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Assessing fair trade's effects on development and small farmers requires a balance between effects for individual farmers versus the reach of the fair trade standard: the higher the fair trade premium the smaller the market share.
Time magazine asks "What price for good coffee?"
Fair Trade pays $1.55 per lb. for Antonio's organic coffee, almost 10%
more than the market price. But Antonio is left with only 50¢ per lb.
after paying Fair Trade cooperative fees, government taxes and farming
expenses. By year's end, he says, from the few thousand pounds he
grows, he'll pocket about $1,000 — around half the meager minimum wage
in Guatemala — or $2.75 a day, not enough for Starbucks' cheapest latte.
The price per pound suggested by Christopher Bacon, and colleagues, of the University of California, is $2.00 / pound. However, the Fair trade labelling organization (FLO) and Transfair USA are concerned about the effect this would have onfair trade market share:
"What good is it to have $2-per-lb. coffee if you can only serve tens
of thousands of farmers" instead of millions? asks Paul Rice, president
and CEO of TransFair USA, the California-based nonprofit that oversees
Fair Trade in the U.S. "You risk killing the goose."
The goose that is fair trade is force for change, but it is still subject to market forces...
Markups and markets
One of the reasons fair trade was created was to get more of the money the consumer pays back to the farmers. Historically, there were sometimes as many as 4 or 5 middlemen within a producer country. Fair trade seeks to cut out the middleman and reduce the need for markups. But, even with fair trade products, there are still a number of entities involved in bringing a cup of coffee to consumers: producer, producer coop, export coop, importer, roaster, packager, distributor, marketing agent, store owner and the staff at the store. Each step involves costs and requires a markup.
If each party marks up the product 40 or 50% the price rises to the much higher price that we pay for fair trade products in stores. For example, if a pound of fair trade coffee receives a 50 cent premium ($1.55 instead of $1.05 for conventional coffee) at the producer level, by the time the product gets to consumers it may have been marked up 300 - 100%. The costs at each stage where the fair trade product changes hands necessitate this markup and are part of why fair trade cannot just raise the premium on a pound of coffee: a ten cent increase could lead to a consumer price jump of $.50 - 1.00 per pound. This would reduce demand for fair trade coffee.
The message of Bacon's study is that fair trade works, but it is not enough: "conditions are difficult for all small-scale
farmers. However, those small-scale households linked to Fair Trade cooperatives are more educated, have improved access to credit, and have higher investments in their households and land." Fair trade benefits producers but they are still vulnerable to price decreases, production cost increases, and poverty. What price premium will help the most farmers?
Go big or go home?
At the fair trade crossroads, we must decide whether to push for wider market share and a lower fair trade premium (less of a price difference) or go for a larger premium that will allow for farmers to escape poverty but will not provide opportunities for as many farmers. Perhaps, this is where the different standards come into play: FLO could remain the gold standard that provides for actual living premiums and other standards (Rainforest Alliance) could provide for wider reach. There may also have to be a reduction in the amount of coffee produced so that prices rise. I don't have the solution at this time but at least fair trade is getting some publicity!
For more details and analysis:
Christopher M. Bacon, V. Ernesto Méndez, María Eugenia Flores, Martha Brown, "Will “We” Achieve the Millennium Development Goals with Small-Scale Coffee Growers and Their Cooperatives? A Case Study Evaluating Fair Trade and Organic Coffee Networks in Northern Nicaragua", The Center for Agroecology and Sustainable Food Systems, University of California, Santa Cruz, Research Brief #12, spring 2008.
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