global market by assessing the case and applying theories and concepts within the framework of Economic Sociology and Social Theory. Finally, Granovetter´s theories are used to be compared with my main theories. But I will not focus on Granovetter´s theories, since they make no claim to answer large-scale questions about the nature of contemporary society nor the sources of economic change, hence his theories are limited to microeconomics. 2.0 Analytical Strategy By using the materials provided by the case and applying my knowledge from Fundamentals of Social Theory and Introduction to Economic Sociology, I have tried to find correlations between the courses and used them to critically analyze the Colombian coffee market from a global perspective. Furthermore, I have applied these theories on the case to assess their contribution and relevance to the Colombian coffee market. Moreover, doing an analytical reflection might contribute to the ongoing discussion on the best solutions possible for all actors involved.

Choice of Theories and Concepts

Three fundamental theories by Polanyi, Schumpeter and Marx are included in the essay. These are Polanyi´s theory of embeddedness, Schumpeter´s theory of economic change and Marx´s theory of capital. In addition, concepts linked to these theories are used. As for the theory of embeddedness; Real and fictitious commodities, double movement, gold standard and self-regulated markets. Also, for the theory of capital; modes of production, commodities, theory of value, exchange value, use value and surplus value, profit, wage labor and alienation. In addition, for the theory of economic change; creative destruction, adaptive and creative response, invention, innovation, inventor and entrepreneur.

Theories and Concepts Marx

The nucleus of Marx´s theories is his theory of capital. According to this theory, capitalism is a social formation and a historical phenomenon. Thus, it is ephemeral; it has a beginning, a progress and an end. (Månson, 2000: 24). Capitalistic structure is based upon the urgent strive for profit and growth (Månson, 2000:26). Moreover, Marx´s theory explores the distinct modes of production during the development of industrial capitalism (Månson, 2000: 19). Under this mode of production, the workers endure grim exploitation, subjectively objectified as commodities, who sell their labor in order to survive. (Marx, 1956: 142). The intersection of privately-owed capital and the worker is the prerequisite for the capitalist mode of production to emerge. (Månson, 2000: 25). Dissolved in the capitalistic system is the strive for increase in the value of what is produced. (Månson, 2000:25). In Marx´s labor theory of value, there is a distinction between use value and the exchange value of a commodity. The exchange value is linked to the wages the worker receives when they sell their labor to the capitalist. The use value is the value that is created during production in a certain amount of time. (Månson, 2000: 26).

Moreover, the difference between use value and exchange value equals the surplus value. This surplus value is accumulated by the capitalist and can only be possible if the labor power is of higher value than the value needed for the production. (Månson, 2000: 26). The spin-off effect of the labor and the workers being treated as commodities is that the wage laborer becomes alienated of his on process of production, thus the labor is not owed by the laborer, but it’s the property of the capitalist. (Månson, 2000: 20). Another key aspect to Marx’s work was conflict. When societies challenge old traditions, conflict arises between the different classes of society. The ruling class has always controlled major aspects of society, such as the way production takes place, institutional rules and norms and the relationships in society. The legal, political and ideological structures of society retain the exploiter´s power. Thus, the capitalist mode of production makes workers become dependent on the capitalists who own the means of production (Månson, 2000: 23). Polanyi Karl Polanyi´s theories hold a compelling, polemical and alternative understanding of the economy today. In his book The Great Transformation (2001, 1944) Polanyi´s theory of the nation state and the market emphasizes that they are not separate entities. The fundamental explanation that contrast neoliberal view of a self-regulated market developed by Polanyi is the concept of embeddedness. This theory suggests that the economy is embedded in society and thus must be subordinated to politics, religion and social relations (Polanyi, 1994, 2001, p. xxiv). In addition, the theory declares that the market economy must have the government acting as a type of economic regulator. Neoliberal view of a self-adjusted market is a utopia that cannot exist (Polanyi, 1944, 2001: xxiv). Polanyi states that “Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness” (1994: xxv).

