Diespé Nortil lives in one of the most beautiful places on earth. His home stands on a flat, grassy plateau above a wide, fast-flowing river, its clear water sparkling in the hot sun as it rushes over glistening stones. Above it tower lushly forested green mountains, their peaks disappearing into rain cloud. Then to one side, the mountains part to reveal the Caribbean Sea - calm blue water under clear blue sky. If I'd had any breath left after hiking for an hour in the midday heat, fording the river and panting up the hill to Diespé's home, the view would have taken it away. I wonder if you get used to such beauty when you wake to it every day, and ask if he still sees it. He laughs and tells the translator, 'Of course!'

But living in rural Haiti, Diespé doesn't have a great deal of time for contemplation. Times are tough and the work is constant. A strong, wiry man who looks younger than his 49 years, he has eight children aged between seven and 26, three grandchildren and a fourth due any day. Intimidated by these odd visitors speaking an alien language, one grandchild hides shyly behind her grandmother, a softly spoken woman in a faded blue dress. Another toddler looks at us curiously, his nakedness making it hard not to notice his swollen, malnourished belly. Ten of them live in a small wooden house no bigger than my dad's garden shed, and tonight they'll all share a supper of two yams, boiled in water with a little salt. Madame Nortil shows me the kitchen area where she'll cook it - an open fire outside the hut, protected by a woven twig fence.

Diespé has a small strip of land down by the river where his family grew food until a flood destroyed it all a few months ago. He also has two small plots higher up where he grows coffee, cocoa, mangoes and plantains. One is quite close, he says, but when we ask to see it he looks doubtfully at our sweaty, red faces and points up the mountain, saying it's a tough journey. But his other plot is even harder to access, at least an hour's trek over the other side of the peak. He goes up regularly to tend his crops, and eventually picks the ripe, red coffee cherries and carries them down in a basket on his back. It often takes several journeys to bring the day's harvest home, and then the family still has to carry it back along the river for processing. Cherries on the same branch will ripen at different times, so this goes on for three months, from November to January.

Under the red fleshy pulp, protected by a sticky mucilage and then by a tough layer called the parchment are two beans, their flat sides pressed tightly together. In the old days, they simply laid the coffee on the ground to dry out, but the beans are vulnerable to insects and their flavour can easily be tainted by the soil. Coffee that has been water-processed tends to have a sweeter, brighter flavour and fetches a higher price, so the local co-op has established a processing centre where the coffee is fermented slightly in water tanks, washed thoroughly in clean water, put through a machine to remove the parchment then laid out on vast concrete drying patios. Care and precision is needed at every stage to keep the coffee quality high.

It is February when we meet, and at the co-op the women and children are carefully hand-sorting the smooth, dry olive-green beans, removing broken ones, examining each for insect holes or other damage, and putting the best into sacks for export. A row of new young coffee seedlings stand in pots near Diespè's home, recognisable by their glossy, dark leaves. The family all help to carry them up for planting, walking up the mountain in a line. Even the very youngest carries a pot on his head. Once they've been dug in, the trees will need to be tended for at least five years before they bear fruit. 'I tell you,' Diespé laughs, 'we work hard for the coffee here.'

The Nortils grow just about enough to feed themselves, but coffee and, to a lesser degree, cocoa provide the cash to buy things they can't grow or make: rice, clothes, oil for lamps, education for the children, healthcare. Coffee is the second most traded commodity after oil, and for an estimated 25 million poor farmers worldwide it provides a vital source of cash income. Or at least, it did. In the last 13 years the price of green coffee on the world market has plummeted. After peaking briefly at $3.15 a pound in May 1997, the price hovered around $1.20 until July 1989, when it went into freefall. It now stands at around 45 cents. (This is an average figure: inferior robusta beans sell for 28c; the high quality arabica grown at altitude in central America currently fetches 63c. The cost of producing this coffee is usually estimated at around 80c.) Often selling their unprocessed cherries to middlemen who in turn sell to exporters, small growers get far less than these market rates.

