Why do coffee farmers stay poor? Breaking vicious circles with direct payments from profit sharing

During more than five decades, different initiatives have been launched to improve the livelihoods of smallholder coffee farmers. While knowledge of the constraints for raising smallholder income is widely available, limited results have been reached by structurally strengthening the competitive position of smallholders in international commodity markets. This article provides an overview of current insights on the role of smallholders in coffee production, the organization of coffee transactions, and the distribution of value-added throughout coffee supply chains. Whereas major efforts have been made to increase prices, yields and investments with strategies focusing on certification and/or living incomes, these initiatives largely failed to lift coffee farmers out of poverty. Cash transfers funded by tax revenues and profit redistribution offer direct payment opportunities for raising coffee farmer expenditures and strengthening their livelihoods. This also requires a fundamental transformation in pre-harvest and post-harvest governance arrangements that shape farmer risk behavior and trust attitudes.