Fair trade coffee

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Fair trade coffee is coffee that is certified as having been produced and marketed to a stated set of standards. Many customers pay a higher price when buying coffee with the certification logo or brand in the belief that, by doing so, they are helping farmers in the Third World.[1]

Fair trade coffee has become increasingly popular over the last ten years, and is now offered at a significant number of coffee retailers worldwide. In 2004, 24,222 tonnes (24,222,000 kg) of 7,050,000 tonnes (7.05×109 kg) produced worldwide were from Fair trade farmers; in 2005, 33,991 tonnes (33,991,000 kg) out of 6,685,000 tonnes (6.685×109 kg) were from Fair trade, an increase from 0.34% to 0.51%.[citation needed]

Different Fair trade schemes[edit]

No universally accepted definition of 'fair trade' exists. There are a large number of Fair trade and ethical labels having different marketing strategies and different standards and criteria, and these have evolved with the major changes in marketing strategies that have taken place over the last twenty years making the sector increasingly complex.[2]

Most Fair trade is sold by those Fair trade organizations that believe it is necessary to market through supermarkets to get sufficient volume of trade to have any real impact on the Third World[2] The Fair trade labeling organizations having most of the market share and who sell through supermarkets refer to a definition developed by FINE, an informal association of four international Fair trade networks (Fairtrade Labelling Organizations International, World Fair Trade Organization (WFTO), Network of European Worldshops and European Fair Trade Association (EFTA). The standards developed by Fairtrade International (Fairtrade Labelling Organization) are the most used

Fair trade is a certification scheme[edit]

The biggest Fair trade certification scheme, used by Fairtrade and some others, notably Fair Trade USA, is run by Fairtrade International (Fairtrade Labelling Organization). Coffee packers in the rich countries pay Fairtrade a fee for the right to use the Fairtrade logo, which gives consumers an assurance that the coffee meets Fairtrade criteria, that it is produced by farmers who are members of a democratically run cooperative, that it is produced without child labour, that there are restrictions on the use of herbicides and pesticides, and that the final exporter is paid a minimum price and a price premium.[3] The coffee with this certification mark must be produced by farmers and cooperatives that meet these criteria, and be certified by a for-profit inspection organization, FLO-CERT. The fact that a cooperative is certified does not mean that it can sell all its output as Fairtrade certified. The cooperatives can, on average, sell only 37% of their output as Fairtrade certified, at an enhanced price, because of lack of demand, and so they sell the rest at normal world prices.[4]

Disambiguation[edit]

There is widespread confusion because the Fair trade industry standards provided by Fairtrade International (The Fairtrade Labelling Organization) use the word “producer” in many different senses, often in the same specification document. Sometimes it refers to farmers, sometimes to the primary cooperatives they belong to, to the secondary cooperatives that the primary cooperatives belong to, or to the tertiary cooperatives that the secondary cooperatives may belong to[5] but “Producer [also] means any entity that has been certified under the Fairtrade International Generic Fairtrade Standard for Small Producer Organizations, Generic Fairtrade Standard for Hired Labour Situations, or Generic Fairtrade Standard for Contract Production.”.[6] The word is used in all these meanings in key documents.[7] In practice, when price and credit are discussed, “producer” means the exporting organization, “For small producers’ organizations, payment must be made directly to the certified small producers’ organization”.[8] and “In the case of a small producers’ organization [e.g. for coffee], Fairtrade Minimum Prices are set at the level of the Producer Organization, not at the level of individual producers (members of the organization)” which means that the “producer” here is half way up the marketing chain between the farmer and the consumer.[8] The part of the standards referring to cultivation, environment, pesticides and child labour has the farmer as “producer”.

Coffee Retailers[edit]

The retailers in the rich countries are not controlled by Fairtrade and are free to charge as much as they like for the coffee and none are willing to disclose how much extra they charge for Fairtrade coffee, how much of this extra charge reaches the third world. In only four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative;[9] in Finland, Valkila, Haaparanta and Niemi[10] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos[11] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen[12] calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer.

Importers[edit]

Importers of Fairtrade coffee have to be registered with Fairtrade and pay a fee. Under the Fairtrade International standards they are obliged to pay a minimum price to the exporting organization, currently $1.40c/lb New York Board of Trade “C” contract, F.O.B. origin for Arabica, and $1.05 for Robusta London “EURONEXT LIFFE” contract, F.O.B origin with 30c/lb extra for organic.[13]< When the world price is above this level, they are obliged to pay 20c/lb above the world price.