Diespé is more fortunate than many. Even the most basic government schools cost around £12 a term plus books and uniform, but he is currently managing to educate two of his children because his co-op sells some of its coffee at a premium on the fair trade market. Uniting the area's small farmers into this co-op was no easy task, and at times their efforts to organise led to brutal repression. He reels off a list of friends who died along the way, and later I'm told that over 100 men 'disappeared' overnight during the military coup of 1991.

'A lot of the guys have died, but we're still fighting to change our lives,' says Diespé. 'Before, we had to sell our coffee to the middlemen who would give us whatever price they wanted. That's why we came together and made ourselves into a co-op. And until we get what we need, we're not going to stop fighting.'

If you live in one of Britain's bigger towns or cities, you could be forgiven for thinking that we were living through a coffee boom. Clusters of coffee shops are colonising every high street, fighting for the right to offer our caffeine jolt. Costa Coffee now has more than 300 shops in the UK, with a target of 500 by 2004/5. Starbucks also has 300, and is continuing to expand aggressively.

Caffé Nero has 107 shops to date, aiming to reach 300 within the next four years. Then there's Coffee Republic, the coffee counters in Pret è Manger and countless independents. Bookshops come with coffee shops attached, espresso bars are commonplace in train and bus stations, in office and hospital foyers. Meanwhile ad agencies employ all their ingenuity to convince us that instant is indistinguishable from freshly ground coffee, a pretence that is all the more necessary now that so many of us know our lattes from our cappuccinos.

But the boom is largely illusory. The drinks being sold in the high street chains contain more milk than coffee, and consumption in the UK has remained at roughly 2.4 kilos per capita since 1997. We may well be starting to develop a taste for better coffee, but only 30 per cent of the beans we import are quality arabica, the rest being cheap, inferior robusta. And 85 per cent of the coffee we drink is still instant.

We're not drinking more, but the coffee shops and big roasters are certainly making more. The price of green coffee may have dropped dramatically, but on supermarket shelves the price of a jar of instant has barely fallen (down just 4.9 per cent since 1997, according to the Office of National Statistics). In a passionate speech at a conference in London this May, Colombian treasury minister Juan Manuel Santos offered some striking figures.

'In 1997, the final consumer spent $30 billion on coffee and producing countries received $12 billion or 40 per cent. At present, consumers are spending $66 billion a year - or more than twice the 1997 figure - while producers are receiving $5.5 billion or nine per cent. The value of sales has doubled, while producer incomes have fallen to less than a quarter. The leading multinational marketing firms are holding on to their enormous profits at the expense both of growers in the developing coffee-producing countries and consumers in developed countries.'

After a series of mergers and acquisitions last decade, the world coffee market is dominated by just four companies. Largest is the Nestlé corporation, makers of Nescafé, commanding over half the world's instant coffee market. The company says its profits (from coffee alone, an estimated $1bn) have increased 'thanks to favourable commodity prices'. Owned by tobacco giant Philip Morris, Kraft accounts for 14 per cent of the world's coffee sales through brands such as Maxwell House, Kenco, Kaffee HAG and Jacobs. Sara Lee, owner of Douwe Egberts and the US brand Superior, accounts for 11 per cent of sales, while Procter & Gamble takes eight per cent of the market, selling mainly in North America.

Santos claims this has given them enormous power over growers. 'I can unhesitatingly affirm that for coffee producers so-called globalisation has been a failure,' he said, adding that the free market 'has solely favoured the interests of big business in the developed world.'

Wealthier countries have always seen cheap coffee as a right. In 1948 the rising price of green coffee forced the price of a cup in American diners up from five cents to seven cents, and angry customers broke mugs and dumped cream and sugar on their tables in protest. By the end of 1949, when a drought in Brazil pushed prices up still further, a senate committee was formed to investigate. In a speech very similar to that of Juan Manuel Santos more than five decades later, Andres Uribe of Columbia's Federation of National Coffee Growers pointed out that while the US consumer had paid over $2billion for roasted or brewed coffee in 1949, most of that money went to US roasters, retailers and restaurants rather than the growers.

'When you are dealing with coffee, you are not dealing with a commodity, a convenience. You are dealing with the lives of millions of people. We in Latin America have a task before us which is staggering to the imagination - illiteracy to be eliminated, disease to be wiped out, good health to be restored, a sound programme of nutrition to be worked out for millions of people... If coffee cannot receive an equitable price, then you cast these millions of persons loose to drift in a perilous sea of poverty and privation, subject to every chilling wind, every subversive blast.'

