The Future of Fair Trade
Can the model continue to help farmers?
by Julie Beals

(Kaare Viemose)

It's an age-old story: A handful of businesses earn hefty incomes on the efforts of people who are struggling to make ends meet, and the end product, be it clothing or groceries, is provided at low cost to consumers. Think medieval serfdom, the worker camps of the Industrial Revolution or textile sweatshops. Another group that has always been in this lot: farmers.

The coffee and tea industries have long been in search of an answer to this problem. Coffee professionals were spurred into greater action than ever after the 1989 market crash that left producers around the world struggling to survive, often leaving their farms for cities to find work. By 1997, Fairtrade Labelling Organizations International (FLO) was formed to provide standards and support for what are now 20 certifying bodies in 21 countries that seek to assure livable wages for workers. TransFair USA has been certifying products as fairly traded on the U.S. market since 1999, guaranteeing a floor price to producers of coffee, tea, cocoa and other products provided they meet certain labor and production criteria. In the case of coffee, co-ops receive five cents more per pound than at conventional prices, and a minimum of $1.26 per pound for nonorganic beans and $1.41 for organic. The premiums fund community development projects such as education, healthcare and farm improvements to increase coffee quality and yields.

Sounds like a winning formula, but economists argue that low prices on commodities like coffee is the result of overproduction (global prices on tea are currently dropping due to a glut in the market), and that under normal circumstances, this would encourage crop diversification. A story that ran in The Economist in December 2006 stated that guaranteed pricing could not only supplant the reflex to diversify crops but encourage more producers to grow coffee, driving down the conventional price even further. Others argue that farmers are unlikely to have the resources to switch to other crops when prices fall, while fair-trade producers can use the premiums they receive to diversify into other crops. Then again, the price guarantee might reduce incentive.

What we do know is that when coffee prices have bottomed out—reaching $.50 per pound in 2001 after several already-lean years in the lives of growers—fair-trade premiums were being delivered to certified farms, keeping them from going under. But the fair-trade model is also tested when prices are up. One would think that when the market reaches $3, conditions for growers vastly improve, when in fact as prices rise above $1.41, farmers must repay debts owed to their co-ops. If middlemen (coyotes) on village streets are offering $1.50, bypassing the co-ops and offering cash in hand directly to farmers, the co-ops can be forced to default on contracts with buyers. "When the market jumped to $1.57 two years ago, a lot of us pleaded with farmers to honor their contracts," says Mark Inman, owner of Taylor Maid Coffee in Sebastopol, Calif. "But as roasters, we have the luxury of looking at coffee three or more years down the road, and farmers are looking at tomorrow."

The threat of defaults was legitimate but largely mitigated thanks to efforts on both sides and a renewed understanding that co-ops can be the surest way for small farmers to maintain direct market ties. In the end, TransFair certified more than 1,000 containers of coffee in 2005, with only two co-ops defaulting on a total of five containers.

But despite continued market access and a guaranteed price, farmers are still struggling. Many coffee professionals believe price increases based strongly on quality­—rather than the C-market and the fair-trade floor price that is tied to it—are the answer. Inman has been in the coffee business nearly 20 years and has not seen fair-trade pricing necessarily translate to increased quality down the line or to great improvements in growers' communities. "Fair trade has helped stabilize the market, but my biggest frustration is that with all of the relationship building, communities have not been radically transformed, people's incomes aren't doubling or tripling, and children aren't always getting a primary education. And quality still needs improvement. Statistics don't show that roasters are saving the world."

Fair-trade green coffee imports have grown an average of 65 percent a year since 1999, and more than 70 U.S. tea importers and blenders are now certified. These figures continue to rise, but for now their overall impact is small, with a fraction of one percent of the world market certified as fair trade.

Given the enormous task of addressing international sociopolitical and economic issues, it is no surprise that less than a decade after TransFair certified its first container of coffee, there is much work yet to be done. But there are examples that show why people have faith in the model. In September, TransFair president and CEO Paul Rice met with 10 co-op leaders in Colombia—eight from Latin America and two from Africa. "Everyone was getting price differentials way above the fair-trade price based on their quality," he says. Rice also believes the model works as a quality driver. "It mirrors what the market demands. ... We have a floor price rather than a fixed price, and the floor isn't relevant in the current market because farmers are selling way above it by virtue of their quality."

A few years ago, TransFair approached the coffee companies it certifies with the idea of making quality a contingency of fair-trade pricing. Rice recalls, "Their response, without exception, was: ‘Don't meddle in our discernment of quality. ... We know what we're doing with our blends and flavor profiles.'" TransFair instead encourages growers to focus on quality for their long-term success without making it a written rule. Fair-trade co-ops in several countries that are investing in cup quality are also winning cupping contests. Rice says the co-ops he visited in Colombia all had cupping labs, "and are more in tune than ever with what the market wants. This is recent, within the last eight years."

