Fair Trade Coffee – Is it Really Fair?

What Is Fair Trade Coffee?

The certification of “Fair Trade” is given by Fair Trade USA, which is a non-profit that has been giving certification to coffee since 1998. Since then, they have been granting certification to several other types of products, such as spices, teas, chocolate and more.

The logo to the right was redesigned in 2012, and it is used for identifying products that are certified. There are organizations that exist for Fair Trade in other countries.

Though Fair Trade USA is a non-profit organization, it is a sustainable organization. Much of the revenue that goes through Fair Trade USA is from the service fees that are paid by retailers. Retailers only are required to pay 10 cents in fees for each pound of Fair Trade coffee that they sell in the USA.

This amount helps Fair Trade USA to promote the brand further. For this reason, some people in the the coffee world have claimed that Fair Trade USA is mainly an organization for marketing.

The organization had a budget of $10 billion in 2009, and 70 percent of this came from the aforementioned fees. The other 30 percent was from contributions from philanthropists, who were mainly private donors and through foundation grants.

The Beginnings of Fair Trade

Fair trade is a concept that has been around for a long time, since individuals began to exchange items with one another. Throughout history, it has been the case that trade has not been fair always. During the 16th century until the late 18th century, there was a nationalistic mercantile system in place in Western Europe to enrich their economic status. The Dutch East India Company was operating to benefit the mother country, and because of this they were given monopoly privileges. The company also was protected by tariffs.

These conditions led to trade being anything but fair. The local workers were made to work long hours under unfavorable conditions, through indentured servitude or slavery. Religious and non-governmental organizations, including SERRV International and many others, worked to create supply chains that were more fair to producers in the 1940s and 1950s.

Many of the producers handcrafted several types of goods. The fair trade movement really started to gain momentum in the 1960s. Multinational corporations and industrialized countries were criticized at this time for using power to enrich their own interests to the detriment of the less wealthy countries and producers. Coffee producers were at the top of this list.

How Fair Trade Coffee Can Be Problematic

Coffee has been valuable to many countries’ economies. Countries that are among the least developed, such as Burundi, have foreign exchange earnings of up to 80 percent for the cultivation of coffee. There are a majority of workers who are dependent on coffee in the developing countries of Colombia, Mexico, and Indonesia, among others.

Coffee is one of the more valuable products when it comes to world trade. However, coffee is often times a crop that is quite labor intensive, though it financially yields relatively little return.

One-fifth of the coffee in the world is consumed by the USA. This makes it the largest consumer of coffee in the whole world. Not many Americans know that the coffee industry workers often are in “field sweatshops”. Small coffee farmers typically have a tough time, and may end up being in a cycle of poverty and debt.

The confidence is slipping for Fair Trade coffee. This is due to the fact that the strict requirements for certification result in uneven economic advantages. It also means that the quality of coffee ends up being lower.

Fair trade coffee is important because it is the second most valuable commodity that is being exported out of developing countries. Exports in coffee make up a huge share of export earnings for countries such as Guatemala and Honduras. This is why fair trade should be focused on throughout the world.

The Benefits of Fair Trade

Fair Trade standards include the following:

  • Producer organizations receive a minimum price of 1.40 per pound in US dollars for washed Arabica and US 1.35 for Arabica that is unwashed, or the market price if it is higher.
  • There is a differential US 30 cents per pound minimum for Fair Trade coffee that has been certified organic.
  • A Premium of US 20 cents (and 5 cents for quality and productivity improvements) per pound will be added to the purchase price to be used by the producer organizations for the purpose of investing in economic and social enterprises at the organizational and community levels.
  • Only the small farmer organizations may receive Fair Trade coffee certification. This means that they are required to own and govern organizations.
  • Everyone has an equal right to vote, as there is democratic decision making in place.
  • Agrochemical use is restricted, and sustainability is being encouraged on a higher level.
  • Producer organizations have access to pre-export lines of credit. Up to 60 percent of the purchase price may be pre-financed, if requested.
  • More fair negotiations, a reduction in speculation, and a clarified price fixing role are being encouraged.

Fair Trade regulations and rules have been fairly static over time. Greater consumer awareness has always been pushed by Fair Trade USA. Today, 50 percent of American households have knowledge of Fair Trade coffee compared to 9 percent in 2005.