Johnson Katie Composition II 3/18/08 Fair Trade - Wake Up and Smell the Coffee
Coffee is the world's second largest traded commodity and the United States imports nearly three billion pounds of coffee beans each year, consuming almost one fifth of the world's coffee. According to Donna Nebenzahl, The global coffee market earns nearly $60 billion dollars a year and less than 10% ends up in the hands of the farmers who sell it (A1). This averages out to be less than $240 dollars per person who produces coffee each year. It doesn't seem right that the world's second most important traded product leaves producers in a never ending cycle of poverty and debt, while the big companies make billions each year.
Consumers in the United States are interested in purchasing a quick bargain. Buyers aren't conscious of how their low buys effect the producers of the product. By raising awareness of fair trade and purchasing fair trade products, it will help out many small producers well-being. However, it ultimately is the consumer's choice to buy fair trade products or not.
Fair Trade is the most important and fastest growing market-based mechanism to improve the lives of producers in developing countries. It does so by offering smallscale producers in the global south fairer trade relations, including a guaranteed minimum price above world price and developmental support. Global Fair Trade sales
have reached $1.4 billion, increasing at rates of around 50 percent per year and are projected to continue to grow. U.S. Fair Trade coffee market has been growing nearly 90 percent per year since Fair Trade coffee was launched in 1998. Fair trade offers a light an opportunity for the small coffee farmers of the world. Fair trade system is a co-op of companies dedicated to improving the lives of farmers and the communities that they live in by offering a fair, competitive price for their products so that farmers can invest in their business, land and families. For example, fair trade businesses work with small farmer co-ops in coffee producing countries to buy the beans, which then go to the roasters, the store/caf, and then the consumer. In the conventional coffee market the coffee goes from the small farmer to the "coyote" (middleman), then the processor, exporter, broker, coffee company, food distributor, store/caf, and finally the consumer. By taking out the extra companies that need to make a profit, fair trade business practices lets farmers keep a bigger percent of the profit.
The fair trade market is made up of several international companies that are dedicated to improving the well being of the producers and offering consumers a fairly traded product. The fair-trade market is a social capitalist market. Any company that wants to be fair trade or sell fair trade products must get a license from an auditing company, such as Transfair USA. The collection of companies that belong to the International Federation of Alternative Trade (IFAT) must follow regulations and guidelines set by the Fairtrade Labeling Organization (FLO), and all companies must be transparent and democratically run. Fair trade companies, such as Equal Exchange, that
sell fairly traded products are transparent, which means their books are open to auditors. Transfair USA is one company of about 20 worldwide that audits transactions between companies that offer Fair Trade Certified products and the international suppliers they purchase from. Independent companies like Transfair USA exist to ensure fair trade standards are kept by all parties involved in the fair trade market. But companies that participate in the fair trade market are for-profit and offer competitive products to consumers in terms of price and quality.
Mainstream retailers have begun to sell fair trade certified coffee. One such retailer, Starbucks, is the largest coffee retailer in the world and owns one fifth of all cafes in the United States. Other retailers and companies that boast selling fair trade products include Kraft, Nestle, Philip Morris, Ben and Jerry's, Brueggar's Bagels, Caribou Coffee, Dunkin' Donuts, Sam's Club, Target, and Costco. None of the previous companies are fair trade companies, but they do sell a very small percentage of fair trade certified coffee. The catch is that the companies purchase the product from other fair trade companies after it's already reached the U.S., which means none of the money they spend on fair trade certified coffee actually goes to the farmers who produced it.
In the past decade the United States has seen an incredible boom in the fair trade market. Fair trade coffee is now the fastest growing trend in specialty coffees with more conscious consumers demanding retailers sell fair trade coffee. Between the years 2000 and 2005 fair trade coffee sales went from $50 million to $500 million per USA, year.
Transfair an independent non-profit company that certifies fairly traded products, estimates that nearly $75 million dollars of premiums went to back into the hands of small scale coffee producers since the company's inception in 1999. Even though fair trade has improved the lives of several thousand small farmers and promoted environmentally safe farming practices, it isn't going to solve the problem of the imbalance of power of and wealth in the coffee industry. According to the Fair Trade Federation only 40% of the fair trade eligible coffee grown is sold on the fair trade market, the other 60% is sold on the world market because there isn't a large enough consumer demand for fair trade coffee. The fair trade market cannot absorb all of the coffee grown under fair trade standards. Millions of coffee farmers remain in severe poverty in Latin America, Asia, and Africa.
Due to the higher price of Fair Trade products and is divided up by several margins (retailer, distributor, coffee roaster, importer, and producer) it would appear far less efficient then giving the money directly to the producers. There has not been a systematic account yet. While some studies suggest that a reasonable percentage of the extra price for Fair Trade actually reaches producers, other reports seem to imply that Fair Trade is a pretty inefficient way to transfer money to producers in the South. In a critical article in the Wall Street Journal by Stecklow & White (2004), they have reported some examples that show how Northern retailers benefit far more then the producers from Fair Trade. "At Cafe Borders in New York City, producers paid nearly $12 a pound for bags of Fair Trade coffee while farmers received only $1.41." A comparative study of
the coffee supply chain of Nestl and the Fair Trade supplier Cafdirect found that out of the "34 percent Fair Trade mark-up for the consumer price only 4 percent ended up with the producers", mainly due to higher costs of advertisement and marketing license (Mendoza & Bastiaensen, 2003: 40). While David Zehner (2002) compared Fair Trade coffee and conventional coffee and found that "43 percent of the higher price of $1.50 is passed on to producers while 39 percent went into the increased margin of Starbucks itself."
A typical fair trade contract will often involve fixing the price of a product to protect the grower from falls in the market price; it will encourage a particular form of corporate organization such as a cooperative and it will benefit small, rather than large farmers. This certainly should help those involved in organizing their production this way, but citizens should consider the wider impact. If there were to be and adjustment to world supply or demand, and prices in one part of the market are fixed, the prices in other parts of the market must fall by more other growers would suffer more. Employees of large producers would have to find a new job when fair trade consumption shifts away from them and towards small producers. The smaller producers frequently offer poorer working conditions rather than the multi-national corporations. Professor Philip Booth from the Institute of Economic affairs wonders how the market as a whole would react when prices in part of it are less flexible. He answers that an "oversupply may well persist for longer, to the long run detriment of all producers." Booth argues that "Fair trade may well help some people it is designed to
help just like, say, the cooperative movement of the nineteenth century. But, there is nothing particularly contrary, and certainly not immoral, in expressing the view that the help for such people may come at the expense of harm for others people whom we will never meet and perhaps not even be able to identify." Fair trade proponents should not pretend that it exists on a different moral plane from alternatives. Booth states that "Diocesan clergy should not say, as they have, that those who do not buy fair trade products are being consciously sinful; diocesan clergy should not say, as they have, that not buying fair trade products is depriving a laborer of their wages and a sin worse than theft. Perhaps to prove that fair trade, whilst perhaps being prudent or appropriate, does not exist on some higher moral plane, the biggest retail promoter of fair trade products, the Coop, is also the country's biggest recipient of subsidies from the EU common agricultural policy."He feels as if there is no doubt that the subsidies do more damage to the developing world than the sale of fair trade products does good.
Now that consumers are well informed on the positives and negatives of fair trade, it is ultimately up to a consumer's personal judgment whether or not they want to support the fair trade system.