Market access is a proven benefit to certification, which is why so many are eager to achieve it. Tim Chapdelaine, assistant general manager of Volcafe Specialty Coffee in Petaluma, Calif., says there is no shortage of buyers for fair-trade coffee. As an importer, Volcafe assumes substantial risk, but fair trade has proven to be a safe bet. "There's some risk with quality issues, but the demand is so strong that our risk is sometimes mitigated. As long as we don't overbuy, there's solid demand."

Growers are lining up to get certified as well, and these would include larger coffee producers and estates if current criteria did not disqualify them. Coffee, like cocoa, must be grown on 10 hectares or less to be fair-trade certified. FLO sets certification standards, and as a member and co-owner of FLO, TransFair is charged with implementing them. The current mission of fair trade is to empower small family farmers and farm workers, the latter of which could one day grow the model to include larger coffee producers. This is already the case for tea, sugar and several fruit crops that are grown primarily on plantations. "The way the mission has been applied is based on an analysis of each industry," says Rice. "With tea and bananas, if you're only working with small farms, you're largely irrelevant."

With coffee, about 70 percent of world production comes from small farms. FLO's founders reason that most coffee plantation owners have not needed assistance to access the market and to get decent prices. But this limits how much crop can be grown within a fair-trade organization and shuts out estates and plantations that may be practicing de facto fair trade. "The idea is to level the playing field for small farmers without market access," says Rice. "Right now the model is admittedly exclusionary, and it is incomplete as long as we're not supporting the other 30 percent." Wages are often low, too, typically $3 a day in Nicaragua and $5 per day in Colombia, for example. "You can't send your kids to school on that. I have a strong personal notion that we should serve these workers. How or when, I don't know. But our long-term vision is precisely that."

Deepak Khandelwal is product manager at Equal Exchange in West Bridgewater, Mass., which wholesales and retails fairly traded coffee and tea. He says TransFair's model for coffee is in line with Equal Exchange's idea of building relationships between consumers and farmers because it certifies small producers and their co-ops rather than estates and large companies. But "with tea, the system has been more market driven in order to get fair-trade tea to market, and it's mostly grown on plantations. That's not necessarily bad, but we want to keep the focus on relationships and small farmers." Equal Exchange currently works with one of the two remaining small farmer groups in South Africa that grow rooibos. "These are black farmers, people who've survived a rough modern history with Apartheid. They are fair-trade certified and competing with plantations—white-owned, Apartheid-era—that are also certified. This is just an example of how a set of rules is not always perfect."

This is not to say that all smallholder farms operate with workers' rights in mind, or that plantations do not. Corrupt co-ops—and they do exist—can be as damaging to the system as coyote middlemen. And there are plantations—owned by families that have worked the land for several generations—that treat workers fairly.

Other certifications, from organic to Smithsonian Bird Friendly (often called shade grown) to Rainforest Alliance (RA), serve the market in ways that overlap with fair trade. And there are new certifications cropping up. One is called Fair Labor Practices and Community Benefits, set to launch early next year (see "Off the Wire: New Certification for Social Responsibility," p. 16). Chapdelaine believes the notion of certification labels being in competition with each other is somewhat false. "They can even add value to each other. Organic, for one, adds to the value of the fair-trade and rainforest certifications."

RA lays out a series of benchmarks that are to be met at certain intervals by individual farms seeking certification, including commitments to social and ecological provisions. RA does not guarantee a minimum price or offer a premium but provides training, advice and access to credit, and certifies at the farm level, rather than with co-ops.

Boyd Coffee in Portland, Ore., currently does not offer TransFair-certified coffees, favoring the organic and RA labels. Brian Howard, coffee buyer at Boyd, says the difference is that he can monitor the quality of RA-certified coffees. "We're able to see growing practices and directly determine quality. The samples come from specific farms, rather than a co-op, and if we have an issue with one, we know exactly where it came from and the time it was harvested."

Inman favors organic certification. "It's the greatest consumer protection plan on the market. The seal is recognized globally with the U.S. government behind it, and it's done at a reasonable cost—about two cents per pound for coffee." He also notes that biodiversity is a cornerstone of the organic program and that organic farmers make more money than non-organic farmers, which may somewhat address trade issues.

TRANSFAIR: The familiar fair-trade label.

What sets TransFair apart from other certifiers, with the exception of organics, is millions of dollars spent marketing a strong message to create demand for fair-trade products. American consumers are now keenly aware of living wage issues for people thousands of miles away, and they know they can buy certified products that presumably will improve the lives of workers. As with organics, many spend more for fair-trade products without batting an eye, as demand attests. According to TransFair, nearly 700 U.S. companies now sell fair-trade-certified products in approximately 40,000 retail locations nationwide.

In the meantime, both retailers and consumers are still largely in the discovery phase with other certifications. "People don't know what they want or what each certification represents," says Howard. "Once we start talking about Rainforest Alliance, if they like the differences they'll jump on board. It's a process."