Polanyi´s theory of embeddedness argues that a self-adjusting market presupposes that the natural environment and human beings can be seen as pure commodities. Moreover, the theory emphasizes that land, labor and money are fictitious commodities since they are not made to be sold on a market and thus cannot be treated as real commodities. Fictitious commodities are a part of real market societies and the embedded economy needs aid from the state. When the negative effects of the free-market, disembedded economic structure became clear, countermeasures were set in to protect society. This type of societal immune system embodies Polanyi´s theory of the double movement. The aforementioned theory is the idea of the neoliberal market on one side and state socialism (laissez-fare) on the other (Polanyi, 1944, 2001: xxviii). This double movement is described as an endogenous response to the impossible vision of a selfregulating market system. Moreover, the aftermath of the double movement was a further unbalanced society and the development of fascism. (Smelser, Swedberg, 2005: 13). Coherent with neoliberal disembeddedness and with free-market ideals in mind, the market liberals invented the gold standard as a means to open up an international market with unlimited transactions. (Polanyi, 1944, 2001: xxx). The theory expresses extreme skepticism about the gold standard. The implementation of a world market per the gold standard rules lead instead to the renaissance of protectionism and roused national and imperial boundaries. (Polanyi, 1944, 2001: xxxii). Schumpeter Emphasized by Schumpeter´s doctrine, “capitalist DNA” code for economic change. Capitalistic structure is organic and for this reason can never be hold static. The natural pulse that keep the capitalistic body in motion is the creation of new markets (global and national), new technology, new production methods, in essence, novelty. This fundamental pulse has also been highlighted by Karl Marx theory of capital. This endogenous force to renovate old structures and open up new ones is the process of creative destruction, according to Schumpeter´s dogma. (Schumpeter, 1994: 82).

Creative destruction, embodied in different forms, impose a constant threat to already existing firms. For those companies trying to compete with novelty by continuing with old practices, they will be swallowed by this mutation in the economic structure. Furthermore, the theory implements two different responses to economic change. Adaptive response i.e. the use and development of existing practices. Also, creative response i.e. the implementation of new practices that has not been done before. (Schumpeter, 1947: 150). Further, the fundamental difference between innovation and invention is that inventions introduces a product or process for the first time, whereas innovations further improve something that has already been invented. The inventor comes up with an invention, the entrepreneur recognizes the invention and implement that invention in the market. (Schumpeter, 1947: 152).

Analysis and Discussion

Reconstruction of the Problem

The costs of coffee production have been increasing over the past decade and efforts has been made to increase farmer profitability. (SCP, 2014: 2). The critical state of the market has an impact on all actors. Diseases, climate change and price fluctuations are imposing a threat to production. Producers have little power over their situation and the future is hard to predict. (Ospina, 2017: 6). Large buyers, such as Nespresso (McFalls, 2017: 4) and Starbucks (QSR, 2017: 9) has initiated procurements programs to address these problems.

Analyzing the Problem

When assessing the challenges farmers face, no single global algorithm can be undertaken to amend the coffee market conditions. The contemporary coffee market is at a pin point, resulting in instability and uncertainty. As stated in Polanyi´s theory of embeddedness, neoliberals endeavor to reduce governmental interference in market societies is an idealistic view, such pretentious market conditions cannot prevail (Polanyi, 1944, 2001: xxxiii). In 2013, the Colombian government subsidized an amount exceeding US six hundred million dollars to reinforce farmer incomes. (SCP, 14 July 2014: 2). Moreover, Polanyi points out that market regulatory decisions depend upon political decisions, reducing decision making to simply a technical or administrative function is too simplistic. (Block, Stiglitz, 2001: xxvi). From the perspective of Polanyi´s embeddedness, government subsidies are just a momentary solution; the farmers need greater state intervention. The coffee market requires a comprehensive political decision making throughout the whole process, the comfort of government subsidies is ephemeral, not sustainable. (Block, Stilgitz, 2001: xxvii). To ensure the coffee sector´s long-term competitiveness, actors would need to implement more holistic co-investment programs (SCP, 14 July 2014: 3). When state policies put reliance on free-market processes, the workers and farmers are compelled to bear the higher costs. (Block, Stilgitz, 2001: xxvii). The struggling situation farmer’s face as a result of heavy rains, plant diseases, a plummet of global coffee prices and an overvalued national currency has led farmers to demand more governmental aid. In addition, even with the subsidies farmers need the government to set a price-floor for the coffee. This call for help has been dismissed by the government. (Otis, GlobalPost, 26 Feb, 2013: 5). As mentioned earlier in the theory section, Polanyi´s theory of embeddedness stresses that labor is a fictitious commodity. The logic underlying this argument rests on the economics’ assumption that fictitious commodities can be treated as real commodities. However, this assumption will have destructive consequences, when operating with fictitious commodities, the government´s role is utterly important. (Polanyi, 2001: xxvi). This is the minimum requirement for governmental aid. Yet, the farmers want the World Bank to increase the global coffee price and coffee is according to Polanyi´s theory a real commodity. This exemplifies that the utopian wish for self-adjusting marked is indeed an impossible project. (Polanyi, 2001: xxvi). According to current use of embeddedness, an economic action is in principle always embedded in society. On a similar note, Polanyi´s theory of embeddedness acknowledges that economic actions become destructive when they are disembedded, or not governed by social or noneconomic authorities. (Smelser, Swedberg, 2005: 13). Granovetter´s theory of embeddedness diverges from Polanyi´s substantivist school. His theory provides a new paradigm, it emphasizes the extent of which economic action is embedded in social relations.