Researchers report that importers often do not pay the price laid down: they can demand that exporters supply a higher quality at the same official Fairtrade price, threatening to buy from another Fairtrade supplier if the exporter did not agree to this kickback, or if the exporters complain to Fairtrade.[14] De Janvry, McIntosh and Sadoulet[15] have quantified this for a large group of Fairtrade coffee cooperatives in South America over a dozen years. They found that this kickback was 10c a pound over a period when the official price premium was 5c or 10c a pound, and this, plus the certification fee, meant that the cooperatives made a loss in years when a premium was payable, and were paid substantially less than the official minimum prices in years when a minimum price was payable.

Importers are also required to provide other services, notably providing cheap credit for financing the cooperative’s purchases.[16] However, importers may pay cash on delivery, or pay late, or just not honour their contracts if world prices move against them.[17] The mainstream traders sometimes provide better credit to farmers at significantly lower interest rates.[18] The Fairtrade requirements on long term contracts are not strictly enforced.[19] Many of the services specified, on credit and long-term contracts, for instance, are routinely provided by non-Fairtrade importers.[20]

Exporters[edit]

Certified Fairtrade coffee is normally exported by secondary or tertiary cooperatives, marketing this coffee on behalf of the cooperatives the farmers belong to[16] with arrangements that may be complex.[21] There is not enough demand to take all the certified coffee produced, so most has to be sold as uncertified. In 2001 only 13.6% could be sold as certified[22] so limits were placed on new cooperatives joining the scheme. This plus an increased demand put up sales of certified to around 50% in 2003[23] with a figure of 37% commonly cited in recent years. Some exporting cooperatives do not manage to sell any of their output as certified,[24] and others sell as little as 8%.[25]

The exporting cooperatives incur costs including certification and inspection fees, additional marketing costs, costs of conforming to standards, and additional costs of cooperative operation, costs which are incurred on all coffee production, even if little or none is marketed as certified, with a higher price, so the cooperatives may make a loss on Fairtrade membership. Weber[24] reports cooperatives not able to cover the extra costs of a marketing team for Fairtrade, with one covering only 70% of these costs after six years of Fairtrade membership.

Any deficit after paying these costs means a lower price for farmers, while any surplus will normally go on “social projects” for “common goals” organized by the exporting cooperative rather than as extra payment for farmers.[26] These may include the building of classrooms, baseball pitches, or the establishment of women's groups, for instance.

Enforcement of Standards[edit]

FLO-CERT, a for-profit business owned by Fairtrade International, handles producer certification, inspecting and certifying producer organizations in more than 50 countries in Africa, Asia, and Latin America.[27] In the Fair trade debate there are many complaints of failure to enforce these standards, with farmers, cooperatives, importers and packers profiting by evading them[28] or of not paying labourers the specified minimum wage [29] Fairtrade farmers also get better conditions to work in e.g. shorter hours, because of more money and nicer,better, more shaded fields.

The marketing system[edit]

The Fair trade marketing system is not cheaper than the normal one, or more efficient. The marketing system for Fairtrade and non-Fairtrade coffee is identical in the consuming countries, using mostly the same importing, packing, distributing and retailing firms. Some independent brands operate a virtual company, paying the normal importers, packers and distributors and advertising agencies to handle their brand rather than doing it themselves, for cost reasons.[30] In the producing country Fairtrade is marketed only by cooperatives, while other coffee is marketed by Fairtrade cooperatives, other cooperatives and ordinary traders.[31] The cooperatives incur significant extra marketing costs when selling Fairtrade, including certification and inspection fees, specialist selling teams and costs of conforming to standards. There remain many Fair Trade organizations that adhere to a greater or smaller degree to the original objectives of Fair trade than the mainstream of Fairtrade International and its associate. These market products through alternative channels where possible, and market through specialist Fair trade shops, but they have a small proportion of the total market.[32]

Criticisms of Fair trade coffee[edit]

A large number of criticisms of Fair trade have been made as a result of independent research, and these are summarized in the Fair trade debate. Some examples are given here.