Such pleas fell on deaf ears until the early Sixties, when Kennedy called for 'trade, not aid'. In 1962, against the background of the Cold War, the Cuban missile crisis and growing unrest in central America, Senator Hubert H. Humphrey told the US Congress that acting to stabilise coffee prices was 'a matter of life and death. Castroism will spread like a plague through Latin America unless something is done about the prices of raw materials produced there'.

The International Coffee Organisation (ICO) was formed under the auspices of the United Nations, and the first International Coffee Agreement was negotiated in 1962, a complicated set of quotas for more than 60 coffee-growing countries that would prevent over-production and keep prices reasonably stable. Fragile and subject to endless renegotiations, the agreement was nonetheless a success, keeping prices reasonably stable for more than 25 years.

But by 1989, the climate had changed. The Berlin Wall had come down, the Sandinistas had lost power in Nicaragua. The Red Menace had receded, Reagan and Thatcher were advocates of the free market, and the agreement had outgrown its political usefulness. The US withdrew and the agreement was suspended on 4 July, 1989. A translator who was in the room when an African representative realised what was happening recalls him shouting, 'Are they mad? They're abandoning us, leaving us to die.'

On 4 July the price was hovering around the $1.20 mark. By the end of the month, it was 85c per pound, by October 70c. The theory was that the market would eventually balance itself and prices would rise once more. They never have. Meanwhile production grew without restriction: with improved growing techniques and Vietnam making a substantial entry into the robusta market, world production grew by 21 per cent in the 1990s while consumption increased by only 10 per cent. Put simply, there's just too much coffee in the world.

Many are now leaving coffee to rot on the trees because it's no longer worth picking. Plantations are laying off workers and smaller growers are leaving the mountains where they've farmed for generations in search of work. According to the World Bank, around 500,000 jobs were lost in Central America and Mexico alone in 2000-2001, as a direct result of the crisis.

Pablo du Bois of the ICO paints a bleak but plausible picture of the future in central America. 'Once farmers get into debt, they have to abandon their farms and either go to the cities or try to become illegal immigrants to the US, they try to plant something else like coca [cocaine] or they join the guerrilla movements. They are losing their livelihoods, and in these areas there aren't that many legitimate alternatives.'

Ginex is 11 years old, and the man of the house since his father was battered to death during the last military coup in Haiti in 1991. When we meet, he's working on his family's small plot of land, efficiently trimming the dead leaves off the banana trees with his machete, helped by his 10-year-old sister Didline. Somehow their mother has managed to get together the money to send them to school, so they get up at 3am every weekday to help wash and dress their two younger sisters and prepare for the two-hour walk into the village. School ends at 1pm, and after the long walk home they do their homework, Didline fetches the family's water from a nearby spring in six one-gallon containers and Ginex tends their coffee, bananas and yams.

Didline doesn't own any toys, but there's a throwing game that she plays with the kneebones of goats. She likes skipping, hide and seek and a chasing game called Mama Tête Couchon where one girl has a play-whip and runs after the others singing 'mother pig-head, when you make food, you don't give it to your children'. Didline has a favourite meal, and her face lights up when I ask about it. 'Rice! Cooked with French beans.' She doesn't eat it often, she says wistfully. 'It's only when we have more money at home that we'll have something like that.'

Mescardin Cardere is working rapidly with a machete on the plot next to the children, diligently cleaning the ground, turning up the soil, piling the leaf mould up around the bases of his trees to act as natural fertiliser. It's only when he stands up, curious at the sound of our voices, that we realise he is blind. His eyes started give him problems from the age of seven, he says, but his family couldn't afford to get his cataracts treated. He gradually saw less and less, and lost his sight completely in 1986.

But he knows his patch of land so well that he can still tend it. 'You've got to work to survive,' he shrugs. 'My family help sometimes, but then you've got to give them a meal...' While he does the work in the fields, his wife gets up long before dawn to make the six-hour walk to market to sell the produce. 'If it's a good year we have enough both for the household to eat and to sell, if it's not a good year we eat most of it ourselves.'