Third-party certifications may not be the only way to strengthen the market. Non-certified coffees that earn fair-trade or higher prices (often called Direct Trade, a term that Chicago's Intelligentsia Coffee is in the process of trademarking) are what some have called the next level of sustainability. These programs, offered by Intelligentsia and other roasters like Portland Roasting, with its own Farm Friendly Direct label, aim to reward quality in the cup that, in theory, naturally will reap a price that exceeds the fair-trade floor and results in better livelihood for farmers.

If it's expensive to get the message of new third-party certifications across—especially in large cities and supermarkets, where credibility scarcely exists—it's even more difficult for suppliers to promote their own brands. Intelligentsia owner Doug Zell hopes to grow Direct Trade as an open-source model. "The idea isn't so much to own the trademark, but to make sure that—if roasters are using the term—it isn't diluted. We have no objections to other companies using it, assuming they're following the tenets of Direct Trade."

With their primary interest of selling coffee at a profit, roasters that self certify face a conflict of interest that is hard to ignore. A third party has no vested interest in whether the roaster survives or not; its goal is to protect the integrity of the certification. "Saying, ‘We have no interest in cheating,' doesn't quite cut it," says Inman of Taylor Maid. "You aren't guaranteeing the consumer anything."

For now, Intelligentsia offers a transparency contract that demonstrates what growers are paid. "Every party signs on the dotted line, and the price is guaranteed to the local growers or their cooperative. We spend a lot of time on the farms—up to three times a year—really seeing what's going on," says Zell. "We invite anyone to come in and check out [our paperwork]." Intelligentsia looks to have Direct Trade third-party certified down the line, while "keeping the model dynamic, to include more roasters, ever-increasing quality and higher prices to growers."

For some roasters, there is no perceived need for a third party to prove their integrity. Wandering Goat is a three-year-old company in Eugene, Ore., and until its volumes increase enough to make trips to origin cost effective, the best way to monitor the sustainability of its coffees is to buy third-party-certified beans. But eventually, co-owner Michael Nixon plans to go to source. "I have no interest in tying our company to a certification. It's quality in the cup that matters. ... Our ultimate goal is to work directly with growers at origin to assure quality once our volume reaches a certain level."

Under Direct Trade, Zell says "smaller roasters could work together, with a mutual representative doing farm visits and buying at volumes to meet the needs of a handful of companies," thus meeting the goal of smaller roasters to become directly involved with farmers.

Despite TransFair's encouragement of investments in quality, roasters like Zell firmly believe the industry can evolve even more with further effort. Consumer education to reinforce prices that are well above $1.41 per pound could be the key. Terry Davis of Cinnamon Bay Coffee in Sarasota, Fla., says that paying three to four times the fair-trade price isn't sustainable, as the market stands right now. "Roasters who are doing this make up a fraction of the market, so it's not changing the lives of many farmers. And most roasters can't afford to do it, given what consumers are currently willing to pay."

Zell gives the example of a wine bar, where each vintage can be purchased at a different price. "If we can get to a point where a cup of coffee at any retailer in the country is priced differently based on origin, considering that their quality, availability and production costs vary, we can pay accordingly at origin, rewarding the growers appropriately."

Serious coffee consumers are becoming familiar with specific origins like Yergacheffe and Rwanda. The next step is helping them understand why coffees from different regions should cost different amounts, from $3 to $7 a cup, or more. Zell is hopeful about what this could do to strengthen the supply chain. "If hundreds or thousands of retailers can sell great coffees at appropriate prices, that radically affects what's possible at source. We can keep paying more and be clear on where the money is going. Imagine if the amount being paid in Rwanda, Bolivia, or Nicaragua went up 50 or 100 percent. It would be profound."

Some predict specialty coffee will lead this charge if it can step away from C-market pricing and its basis on volume. One possible answer is Coffee Quality Institute's Q Grading system and Q Market, which are in development. The Q programs seek to enable more immediate responsiveness and higher prices based on cupping scores. "Until prices can be based on quality, when the C market and the Q Market are completely cleaved," says Davis, "trying to get people to buy on quality is an uphill battle."

Assuming roasters, blenders and baristas are doing their part to assure cup quality, greater volumes of coffee and tea imported and paid for based on quality may have the most impact in the long run. "We're not just trying to sell coffee beans to liberals," says Nixon. "If we serve a crappy cup of coffee, no one will want to drink it. How is that sustainable for the farmers? That breaks down the system."

This article is the result of interviews with 17 people including roasters, café owners and importers. Several declined to speak on record, citing polarities of the issue. Others asked for anonymity because fair-trade products make up part of their business.

Professionals who challenge the terms and effects of fair-trade and other certifications, while supporting the process, can only help the models grow. Roasters and café owners are selling an ideal to consumers, and they want it to be something they too can have faith in. "The good thing is that it's a model that is still evolving," says Rice. "There's room for debate and improvement."

There's always new ground to break when looking at the resources you're using to grow your business, from the people you hire to the producers you support to the products you sell. Quality in each of these categories equals sustainability. "If you don't have quality," says Nixon, "you have nothing to sustain. You're just playing around."

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