Ethical basis of criticisms[edit]

Consumers have been shown to be content paying higher prices for Fairtrade products, in the belief that this helps the very poor.[33] The main ethical criticism of Fairtrade is that this premium over non-Fairtrade products does not reach the producers and is instead collected by businesses, employees of co-operatives or used for unnecessary expenses. Furthermore, research has cited the implementation of certain Fairtrade standards as a cause for greater inequalities in markets where these rigid rules are inappropriate for the specific market.[34]

Fund allocation[edit]

Global South[edit]

The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods, so it is rarely possible to determine how much extra is charged or how much reaches the producers, in spite of the Unfair Trading legislation. In four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative;[9] in Finland, Valkila, Haaparanta and Niemi[10] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos[11] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen[35] calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. All these studies assume that the importers paid the full Fairtrade price, which is not necessarily the case.[36]

Farmers[edit]

The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain. While this appears to be agreed by proponents and critics of Fairtrade,[37] there is a dearth of economic studies setting out the actual revenues and what the money was spent on. FLO figures[38] are that 40% of the money reaching the Third World is spent on ‘business and production’ which would include these costs, as well as costs incurred by any inefficiency and corruption in the cooperative or the marketing system. The rest is stated to be spent on social projects, rather than being passed on to farmers. There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more or less by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets,[39] and few appreciate the complexity of the different price packages which may or may not include credit, harvesting, transport, processing, etc. Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009)[40] is able to compare prices only where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries which pay low prices. Prices would have to be higher to compensate farmers for the increased costs they incur to produce Fairtrade. For instance, Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.[41]

Evidence of impact[edit]

There have been very few attempts at fair trade impact studies. It would be methodologically and logically incorrect to use these attempts to conclude that Fairtrade in general does or does not have a positive impact.[42] Griffiths (2011)[9] argues that few of these attempts meet the normal standards for an impact study, such as comparing the before and after situation, and having meaningful control groups. Serious methodological problems arise in sampling, in comparing prices, and from the fact that the social projects of Fairtrade do not usually aim to produce economic benefits.

Inefficient marketing system[edit]

One reason for low prices is that Fairtrade farmers have to sell through a monopsonist cooperative, which may be inefficient or corrupt – certainly some private traders are more efficient than some cooperatives. They cannot choose the buyer who offers the best price, or switch when their cooperative is going bankrupt[43] if they wish to retain Fairtrade status. There are also complaints that Fairtrade deviates from the free market ideal of some economists. Brink calls Fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.[44]

Corruption[edit]

The Fair trade marketing system provides more opportunities for corruption than the normal marketing system; and less possibility of, or incentive for, controlling corruption. Corruption has been noted in false labelling of coffee as Fairtrade by retailers and by packers in the developing countries,[45] paying exporters less than the Fairtrade price for Fairtrade coffee (kickbacks)[46] failure to provide the credit and other services specified[47] theft or preferential treatment for ruling elites of cooperatives[48] not paying laborers the specified minimum wage[49]

Fairtrade harms other farmers[edit]

Overproduction argument[edit]

Critics argue that Fairtrade harms all non-Fairtrade farmers. Fairtrade claims that its farmers are paid higher prices and are given special advice on increasing yields and quality. Economists[44][50][51][52][53][54] state that, if this is indeed so, Fairtrade farmers will increase production. As the demand for coffee is highly inelastic, a small increase in supply means a large fall in market price, so perhaps a million Fairtrade farmers get a higher price and 24 million others get a substantially lower price. Critics quote the example of farmers in Vietnam being paid over the world price in the 1980s, planting lots of coffee, then flooding the world market in the 1990s. The Fairtrade minimum price means that when the world market price collapses, it is the non-Fairtrade farmers, particularly the poorest, who have to cut down their coffee trees. This argument is supported by mainstream economists, not just free marketers. This argument falls away if, as critics and FLO state, farmers do not get a higher price.

Diverting aid from other farmers[edit]

Fairtrade supporters boast of ‘The Honeypot Effect’ – that cooperatives which become Fairtrade members then attract additional aid from other NGO charities, government and international donors as a result of their membership.[55] Typically there are now six to twelve other donors. Critics point out that this inevitably means that resources are being removed from other, poorer, farmers. It also makes it impossible to argue that any positive or negative changes in the living standards of farmers are due to Fairtrade rather than to one of the other donors.