This morning we're travelling with a UN-funded agronomist who finds evidence of the broca, an insect that bores its way into the cherry, damages the precious beans, then survives in the ripe fruit when it falls to the ground until new cherries appear. Various countries have tried different strategies to combat the current plague of these creatures in Guatemala. They have bred a fly to eat the borer insect and are now waiting anxiously to see if the fly itself causes problems. In Uganda, farmers shove a fine twig into the hole to trap the insect inside, leaving it to die - a method that requires endless fine-checking of the cherries as they grow. In Haiti and the neighbouring Dominican Republic, where the borer has ruined up to 30 per cent of this year's coffee crop, affected cherries are boiled or burned to kill the insect, and the ground under the plants has to be kept scrupulously clean to stop insects in fallen cherries attacking the next crop.

It's back-breaking work, and although the children nod when told what they have to do, you wonder when they'll find the time. Or, when they get so little for the coffee at the end of it all, the incentive.

I meet Samuel Waiale Magona back in England, where he's come to help promote Cafédirect's fair trade coffee. A coffee farmer on Mount Elgon in eastern Uganda since 1953, he has chaired his local coffee co-op for 15 years, and helped set up the Gumutindo project in 1998. A word meaning excellent quality in the local language Lugisu, Gumutindo aims to improve the quality of the local coffee in the hope of eventually making it as highly prized as the Kenyan beans grown on the other side of Mount Elgon. The project involves 314 farmers, 109 of them women. Once women weren't allowed on the co-op committees, but now only three of the seven places on Sam's steering committee are taken by men. Male farmers can no longer get away with making their wives and children haul the cherries in to sell, then sending them away while they take charge of the money. 'Women are taking over from men, I think,' Sam laughs, making it clear that this is something he welcomes.

Gumutindo's hand-picked beans are water-processed and then dried with the greatest care, and farmers undertake to keep their soil rich with organic matter, keep their plot free of weeds and build terraces to prevent soil erosion. As a result of this extra work, some areas covered by the project are now able to apply for organic certification. This also means the mangoes, bananas and vegetables grown alongside the coffee will be organic, and the co-op hopes to eventually find markets for them too. For now, though, the farmers are rewarded for their work by the premium price Cafédirect pays for the improved coffee. Which, says Sam, is a powerful incentive. 'The big coffee buyers make a lot of profit, but they never return anything to the farmer. It's like milking a cow that you don't feed. In the end, it will give you less milk, then none at all.'

He says many small farmers in Uganda have continued with coffee only because the trees were already growing in their plots, and were tended by default while they cared for the bananas and vegetables growing alongside them. The big commercial robusta plantations have largely been neglected. I ask why his farmers don't simply grow a different crop, and he gently points out that on mountainsides, there are few other options. And it is not just the farmers who depend on it: in Uganda, Burundi, Rwanda, Ethiopia and most countries in Central America, coffee is the main source of foreign currency, and without it the whole economy could crumble.

At the end of its trading year, Cafédirect also pays additional, profit-related premiums to the Gumutindo farmers. The last payment was more than expected, 400 shillings (14p). 'Wow!' Sam laughs. 'People were excited! Those who were not members are now struggling to get in.' He says the premiums have improved the standard of living for everyone in the area. They have been used to protect the water supply, and helped fund a basic secondary school. The first intake has just taken their exams, Sam says with justifiable pride, 'and some of them have done better than the local government schools'.

In the future, they hope to build a polytechnic too, but he stresses that this money isn't charity. 'Cafédirect is not giving away money. It is helping two groups - the consumer and the producer. The producer is paid a better price, the consumers get a quality product.'

Steven Macatonia is a coffee nerd, an obsessive. At one point, when his single-estate Guatemalan beans cascade out of the roaster smelling wonderful and gleaming like tiny brown jewels, he makes a confession. When he saw Annie Liebowitz's classic photograph of Whoopie Goldberg lying in a bath of milk, he thought how wonderful it would be repeat the idea with someone pale-skinned reclining in a tub of brown beans. He's vaguely sheepish about this, but as someone who finds it hard to be near a sack of coffee without plunging an arm into the cool, smooth beans, I know where he's coming from. Besides, when it comes to food and drink, we need obsessives. They're the ones who raise the standards for the rest of us.