Economic behavior and institutions is the epiphenomenon of social relations, thus economic activity is embedded in people´s network and social relations. (Granovetter, 2002: 69). The perspective of Granovetter´s theory of embeddedness stresses that Polanyi´s theory provide an over socialized approach. Moreover, his argument of embeddedness crystallizes that social relations and networks generates trust and discouraging malfeasance (Granovetter, 2002: 76). Social networks and trust make it possible for small firms to interact with one another and resolve problems that would otherwise occur. Notwithstanding, the theory points out that it is important to keep in mind that when one trust other people one is much more vulnerable than if one didn’t. In Colombia, cooperatives are prevalent, accounting for approximately thirty five percent of coffee sales. (SCP, July 2014: 5) Within these cooperatives, every farmer relies on intrinsic trust, farmers know that they are being treated and paid fairly (The Co-op, 12 December 2017 #5:28). From the aforementioned theory of embeddedness, intrinsic trust composes that it is easier to dissect and solve a problem within the cooperatives. When trust is absent, the cooperatives are more exposed and the risk of malfeasance is prevalent. Nonetheless, Colombia´s president Juan Manuel Santos stresses the need to reduce the gap between how much a cup of coffee is sold for and how much goes to the coffee producers, hence, the surplus value of coffee is very high. He states that even a modest increase in how much the laborers are paid would have an enormous impact on the farmers´ life. (CGTN America, 12 December 2017, #1:00-1:18). The Green Coffee Sustainability Operations Manager at Nestlé has acknowledged some essential factors that has contributed to the positive development of the livelihood of the farmers. One of the key success factors is mutual trust and loyalty, as Granovetter´s theories emphasizes. For Nespresso, in order to abolish skepticism among farmers, the need for transparency throughout the whole production process is fundamental. The only means of avoiding the exploitation of workers is trough transparency. This means that the farmer has more access to information, resulting in a feeling of empowerment. The process of permeable reporting of margins and prices has strengthened farmer knowledge of their worth, which gives the farmers an honest chance to know their worth from a global perspective.

From Marx` perspective of the capitalistic aim to increase surplus value, it is harder to justify and hide when buying commodities low and selling them high, since the increase in surplus value can be cataloged. As Polanyi´s theory of the economics’ idea of the self-regulated market emphasizes that such phenomenon is not natural, Marx` theory of alienation criticize economics’ view that private property is something natural, instead it should be viewed as a historical epiphenomenon to the development of Capitalist´s constant strive for profit and growth (Månson, 2000: 21). Furthermore, Polanyi´s theory that labor is a fictitious commodity and cannot be treated as a real commodity is linked to Marx theory of alienation. It also results in that both labor and the worker becomes a commodity. (Månson, 2000: 21). The laborer becomes a slave to his own products. From the perspective of Marx´ theory of alienation, the farmer (worker) is separated from the coffee beans (product) and does not own its products, hence the farmers become alienated from his product. The product and the workers are forced to become separate identities. However, it is important to emphasize that this theory only claims to explain alienation in an industrialized market structure and therefore is not meant to be implemented on small-scale farmers, since they own their farms and their land. Instead the theory says something about the circumstances in big farms, where the farmers are employed. These workers are trapped in the capitalistic system that permeate the global coffee industry, which forces them to be alienated from their own production; the coffee beans. (Månson, 2000: 21). Polanyi´s theory of the golden standard argues that individual countries are not free to choose their own market structure, instead, the market structure is dependent and therefore submissive to the global rules that govern the global economy. (Polanyi, 2001: xxix). The rules that embodied the golden standard inhibited individual countries to catalyze their own national economic structure. (Polanyi, 2001: xxx). By trying to address an indirect correlation to Polanyi´s theory of the gold standard and the constrains it impedes on actors within countries, one could argue that there is a further consequence, even tough subtle, that these constrains within countries also set the rules for the people living within these countries. Even if the farmers own their labor, the country and the farmers are poor, thus they have little choice but to depend and follow the capitalistic structure of the coffee market.