Other ethical issues[edit]

Secretiveness[edit]

Under EU law (Directive 2005/29/EC on Unfair Commercial Practices) the criminal offence of Unfair Trading is committed if (a) ‘it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct’, (b) ‘it omits material information that the average consumer needs . . . and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise’ or (c) ‘fails to identify the commercial intent of the commercial practice . . . [which] causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.’ Griffiths (2011)[9] points to false claims that Fairtrade producers get higher prices, the almost universal failure to disclose the extra price charged for Fairtrade products, to disclose how much of this actually reaches the Third World, to disclose what this is spent on in the Third World, to disclose how much, if any, reaches farmers, and to disclose the harm that Fairtrade does to non-Fairtrade farmers. He also points to the failure to disclose when ‘the primary commercial intent’ is to make money for retailers and distributors in rich countries.

Imposing politics[edit]

The Fairtrade criteria are essentially political, and critics state that it is unethical to bribe Third World producers to adopt a set of political views that they may not agree with, and the donors providing the money may not agree with. In addition many of the failures of Fairtrade derive from these political views, such as the unorthodox marketing system imposed.[56] Boersma (2002, 2009)[57] the founder of Fairtrade, and like minded people[58] are aiming at a new, non-capitalist way of running the market and the economy. This may not tie in with the objectives of producers, consumers, importers or retailers.

Unethical selling techniques[edit]

Booth says that the selling techniques used by some sellers and some supporters of Fairtrade are bullying, misleading, and unethical.[59] There are problems with the use of boycott campaigns and other pressure to force sellers to stock a product they think ethically suspect. However, the opposite has been argued, that a more participatory and multi-stakeholder approach to auditing might improve the quality of the process.[60] Some people argue that these practices are justifiable: that strategic use of labeling may help embarrass (or encourage) major suppliers into changing their practices. They may make transparent corporate vulnerabilities that activists can exploit. Or they may encourage ordinary people to get involved with broader projects of social change.[61]

Misleading volunteers[edit]

A lot of people volunteer to work to support Fairtrade. They may do unpaid work for firms, or market Fairtrade in schools, universities, local governments, or parliament. Crane and Davies’[62] study shows that distributors in developed countries make ‘considerable use of unpaid volunteer workers for routine tasks, many of whom seemed to be under the (false) impression that they were helping out a charity.’

Failure to monitor standards[edit]

There are complaints that the standards are inappropriate and may harm producers, sometimes making them work several months more for little return.[63][64][65][66]

There have been claims that adherence to Fair trade standards by producers has been poor and that enforcement of standards by Fairtrade is very weak. Notably by Christian Jacquiau[67] and by Paola Ghillani, who spent four years as president of Fairtrade Labelling Organizations[67] There are many complaints of poor enforcement problems: labourers on Fairtrade farms in Peru are paid less than the minimum wage;[68] some non-Fairtrade coffee is sold as Fairtrade[69] ‘the standards are not very strict in the case of seasonally hired labour in coffee production.’[70] ‘some Fair trade standards are not strictly enforced’[71] supermarkets avoid their responsibility.[72] In 2006, a Financial Times journalist found that ten out of ten mills visited had sold uncertified coffee to co-operatives as certified. It reported that "The FT was also handed evidence of at least one coffee association that received Fairtrade certification despite illegally growing some 20 per cent of its coffee in protected national forest land.[73]

Trade justice and fair trade[edit]

Segments of the trade justice movement have also criticized Fair trade in the past years for allegedly focusing too much on individual small producer groups while stopping short of advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives. French author and RFI correspondent Jean-Pierre Boris championed this view in his 2005 book Commerce inéquitable.[74]

Political objections[edit]

There have been largely political criticisms of Fairtrade from the left and the right. Some believe the Fair trade system is not radical enough. French author Christian Jacquiau, in his book Les coulisses du commerce équitable, calls for stricter Fair trade standards and criticizes the Fair trade movement for working within the current system (i.e., partnerships with mass retailers, multinational corporations, etc.) rather than establishing a new fairer, fully autonomous trading system. Jacquiau is also a staunch supporter of significantly higher Fair trade prices in order to maximize the impact, as most producers only sell a portion of their crop under Fair trade terms.[75] It has been argued that the approach of the Fair trade system is too rooted in a Northern consumerist view of justice which Southern producers do not participate in setting. "A key issue is therefore to make explicit who possesses the power to define the terms of Fairtrade, that is who possesses the power to determine the need of an ethic in the first instance, and subsequently command a particular ethical vision as the truth."[76]

History[edit]