With his partner Jeremy Torz, Steven runs Union Coffee Roasters, an independent outfit based in London's Docklands that supplies restaurants and runs a thriving mail order business in speciality, hand-roasted coffees. Steven and Jeremy fell in love with coffee while working in California. They both worked at Peet's in San Francisco, one of the stores which helped establish the speciality coffee trade in the US, and they returned home determined to set up something similar in London. Except they couldn't find the coffee, and began to realise that they'd have to roast it themselves.

It was the start of the Nineties, just as restaurants in Britain were starting to get exciting, and they began supplying some of the best: the River Cafe, the Caprice, the Ivy, Le Manoir, Harvey Nichols. When Scott and Ally Svenson approached them to supply coffee for a small coffee bar they were opening in Covent Garden in 1995, they readily agreed. 'They were into the marketing, design, but they didn't know coffee at all. They're from Seattle, they grew up with Starbucks.'

The first Seattle Coffee Company store proved such a success that they opened another, in Canary Wharf. Then one in Cambridge. Then 12 more. 'I was roasting about 14 hours a day just to try and keep up. We needed bigger premises, a bigger roaster, so we merged the two companies together. But then within less than 12 months Starbucks made approaches and the whole thing just got swallowed up. We couldn't believe it.'

They stayed on another two years as Starbucks spread across the UK, a period Steven describes as 'weird, but interesting'. He's diplomatic about his old employers, saying they've done a lot to raise awareness about coffee, letting people know what's available. But with so many staff passing through the shops, he says a consistently good cup of coffee is a hard thing to achieve. 'The big chains are all competing against each other, but I still find it's very rare that you get a great cup of coffee, well made. You're still more likely to get a perfect cup in one of the small independents. It's about a place where you feel comfortable, where you know the people, rather than a big chain where you could be anywhere in the world.'

The sheer volume of coffee required by the growing Starbucks chain meant they had to use computer-controlled roasters, and in the end Jeremy and Steven decided to go back to what they loved. 'I believe that the skill of a human being is far greater than any computer-controlled equipment,' shrugs Steven. 'That's my artisan approach, and it's not compatible with a global strategy.'

At my request he demonstrates coffee tasting or cupping, an activity that involves a great deal of deep sniffing, loud slurping and spitting (into a paper cup - 'We did have a big spittoon on wheels, but I could never get anyone to empty it'). As we roll the different coffees round our mouths, we're looking for a tingle on the tongue, the oiliness in the mouth, the body or the weight of the coffee, sweetness and the aftertaste. Steven talks about honey notes, hints of hazelnut, butterscotch, and apricots. I just nod. 'Different people taste different things,' he reassures. 'It can get too Jilly Goulden. I just want people to enjoy what they enjoy, without feeling that there's something wrong because they can't taste strawberries or whatever.'

We move from the cupping room to the roastery, a huge room with seductive sacks full of green coffee from Guatemala, Costa Rica, Brazil, Mexico, Peru, Nicaragua, Kenya, Rwanda, Indonesia, Sumatra, Yemen, Ethiopia and Papua New Guinea. There are two roasters, a huge gleaming beast and a smaller one which looks like steam engine. This is used to roast small batches for mail-order customers or individual blends like the one created by Rose Gray's son Ozzie exclusively for the River Cafe.

Gas flames at the base provide heat but are never in direct contact with the coffee, which rotates in a drum above. The whole process takes about 15 minutes: water is driven off, the beans turn pistachio green then pale yellow before going brown. There's a first and second 'crack' when the bean's cell structure changes, making it pop like corn. After the second crack the beans turn noticeably darker, and Steven checks them constantly until the first droplets of oil appear and he sends them clattering down to be cooled over a huge fan. The beans are now bigger, but weigh around 25 per cent less. The smell is wonderful.

In the next 48 hours, the newly roasted coffee will give off six times its volume in carbon dioxide, but exposure to air will begin to stale them, affecting the volatile oils which give the flavour and aroma. Which is why most quality coffee now comes in bags which are flushed with an inert gas such as nitrogen to get rid of the air before sealing, and have a one-way valve that lets the carbon dioxide out without air getting in. Once opened, however, roasted coffee needs to be stored in an air-tight container in the fridge or freezer and used fairly quickly.