Alternatively, Marx theory of labor correlates to Polanyi´s, it brings up that the laborer is free to choose what he wants to work with. However, he is not entirely free since he is forced to work to make a living. As a consequence, it is impossible to live peripheral of the capitalistic system. The laborers have to give way for the sovereignty of capitalism. Thus, there is little to do but to engage in coffee farming in order to survive. In their first step to support and facilitate the coffee farmer’s transition to a more sustainable production process, Nespresso, owned by Nestlé, has introduced its AAA Sustainability Program. When coinciding with Federación Nacional de Cafeteros (FNC), they are aiming to represent Colombian farmers and make a positive impact on their communities and livelihoods. But even if a private sector aims to induce a long-term sustainability program, they are still a company that wants to make profits by having the reputation of providing quality coffee in a sustainable manner, as Marx´ theory of capital would emphasize.

Undoubtedly, this creates a conflict between a capitalistic structure, where the forever unsaturated strive for surplus value, meets workers feeling of empowerment and alienation and their wage labor treated as commodities. According to Marx´s theory of capital, private companies cannot make profit without the exploitation of workers, as the wage laborer´s work is in the hand of the capitalist. This impose the question that a capitalistic structure trying to decrease the difference between use value and exchange value is contradicting its own mode of production. Moreover, the capital itself creates a limitation; the unlimited expansion of production is made for the accumulation of capital. Thus, the expansion of production indirectly neglects the conditions of human life and the society of workers. (Marx, 1956: 153). Further, Starbucks invests in agronomy, technology and knowledge to support the next generation of coffee farmers. They will make some strategic investments in order to provide a sustainable coffee product. In their public-private partnership with the United States Agency for International Development (USAID), they aim to help young coffee farmers in one of Colombia´s most sensitive coffee growing communities.

In addition, in conjunction with the Inter-American Developmental Bank (IDB), they make a contribution to aid a women-led coffee cooperative. Implementation of these partnerships signifies Starbuck´s effort, together with the Colombian government and the FNC, to improve the life of millions of farmers and smallholder societies in Colombia. They all share a common goal; to bring economic stability and social empowerment for Colombian farmer communities. Nor is this all. Their investments dig down into farmer-level activities and ensures that the coffee communities are provided with the right tools, technology and knowledge in order to prosper in a sustainable manner. Also, Starbucks, having an authentic capitalist spirit, plans to further strengthen their expansion strategy by opening 50 new stores in the Colombian coffee market during the next five years. Their novel store in Colombia is also the first one in the world to serve 100% locally produced coffee. As Colombia´s farmers have been commanding a greater need for governmental aid, due to a plummet in global coffee prizes in the late 1990s, Starbuck´s says their investments and partnerships will help the farmers in their struggles. As a response, Juan Valdez, the Colombian Coffee Growers Federation coffee shop, has undergone a strategic transition to further expand their stores and reach a “Starbucksian” size level. They aim to capitalize on their authentic and traditional Colombian experience that Starbucks cannot provide. To stay competitive, Starbucks have implemented a strategy for novelty, making it possible for consumers to try different products from time to time.

Conclusion

The world, led in most part by the forces of capitalism, is at an inflection point. The speed and breath of economic change is unprecedented and unpredictable. New technological disruption, is opening up even more opportunities to exploit and explore the global coffee market. Arguably, the technological advancements can also be used by governments and NGO`s to better address the problems that the coffee market is facing. As acknowledged in Schumpeter´s theory of economic change, the creation of new markets, technologies and production processes is what constitutes capitalism. (Schumpeter, 1994: 82). Thus, this process of creative destruction is inevitable in a capitalistic society. In Colombia, governments and NGO`s invests in various programs in order to access and adapt to economic change. This includes investments in technology, production processes and engaging in hands-on jobs at farmer level. The ruling capitalistic class controls the structure of the coffee market, and the farmers are in the hands of those who rule. (Månson, 2000: 23). Even though the capitalists try to apply solutions to improve the livelihood for the farmers, they are the wherefore of farmer exploitation and alienation.

The capitalistic structure and neo-liberal ideologies are therefore contradictive and the consequential result is the unjust distribution of commodities. Again, in contemporary society, it is impossible to live independently from capitalism. The dependency is destructive and as long as the farmers depend on the capitalistic system the consequence is a non-ephemeral exploitation of the farmers. Finally, as mentioned before, in order to truly improve the livelihood for the farmers, state intervention is important. They need to help financing the production process, but also dive down to the farmer-levels and add social relations, traditions, networks, political, ideological and global factors in their economic structure. Hitherto, governments have not engaged to the extent that is needed, now they really have to take action. Also, they need to be willing to make compromises with the farmers and deviate from their current structure. In conclusion, it is evident that implementation of sociological theories in the contemporary coffee market allows for reliable insights on how to approach coffee market challenges. The findings and conclusions that are drawn from this essay might not present a holistic picture on how to dissect the various problems. However, as mentioned in the problem formulation section, implementation of sociological theories might result in a discussion that generates important findings.