118. Tariffs are the new regressive Tax : Welcome to the 1860s

My Take on Tariffs

Let's review a definition of the word "tariff" since this word has been used mostly only in "History of Economics" courses in the past century.

TARIFF: Tariffs are taxes imposed by one country on goods imported from another country. Tariffs imposed by the US are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters.

[Source: https://taxfoundation.org/taxedu/glossary/tariffs/]

Taxes can either be progressive or regressive. Progressive taxes are a heavier burden on the rich than they are on the poor, and thus help to reduce the income gap in a country. A regressive tax is a heavier burden on the poor and widens the income gap between rich and poor. Tariffs are a regressive tax. It will be harder for a person with a low income to pay the artificially increased prices that tariffs bring. 

The table below shows that while tariffs reduce income for all Americans, lower and middle-class Americans experience a larger after-tax income drop than upper-class households.

[Source: https://taxfoundation.org/taxedu/glossary/tariffs/]

Here at Artisan, when tariffs were implemented on April 5, 2025, we asked AI to help us research the history of US tariffs on imported green coffee. We learned that the last time the US charged duties on coffee was during the Civil War in the 1860s. 

Table source: Gemini AI report on the topic "History of US Tariffs on Coffee."

The absurdity of using tariffs as a tool in modern trade policy is, of course, in-line with all the other economics-of-chaos that the current administration in Washington DC has shown as it's trademark. There is no fact-based reason to use tariffs for anything and even less logic to use them on coffee, but none of that makes a difference. Tariffs are here.

Along with high prices from the C Market reaching $4.00 and above, and kind of staying there (the C is at $3.75 as of this writing), all roasters are being forced to raise prices. Retail markets are slowly adjusting. Consumers will absorb some of it, but not all of it. Some consumers will downgrade the quality of coffee they buy. Others will switch to low-cost soft drinks and other sources of caffeine.

We would urge roasters to consider a special message to consumers when they decide to raise prices because of the tariffs. In our humble opinion, raising prices because of the tariffs deserves an educational message when delivered to consumers. A message like, 

"Dear Consumer: This increase is to pay the TAX that comes with Uncle Sam's tariffs. Don't like paying more taxes? Tell Uncle Sam."

The reason tariff increases are different than C-market increases is that consumers are voters. When a price increase is because of the C market, there's nothing a consumer can do about it. When a price increase is because of taxes, there is something consumers can do about it. In fact, according to the National Coffee Data Trends report, about 66% of Americans will be paying more for their coffee this year. That's a lot of voters.

117. Highest cherry prices ever in Rwanda's 2025 season

 

In Rwanda's various coffee-growing districts, some areas have finished peak season, and the cherry "flow" into the washing stations is tapering off. In the others, they're at the peak now and in still others, usually in the North, they are still ramping up day by day. One thing seems clear across all districts - coffee productivity is up! "Last week it was 8 tonnes collected today. Yesterday we collected 11 tonnes! More than we've ever collected in one day," exclaimed one coffee washing station manager.

Farmgate cherry prices are also up. I believe this is more than a coincidence. Rwanda may finally be proving it to itself that its coffee farmers have been right all along: they've been saying they know how to grow coffee, but the cherry price was not an incentive to invest in coffee. Last year's cherry price of 480 Rwf/kg cherry was the highest the country had ever seen, and now this year is a 20% increase over that, at 600 Rwf/kg cherry.

Table 1: Government of Rwanda Farmgate Cherry Price: 2015 - 2025 

Source: Artisan records, historical currency exchange rates and 6.875 for the cherry-to-green conversion ratio.

Increasing and high cherry prices year over year are now starting to show the economic pull towards investing time and money in coffee trees. "Now we are working for our trees," is the way one Rwandan farmer puts it when he tells me about his 1000 trees that are productive today and the 6000 trees he expects to be productive next year. He planted the seedlings 2 years ago. A coffee tree takes 3 years to mature enough to produce its first crop.

When I ask Rwandan coffee stakeholders why productivity is high this year, they mention a few factors:

1. Zoning policy has been removed. From 2017 - 2023, the Rwandan government experimented with a policy called "Zoning" which limited the choices of the farmer in terms of where and to whom they could sell their cherry. There was centralist thinking at heart, supposing that cooperatives and private exporters would be more incentivized to invest fertilizer and labor for best practices in coffee, if they were "guaranteed" the farmers would return the favor and deliver their cherry from now very productive trees to "the hand that fed them." It was a hard lesson in the power of markets. It did not increase productivity. Producers were not motivated by someone telling them to whom and where they could and could not sell their crop. 

Producers are motivated now, where it is legal for buyers to come into any area at any time and offer the highest price they can to farmers with cherry. 

2. Good climate conditions. In contrast to the past year, with too much rain, and the year before that with rain at the wrong times, this year most coffee growing areas in Rwanda seem to have gotten good amounts of rainfall and sun at close to the normal times.

3. New Chemical Fertilizer Distribution System. Since about 2023, a non-profit in Rwanda called "One Acre Fund" or "Tubura" is its Kinyarwanda name, has been working closely with the Government of Rwanda to improve distribution of chemical fertilizers to coffee farmers. Tubura has worked for decades with Rwanda's smallholder farmers of maize, rice and beans, with chemical fertilizers being a key catalyst for transforming subsistence farmers into thriving families with enough income to send kids to school. In 2023, they were allowed to begin rolling out a program designed to work in a similar way with coffee farmers. The program is a combination of soil analysis, farmer education, micro-lending for fertilizers and precision distribution of fertilizers purchased by the central government. Smallholders in the cooperatives from which Artisan buys are among the beneficiaries of this One Acre Fund Program.

The above are the backdrop to what for me are the signs that Rwanda's coffee sector has turned the corner into understanding what economists have been encouraging for decades: farmers can improve their livelihoods with coffee, but there must be sufficient incentives and available inputs. Today we see the signs that it's happening:

A. Farmers are paying cash for fertilizer. In 2015 - 2016 I was in Rwanda doing research. Sometimes we would be in meetings with coffee industry stakeholders and as economists, we tried to explain that farmers are not incentivized by the low farmgate price to invest in their coffee trees. We explained that if they were, they would be willing to buy fertilizer themselves. Stakeholders laughed at the idea. Farmers had "always" waited for the government to distribute fertilizer "for free." It wasn't for free. The farmers paid for it with an export tax. But it was a hidden fee and it was not cash they voluntarily took out of their pocket. Many in those days believed coffee farmers didn't know enough about fertilizer to decide to buy it and apply it without government assistance. But this year, I've talked to a farmer who tells me for the first time, he paid his own cash to buy fertilizer for his coffee trees. He knew what the government distributed would be insufficient or too late to be useful. I suspect there are many like him.

B. Farmers raising seedlings and other farmers paying cash for them. In the past, if seedlings of coffee trees were raised at all, it was by the government institution, the Rwanda Agricultural Board, RAB. Then, in 2017 - 2019, several programs incentivized cooperatives and exporters to have coffee tree nurseries. Today, I'm hearing that individual farmers are taking it upon themselves to build, stock and care for coffee tree nurseries. They are entrepreneurs who are sure they'll be able to sell coffee seedlings to neighboring farmers who want to plant more coffee trees, since now coffee is gaining a reputation as a lucrative crop. More lucrative, even, than maize and beans.

I've heard reports that trees that typically produce only 3 kg in a season are producing 5 - 6 kg of cherry this year.

Another quote from my Rwanda farmer friend, "this year farmers are happy more than any other year. They keep working for their trees. Price keeps going high. They will be encouraged."