To roast green beans at home, Steven suggests using a heavy, metal saucepan over a fairly high flame, moving the beans constantly with a wooden spoon until they crack like popcorn and go the desired colour. 'You don't get that fineness of temperature control which affects how the flavours develop. But you get some wonderful aromas if you're roasting at home, the smell is intoxicating. And it's good fun as well.'

He's a good source of coffee knowledge, and he's keen to share it. In Nicaragua, he and Jeremy have joined a programme to allow farmers to taste their own coffee, learn cupping skills, and compare their coffee with beans grown in other farms regions with higher standards of processing. 'It's hard teaching people who may have been farming for generations to do something new. But when they taste the difference, it gives them an idea of what they could aim towards by making changes. If you're just looking at it rather than tasting, it doesn't register.'

In Europe he says that Scandinavia is the best place to go for a consistently good cup of coffee. Both Sweden and Denmark consume over eight kilos per capita, but the Finns are the world champion coffee drinkers, getting through an extraordinary 11.26 kilos of coffee each a year - all of it arabica, only two per cent of it instant. France shares our peculiar loyalty to the inferior robusta bean, he says, and Germany has now started to favour cheaper, commodity-grade coffee that doesn't taste as good and consumption is declining as a result. The big roasters' current rush for profit is, he says, foolishly short-term. 'They're shooting themselves in the foot. If quality continues to decrease, they'll kill their own industry.'

Last February, I visited a small hamlet near Cacao in the central coffee-growing region of the Dominican Republic. Again, there were green, cloud-topped mountains, lush canopies of trees, butterflies of all colours. We sat on wooden benches in a tin-roofed, open-sided hut with a blackboard which indicated that it was also used as the local school while Rufino Herrera, head of the vast Fedacares coffee co-operative, gave an eloquent speech about the role coffee plays in protecting the rainforest, in keeping the drinking water clean, in supporting the kind of environment we Westerners want to see preserved now that we've cut all our own forests down.

Fedacares sell a small part of the coffee they grow to fair trade organisations, and with the premiums the local co-op have funded a scheme to offer women some financial independence in the form of a small patch of land on which to grow food.

Julia Carmona, a smart, feisty woman prominent in her local co-op, explained how she'd sold her produce at the market and used the profits to buy more land. In four years, her initial strip had grown into a more substantial plot. Here in the Caribbean mountains, even small sums of money can make a big difference. Traded more fairly, the coffee that provides our morning pick-me-up or fuels our gossip sessions and work breaks could also become a powerful way for the affluent world to share just a little of its wealth with the rest.

In March Starbucks chairman Howard Schultz urged coffee executives to 'share the blanket' of prosperity with growers. For some time now Costa Coffee has offered customers the option of paying 10p a cup more for Fairtrade coffee. Starbucks buys a small percentage of its beans at Fairtrade prices and is about to introduce organic coffees into its UK stores. But these are drops in the ocean compared to the turnover of the four companies who supply most of the coffee we drink.

The Swiss Coffee Federation has called for an 'ethical tax' of around 1p per pound to be invested in community programmes in coffee-growing countries. Oxfam has called for a windfall tax on the big roasters to part-fund the destruction of some of the inferior grades of surplus coffee. So far, few politicians seem keen to take up such suggestions.

Back in the Dominican Republic, I ask the farmers if they know that in the UK chains we routinely pay more than £2 for a cup of flavoured, milky coffee. There's a sharp intake of breath, a shocked silence, then peals of laughter echoing down the mountainside. Everyone finds it hard to believe. Afterwards, an older lady called Mrs Jiminez seeks me out, an anxious look on her face. 'You don't have to pay such prices,' she says. 'Round here, just go to any house and ask. We'll give you a cup of coffee for free.'

· Mail order sales from Union Coffee Roasters on www.unionroasters.com or 020 7474 8990. Oxfam supports the FEDACARES co-op in the Dominican Republic and several co-ops in Haiti. Donations are always appreciated, and details of their trade campaign on www.maketradefair.com.