Fairtrade Coffee: Does It Buck The Market?
To bring out the main points, I quote & rearrange:- “ Two Melbourne academics have lodged formal complaints against Oxfam Australia ” with the Australian Competition and Consumer Commission, asking it “ to investigate Oxfam ”. They say Oxfam “ is guilty of misleading or deceptive conduct under the Trade Practices Act.” This relates to “Fairtrade coffee…promoted as helping to lift Third World producers out of poverty […] sold at a premium to people concerned about Third World poverty.”
But reports allege that “coffee producers in poor nations are charged $3200 to become certified Fairtrade providers. The producers' costs are therefore higher than on the open market.” And according to “the Financial Times [8 September 2006], Fairtrade coffee beans were ‘picked by workers paid below minimum wage’…workers received the equivalent of $3 a day.”
“In order to lodge the complaint [one of the academics] purchased a 250g pack of Fairtrade organic decaf ground coffee from the online Oxfam shop.” In his letter to the chairman of the ACCC he wrote: “We purchased this product in good faith, with the aim of lifting people out of poverty while enjoying our favourite brew. ” But “there was evidence that Fairtrade products could do more harm than good for coffee producers in undeveloped nations.”
However: “Oxfam's Neil Bowker rejected criticism of the Fairtrade coffee project…: ‘It's all audited and monitored, from beginning to end, and we've got no doubts about the effectiveness.’ ”
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From various parts of the Oxfam Australia FairTrade Coffee website:
As Oxfam see it, poor coffee-growers face the following problems:
A. Low & highly unstable prices:
“World coffee prices have improved recently which has provided some relief for small-scale, family farmers and coffee farm workers. But […] prices have not increased dramatically so coffee farmers still have little left after covering their costs.”
“Current higher prices will lead to increased production and send prices falling again.”
“…the price could return to previous low levels at any moment […]This instability is a huge problem for farmers.”
“…the coffee market [does not] guarantee long-term stability for those at the bottom of the supply chain.”
B. “ Other problems ”:
Eg “getting….products to market, dealing with greedy middlemen and accessing finance.”
The usual suspects have gained massively:
“While coffee-growing communities and entire economies have been suffering, the major coffee companies have been making huge profits from the drop in prices. [NB, No data given, because unnecessary to do so.] Kraft, Nestle, Proctor and Gamble and Sara Lee are among the world’s biggest coffee companies, buying almost half the world’s coffee every year.”
And Oxfam tackle the problems:
“Paying farmers and workers a fair price for their work”
“…a certification and labelling system to ensure…that the benefits…get back to the farmer…”
“The higher price paid to farmers in the Fairtrade scheme means that they have effectively doubled their earnings over the past decade, compared to non-Fairtrade farmers who have been left struggling. ”
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I. Some facts: Under the Fairtrade system, coffee growers have to join producers’ organisations. It is the latter who are paid the Fairtrade price, not the farmers. The associations first deduct their costs; what remains is given to the farmers. These costs: borrowing the money to buy the coffee; sorting, grading & processing the beans; marketing the beans. Association officers have neither the experience nor the efficiency of ‘greedy middlemen’, so these costs are high. So farmers don’t get the so-called ‘fair’ price. Indeed, some prefer to sell to the domestic market, rather than to the Fairtrade export organisation. (And see further on price.)
So ‘Fairtrade’, for the farmer, is the offer of a parallel system which is mostly more costly than ‘greedy middlemen’. For Oxfam, however, it provides a good selling ploy.
II. The Fairtrade price for coffee is $US 1.24 a lb. This is well above the market price. It is just below the average (composite) price of $US 1.28, in the years 1980-89. But during those years there were export ‘quotas’, i.e., official limits on the amounts entering the international markets. Such ‘quotas’ disappeared on the 4th July 1989. In the following years, 1990-2006, the average price was around 89 cents (US) a lb.
Thus the Fairtrade floor price is some 39% higher than this average. The consequence? Oversupply of Fairtrade coffee. So Fairtrade buys only a fraction of the coffee produced by its farmers’ associations. These poor farmers sell the bulk of their output at market prices to ordinary, ‘greedy middlemen’. In other words, the bulk of these coffee growers' incomes are derived from the standard market price for coffee.
Thus the poor farmers who join these associations (1) face higher marketing costs (2) sell only a tiny part of their output to Fairtrade. And so it’s not surprising that the umbrella organisation in the West is now charging each producer association for supplying it a Fairtrade certificate. This will reduce further the excess supply of coffee being offered to Fairtrade.
And neither do the seasonal workers who pick the coffee beans get the official minimum wage. Only the association employees do so.
In sum: Fairtrade farmers' associations have higher costs -- covered by the Fairtrade price..
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For more see Jeremy Weber, ‘Fair trade coffee enthusiasts should keep track of reality’, CATO Journal 27/1 (Winter 2007)