For me, it is espresso. For coffee farmers, it may be a living wage. For many students, Fair Trade coffee is the prescription to cure poverty throughout the world. Like all prescriptions, the ingredients and side-effects of the Fair Trade movement are clearly written on the label but few people bother to look.Before 1989, the International Coffee Agreement kept the price of coffee beans high through export quotas and limited production. When the agreement collapsed, farmers began producing coffee in record quantity as a flagrant act of capitalism. Brazilian and Vietnamese coffee growers began using more machines and low-cost methods to yield greater efficiency. As a result, the price of coffee beans fell by over 50 percent because of technological advances and the laws of supply and demand.
When supply is greater than demand and you cannot contend against a low-cost competitor, you have three options: exit the market, invent a new strategy or be rescued by a bureaucratic organization.
Enter Fair Trade coffee, the quixotic certification effort with a heart of gold. TransFair USA, the only Fair Trade coffee certifier in the United States, promises farming cooperatives (organized farmer groups, almost like a union) a magnified price of $1.26 per pound of coffee beans ($1.41 per pound if grown organic). The advantage of this price to cooperatives is undeniable. All the proceeds are given to the cooperative and each member receives one vote to decide how the money shall be distributed. Although individual farmers are not guaranteed a definite portion of the revenue, the results of Fair Trade selling are community development, higher standards of labor and lower environmental impact.
To become a certified fair trade coffee grower, farmers must first collectively pay the Fair Trade Labeling Organization (FLO) between $2,000 and $4,000, followed by annual recertification fees. According to TransFair USA’s Web site, these costs can be a “barrier to entry into the Fair Trade system” for small cooperatives but can be partially lowered through grant donations.
While cost is a temporary barrier to Fair Trade, failure to join a farming cooperative is a permanent barrier. The FLO will not certify standalone farms, even if they are family-owned. On the other hand, if your cooperative operates on a tribal basis, like in Africa, you are also excluded from Fair Trade. Only democratic cooperatives can apply.
Further discouraging a farmer’s individual initiative is the practice of mixing the coffee beans of one farmer with those of the other members of the cooperative. If Farmer X implements quality improvements to his growing technique, the benefits are muted because his output is combined with that of his peers. Beyond that, it does not matter if a Fair Trade farmer’s coffee is eventually sold by retailers for $10, $15 or $20 per pound, the farmer’s cooperative can and will only receive $1.26 per pound. (Remember, Fair Trade coffee does not put additional money into the pockets of individual farmers, but only into the cooperative and never more than the minimum floor price).
Another criticism of Fair Trade coffee in America is that the social movement has sold out. TransFair USA spent over $1.2 million on marketing and product education in 2004, according to their Form 990. Much of this money was spent promoting themselves to multinational corporations and attempting to convince consumers that it is impossible to be socially conscious without being “Fair Trade.”
Of course, to imply that any product without a “Fair Ttrade” label must be exploitive is dishonest. In fact, because Fair Trade prices subsidize inefficient suppliers (keeping them in the market), this only prolongs the suffering of farmers who do not qualify for Fair Trade’s rule.
For all the hype, hope and red tape surrounding Fair Trade coffee, the economic realities remain the same from the beginning. The world is still producing more coffee than consumers are drinking. Fair Trade ignores supply and demand, leaving the global price of coffee depressed because of overproduction.
A large regulatory body that implements price floors, by any other name, does not guarantee fairness, freedom or universal prosperity.