The Challenges of Fair Trade

Historically, coffee cultivation had brought a positive influence in developing countries to alleviate rural poverty. Paige (1997) and Williams (1994) also claimed that coffee cultivation had enabled households to develop their land holdings in sustainable, high return activity, and gainfully employ their family labor (as cited in Barham, Gitter, Lewis & Weber, 2011, p. 116). However, the global coffee market has fallen into crisis in recent years.

A research conducted by Murray, Raynold and Taylor (2003), with a large decline in the coffee employment, many rural households have been forced to abandon traditional farming and adopt new livelihoods. Meanwhile, small scale but growing number of coffee farmers have participated in Fair Trade to try to survive such crisis. But, according to the research published recently, Fair Trade coffee may not only fail to bring the rural poor better life, it may impoverish them.

This claim is supported by unbalanced price premium, limited Fair Trade coffee market and lack of Fair Trade knowledge by households. The higher sale price in Fair Trade coffee comparing to the conventional coffee is claimed to be the most direct benefit to individual rural farmers who participate in Fair Trade. As indicated by Barham et al. (2010), Fair Trade coffee growers receive an average US $344 in net cash income per hectare compared with US $192 for conventional growers (p. 120).

Yet such premium price provided by the Fair Trade does not cover the cost to produce certified coffee for rural farmers. Weber (2011) states that if the coffee growers want to sell their products through Fair Trade, first they have to be certified (p. 109). Fair Trade Foundation requires coffee growers to pay high certification fees which the majority of Third World farmers are too poor to afford. In such cases, these growers are likely try to receive Fair Trade certification through cooperatives, but are required to share their net profit with cooperatives.

For example, from the article What Price for Good Coffee? by Fieser and Padgett (2009) , Antonio, a coffee producer in Guatemala, receives 1. 55 dollars per pound of organic coffee sold through Fair Trade, approximately 10 percent more than the conventional market price. However, Antonio only receives less than 50 cents per pound after he pays Fair Trade cooperative fees, government taxes, farming expenses, and other costs (Fieser and Padgett, 2009, p. 98).

This shows Fair Trade farmers often lose out on the premium price that can be fetched by certified coffee. Fair Trade is filled with contradictions. Even if the cooperatives and organizations are willing to lower the certification fees, the net cash income for growers participating in Fair Trade market is still not enough to cover the cost to produce certified coffee, by the fact that not all the high cost Fair Trade-organic certified coffee are sold at Fair Trade-organic certified coffee price.

While Fair Trade coffee being organic is not a requisite for selling in Fair Trade market, most farmers that participate in cooperatives are expected to transit into organic coffee products and pass the organic certification (Weber, 2011, p. 110). However becoming organic certified requires a transition period. Weber (2011) claims it takes 3 years for growers to complete the transition into organic certification where they have to follow organic norms but unable to sell their coffee as organic (p. 111). This implies a significant delay between the time of the cost and when coffee starts yield a return.

Such scenario above affects the net cash income received from Fair Trade households. Though some Fair Trade households do not transit themselves into organic certified coffee, the fact that most coffee grown by Fair Trade membership households is sold in the conventional markets is still true due to the lack of Fair Trade markets. Even though coffee is the second highest traded commodity, the market of Fair Trade coffee is relatively small with average 2. 5 % of the global coffee trade (Fieser and Padgett, 2009, p. 99). Barham et al. 2010) state that Fair Trade has limited the supply of coffee that labeled with certificated to keep the Fair Trade-organic coffee price up in the market. Therefore, even though the growers produce their coffee in a high cost Fair Trade-organic certification standards, they may have to sell their certified coffee to the markets that do not give the value of certification once Fair Trade refused their products (p. 122). Going through the effort to produce Fair Trade standards coffee, the farmers are not reaping the rewards they should have obtained.

Also, with the lack of a consumer market but continually growing coffee producing households populations, Weber (2010) claims that it leads the cooperatives to increase their membership without expanding the market which results in lower premium for each household member (p. 113). The benefit to Fair Trade sales including price premiums, social premiums, long-term contracts, and low-interest credit are significantly reduced as less coffee is sold in Fair Trade markets (Murrary, 2003, p. 16). As a result, the limited and slow growth in the Fair Trade market has become one of the major concerns confronting Fair Trade production.

Unconstrained market is the key to maximum returns; knowledge is the key ingredient to develop a more democratic institution. Yet households of coffee growers are facing the lack of clear knowledge for Fair Trade. Fair Trade is an indistinct concept to coffee growers comparing to coffee growing which appears in their daily farming livelihoods. Murrary et al. (2003) claim that coffee growers have not received regular and detailed training about information on Fair Trade, and have no contact with Fair Trade representatives but the cooperatives and the technical advisers (p. 6). Even more, majority of coffee growers identify Fair Trade with the cooperative. Such misinterpretation, leads some cooperatives to not tout the benefits coffee growers should gain as Fair Trade certification benefits (pp. 16 – 17). Since cooperatives and the technical advisers deal directly with the Fair Trade certification, buyers, and others; coffee growers simply have no control over their products compare to other coffee investment patterns. For example, the Thrive’s system mentioned by LaPorte (2013) in his article.

Mr. Lander, an entrepreneur based in Atlanta, created the company named Thrive Farmers Coffee assisted coffee growers to increase their ownership and profit margins by splitting half of proceeds with farmers and by establishing relationships between farmers and local coffee co-ops. Mr. Lander also states that organizations like Thrive are trying to teach these growers the basic knowledge of risk and quality because now they see their products selling to their ultimate consumers (p. 106).

If coffee growers can understand the way to prevent risk and way to improve coffee quality, these growers will most likely sell more coffee overall. In conclusion, Fair Trade is not the answer to solve poverty. The system offers limited price improvement to very few primary households, while neglecting the poorest of poor in the sector. With farmers lack of understanding of the structure and operation, Fair Trade can easily prevent the poor from liberating themselves, keep them in their land and restrain their future.

And lastly, by raising Fair Trade coffee price for the consumer, it slows down the growth of global Fair Trade economy and limits the market from certain group. Overall, there are benefits to the small-scale farmers from Fair Trade movement, but the benefits are much insufficient compared with other investment patterns. It is nothing but a short-term diversion. If the Fair Trade is unable to put forward a plan for improving their current rate of returns, coffee growers are unlikely to lift themselves out of their poverty through Fair Trade. And, perhaps the only fair choice is to support free trade.

References

1. Abad-Vergara, Diane. (Director, Produce). (2009). Living with coffee [Documentary]. New Zealand.
2. Barham, B. L., Callenes, M., Gitter, S., Lewis, J., ; Weber, J. (2011). Fair trade/organic coffee, rural livelihoods, and the “Agrarian Question”: Southern Mexican coffee families in transition. World Development, 39(1), 134-145.
3. Fieser, E., ; Padgett, T. (2009). What price good coffee? Time International, 171(13) 90-91.
4. La porte, N. (2013, March 16). Coffee’s economics, rewritten by farmers. New York Times. Retrieved 5/20/13 from http://www.nytimes.com/2013/03/17/business/coffees-economics-rewritten-by-farmers.html
5. Murray, D. L., Raynolds, L. T., ; Taylor, P.L. (2003). One cup at a time: poverty alleviation and fair trade coffee in Latin America.
6. Fair Trade Research Group, Colorado State University. Weber, J. G. (2011). How much more do growers receive for Fair Trade-organic coffee? Food Policy, 36(5), 678-685