Prior to Fair trade, prices were regulated by the International Coffee Organization according to the regulations set forth by the International Coffee Agreement of 1962. The agreement, which was negotiated at the United Nations by the Coffee Study Group, set limits on the amount of coffee traded between countries so there would be no excess supply, and consequently a drop in price. The ICA existed for five years, and then was renewed in 1968. The agreement was renegotiated in 1976 due to increasing coffee prices, largely a result of a severe frost in Brazil. The new agreement allowed for the suspension of price quotas if the supply of coffee could not meet the demand, and enabling them if prices dropped too low. In 1983, the agreement was again redrawn, this time creating a database on coffee trade, and implementing stricter import and export regulations. Quotas remained a part of the agreement until 1989, when the organization was unable to negotiate a new agreement in time for the next year. It was decided that the 1983 agreement would be extended, but without the quotas because they had not yet been determined. A new agreement could not be negotiated until 1992. From 1990 to 1992, without the quotas in place, coffee prices reached an all time low. Because coffee price quotas could not be decided, the new agreement of 1994 focused on public awareness, providing the public with a forum for comment and access to documents. The agreements of 2001 and 2007 aimed to stabilize the coffee economy by promoting coffee consumption, raising the standard of living of growers by providing economic counselling, expanding research to include niche markets and quality relating to geographic area, and conducting studies of sustainability, principles similar to Fair trade.[77][78]

Beginnings[edit]

The overall Fair trade movement originated as a response to the poverty that emerged following the Second World War.[79] Certification was then introduced in 1988 following a coffee crisis in which the supply of coffee was greater than the demand; since no price quotas had been reimplemented by the International Coffee Act, the market was flooded. Launched in the Netherlands, Fair trade certification aimed to artificially raise coffee prices in order to ensure growers sufficient wages to turn a profit. The original name of the organization was "Max Havelaar", after a fictional Dutch character who opposed the exploitation of coffee farmers by Dutch colonialists in the East Indies.[80] The organization created a label for products that met certain wage standards.

Following the inception of Fair trade certification, the "Transfair" label was later launched in Germany, and within ten years three other labeling organizations commenced: The Fairtrade Foundation, TransFair USA, and Rättvisemärkt. In 1997, these four organizations jointly created Fairtrade International (formerly called FLO, or Fairtrade Labelling Organizations International), which continues to set Fairtrade standards, inspecting and certifying growers.[80]

See also[edit]

References[edit]

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  4. ^ Mohan, S. (2010). Fair Trade Without the Froth - a dispassionate economic analysis of 'Fair Trade'. London: Institute of Economic Affairs.; Kilian, B., Jones, C., Pratt, L., & Villalobos, A.: 2006, ‘Is Sustainable Agriculture a Viable Strategy to Improve Farm Income in Central America? A Case Study on Coffee’, Journal of Business Research, 59 (3), 322–330.; Berndt, C. E.: 2007, Is Fair Trade in coffee production fair and useful? Evidence from Costa Rica and Guatemala and implications for policy. Washington DC.: Mercatus 65 Policy Series, Policy Comment 11, Mercatus Centre, George Mason University.; Kohler, P. (2006), ‘The economics of Fair Trade: for whose benefit? An investigation into the limits of Fair Trade as a development tool and the risk of clean-washing’, HEI Working Papers 06–2007, Geneva: Economics Section, Graduate Institute of International Studies, October; Renard, M. C. and V. P. Grovas (2007), ‘Fair Trade coffee in Mexico: at the center of the debates’, ch. 9 in D. Murray, L. Raynolds and J. Wilkinson (eds), Fair Trade: The Challenges of Transforming Globalisation, London: Routledge. Pp 38-9; Riedel, C. P., F. M. Lopez, A. Widdows, A. Manji and M. Schneider (2005), ‘Impacts of Fair Trade: trade and market linkages’, Proceedings of the 18th International Farming Symposium, 31 October–3 November, Rome: Food and Agricultural Organisation, http://www.fao.org/ farmingsystems; Bacon, C. (2005), ‘Confronting the coffee crisis: can Fair Trade, organic and speciality coffee reduce small-scale farmer vulnerability in northern Nicaragua?’, World Development, 33(3): 497–511; Mohan, S. (2010). Fair Trade Without the Froth - a dispassionate economic analysis of 'Fair Trade'. London: Institute of Economic Affairs.
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  8. ^ a b Fairtrade Labelling Organizations International e.V. (2011) “Generic Fairtrade Trade Standard, p 16” http://www.fairtrade.net/fileadmin/user_upload/content/2009/standards/documents/2012-04-02_GTS_EN.pdf accessed 15/1/2013
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