ETHICAL COFFEE Part 3 - Fairtrade International: Why It Works & Limitations

Fairtrade Coffee & How It All Works 

 

The most recognisable organisation in terms of fair trade coffee is of course Fairtrade International; but also includes World Fair Trade Organisation, Network of European Worldshops and the European Fair Trade Association. The most widely used criteria for fair trade coffee are those set by Fairtrade International, and a plethora of smaller organisations, traders and retailers adhere to these guidelines from farm to cup.

Fairtrade International operates by a set of standards they have developed for themselves. They choose a different standard to use depending on the type of businesses involved. For small farms that work together as co-operatives or organisations that possess a democratic structure, they apply a specific set of standards. Their other standards govern issues pertaining to workers: fair wages; health and safety procedures; suitable housing provided where needed; and entitling workers to organize amongst themselves and join or form unions.

Fairtrade also sets a minimum price to be paid on green beans, which ensures that farmers can cover their average costs regardless of free market prices. For example, if the free market price on a specific green bean is higher than the minimum Fairtrade price for green beans of the same quality and grade, buyers must pay the higher price. Should the market prices crash, the farmers are still paid the Fairtrade minimum price. Fairtrade Premium is an extra payment on top of the minimum price that can be paid by the trader to the exporter. After all the costs involved from production to sales have been met, the extra funds go to producers to spend on efforts to raise the quality of health, education, housing, social facilities and improvements to the farms themselves in terms of processes and practices, equipment, safety and training. [1]

However, there are always going to roadblocks in the endeavour to change structural problems and Fairtrade has its limitations in addressing these systemic issues.

 

The Limitations of Fairtrade


There are many people both in and out of the coffee industry that believe that Fairtrade is not making the differences that it represents in its branding, and that there are several shortcomings that the organization is failing to address. In exploring these limitations, we must also acknowledge and credit this regulatory body with heading the initial effort to improve the ethical production of coffee. They have successfully managed to create a strong, trusted and recognisable brand that enables all other smaller efforts to remain visible and relevant today. [2]

One of the criticisms of Fairtrade is that since its inception it has failed to update its standards and procedures regularly to stay ahead of, or improve on, the government regulations that are already in place in each country. Every government will have their own policies on minimum wages and acceptable working conditions, along with pricing regulations, taxation and environmental policy, and in some cases access to small business funding schemes or grants. These will change and become more progressive as each country continues their mission to be better than they were the year before. However, if Fairtrade doesn’t offer farmers or consumers a higher standard of care and value than the government can, it can undermine the incentive to be involved on either end.

Another limitation of fair trade is that it doesn’t necessarily ensure good working conditions to all workers. Fairtrade International’s main avenue of making coffee more ethical, is making sure the landowners of small farms have the right support to keep their business running, in what is essentially trickle-down economics. If they stay in business, they can keep employing and paying people.

Though Fairtrade can audit the permanent labour force of a farm to ensure that they are operating under Fairtrade standards, migrant workers often fail to be protected in the same way. It is worth noting that this is not an issue whose only relevance is found in the coffee trade, but in fact happens in every industry and in every country. Even in Australia, we have problems ensuring the fair treatment of temporary workers on short work visas.

Seasonal and foreign workers are often subject to poor treatment because it is simply easier to exploit them. The migratory nature of their labour, their lack of understanding when it comes to the working rights of whichever country they are employed in, language barriers, and their willingness to accept poor treatment out of fear of losing their only source of income are all contributing factors. Migrant workers are usually the poorest of the poor, they may be extremely difficult to find or get access to and are at a distinct disadvantage.

The last and possibly biggest criticism of the organization is the way it has started to adversely affect the quality of coffee being sold as Fairtrade. Since Fairtrade International set the minimum price to be paid for green coffee beans sourced from its approved farms, the market price of coffee has soared and the Fairtrade minimum price has not adjusted appropriately with this. What this means is that their minimum price is now starting to look more like the price that low quality coffee would attract, instead of being competitive.

This market shift is due to an overall intensified interest in coffee. It isn’t just that we are consuming more coffee than ever, but our palates are becoming more refined. We as consumers want to drink a higher quality brew and specialty coffee is on the rise, with no signs of slowing down anytime soon, and farmers are catering to this market.

We also need to consider that the demand for Fairtrade coffee by consumers, when compared to the total market demand, is actually quite small. Sadly, at this stage consumers are simply not willing to pay a premium price – even if the quality of Fairtrade coffee was just as high as the cheaper options. [3] This brings us to the crux of the quality problem. An article written by Colleen Haight at The Stanford Social Innovation Review in 2011, [4] illustrates succinctly an example of how to understand the interaction between coffee quality and a non-competitive Fairtrade minimum price and its negative results:

Let us imagine that Farmer Joe is a Fairtrade Certified producer, and decides to take his coffee beans to market.

In every harvest the world over, there are variations in quality. If Farmer Joe harvests 1000kg of coffee, he will have a harvest that varies in quality or grade. Let’s pretend that 500kg of his coffee is very low grade, and if he were to sell it on the free market he could get $1 per kilo for it. The other 500kg of his coffee is a very high grade, and he could sell it on the free market for $2 per kilo. This means that for his entire harvest, he will earn a total of $1,500.

Now, if Farmer Joe instead decided to sell his very low grade coffee for the Fairtrade price of $1.50 per kilo, and his very high grade coffee at free market price for $2 per kilo, this will increase his returns. For his entire harvest, he will earn a total of $1,750. This gives him greater financial incentive to sell his low grade coffee through Fairtrade.

What this example illustrates in a very basic way is how the Fairtrade pricing has the potential to be flooding the market with low grade coffee, and is ultimately going to discourage consumers from wanting to pay for it. Very few people would buy an inferior product for a premium price, no matter how strong their belief in ethical standards.

The main point to remember about Fairtrade is that it is a very worthwhile endeavour and is an organisation doing a lot of good in the industry, but it is an imperfect system for tackling a complex problem. This is where other players of ethical coffee come in and where farmers and buyers can really step up to the plate, which we will learn more about in the next post.


Written by Ravelle King, Cafe Support Manager at Crema Coffee Garage


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Sources:

  1. ( https://www.fairtrade.net/products/coffee.html)
  2. (https://www.globalpolicy.org/component/content/article/220/47235.html)
  3. (https://www.globalpolicy.org/component/content/article/220/47235.html)
  4. (https://ssir.org/articles/entry/the_problem_with_fair_trade_coffee)

Other sources consulted: