What is Fairtrade and Why It Should Matter to You

Robin Renford
Robin Renford
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coffee farmerFlipping through channels to world news you cringe at how an African village survives without running water, electricity and sanitation, and with just maize as everyday food.  Your mind wanders off, perked up by that morning cup of coffee in your hand and cozy in your seat amidst the snow-covered city outside. How frustrating that you can’t do anything for the poor villagers. But you can. And it’s right in that cup you’re holding.

In an earlier ‘Cherry to Cup – The Economics of Coffee‘ article, we follow the capitalism of coffee from growing to drinking. Now, let’s follow the socialism in coffee. If coffee is a voter, you’re likely drinking a Dem in that cup now. Fairtrade, or the advocacy to make the coffee trade fair to the farmer, is, not surprisingly, a European idea. To be exact it’s socialism + capitalism = social capitalism, which allows you to drink your $7-dollar coffee guilt-free.

What goes into your cup—a farmer’s story

Imagine the whole of China drinking a cup of coffee every day. That’s the number of coffee drinkers in the world every day. In 2011, coffee-producing countries earned $23.5 B. This makes coffee as the most valuable agricultural product in the tropics, according to the UK-based Fairtrade Foundation. It’s big business, no doubt, except for the small farmer. His calloused hands starting the engine of this global economy, the farmer is one of the poorest in the world.

In a capitalist world, the person with the biggest money to invest, the most sophisticated business acumen and complex systems and facilities in place tend to earn the biggest return. That’s not the farmer. A farmer used to earn 20% off the retail value in the seventies—the price you pay for a cup or pack—when coffee prices were protected by the International Coffee Agreement (ICA) among producing and buying countries. But conflicts with the World Trade Organization’s free market policies and abuses in the quota system ended ICA protectionist clauses as globalization reined in on closed markets during the late eighties.

Private enterprises would take over the industry, speculating and trading coffee like diamonds. But unlike corporate businesses, coffee is not entirely influenced by the law of supply and demand. Tragically, it’s the law of life and death that often governs the livelihood of people in the lowest rung of the value chain. With free trade, prices plummeted to lowest levels due to an oversupply of coffee. A study showed that farmers only earned 1-3% during the crisis following the ICA dissolution. Many farmers sold their products for a loss and were caught in the cycle of poverty and debts that spurred social breakdowns in their communities.

Imagine a tragic picture that kept—and still keeps—emerging from small farms, many of them are in developing countries. A farmer who asks for a loan from a neighborhood shark to grow his coffee plants can’t pay back because coffee prices nosedive just when he’s ready to sell. The prices are way below his costs. Unable to pay the loan shark, he loses his land or house or, worse, a daughter to be sold in white slavery. When similar stories started to stream in in western media, consumers started to see blood in their freshly brewed coffee. It’s the seventeenth-century cotton industry of today.

Enter fair trade

fairtrade_logoThe Dutch were the first to demand coffee to be a fair trade after seeing the collapse in many small farms.  In 1989 the first Fairtrade label was launched and sold in Dutch supermarkets. Three years later, the Fairtrade Foundation was created in the United Kingdom to provide a standardized labeling for the country’s coffee products. Today, the label is recognized in twenty-four buying and producing countries including the United States.

What do all these mean to you? As a coffee consumer you can choose coffee labels that carry the Fairtrade seal. That means your coffee brand follows fair trade practices that protect its suppliers, the farmers, from manipulative traders. Consumers are at the frontline to change things the way their coffee is made. Major coffee brands today in Europe and North America, the two largest coffee consuming markets, carry the Fairtrade seal in response to media and public pressure.

The Fairtrade seal binds the big business players—coffee traders, roasters and coffeehouse companies—to assure farmers a minimum price that is not only above their expenses to guarantee a profit during market lows, but a price that allows farmers to plow money back as an investment to address climate change, rising farm and household costs and long-term price dips. Under a Fairtrade setup, farmers also get access to training and technical support, usually supported by major industry players.

But Fairtrade is not the simplistic model that it sounds. It’s a complex system of obligations and benefits that may shake long-held socio-cultural norms. The farmers must organize themselves into a cooperative to guarantee consistent production. In many rural areas, this requires importing a knowledgeable person, an outsider, to help the village, whose farmers’ education often won’t suffice to implement business fundamentals. In some African countries, Fairtrade can also mean a head-on collision with the trader, usually an important person in the town who can threaten entire villages. It also means taxing people with additional dollars to run the cooperative, a few dollars that can spell food or hunger for many families. In many instances, foreign big business steps in to subsidize the initial costs or back up the cooperatives (see, some of them are still good). Many corporations realize the potential of the Fairtrade seal in marketing, branding, consumer communication and, ultimately, sales.

Fairtrade has a long way to go. Many more farm communities deserve a fair share of the money you pay for a cup of coffee. In the meantime, make sure your coffee has the Fairtrade label. It’s a feel-good seal that lets you enjoy your coffee with a clear conscience.

WHAT YOU CAN DO (by the Fairtrade Foundation)

  • Switch to Fairtrade coffee or keep enjoying Fairtrade coffee if you already do
  • Check out the huge selection of Fairtrade roast and ground, whole beans, espresso, decaf, instant, and freeze-dried coffees at www.fairtrade.org.uk/products
  • Support brands from dedicated Fairtrade companies like Cafedirect, Clipper, Equal Exchange and Traidcraft
  • Ask your supermarket to stock more coffee products carrying the FAIRTRADE Mark and to switch their own label coffee to Fairtrade if it hasn’t already
  • Write and ask your favorite coffee company to switch to Fairtrade
  • Ask your workplace, local authority, schools, shops and cafes to switch to Fairtrade coffee
  • Ask your friends and family to do the same
  • Support the World Development Movement’s campaign to end the opportunistic speculation in commodity markets that causes dramatic rises and falls in the prices of staple foods—see www.wdm.org.uk
  • “Like” us on Facebook www.facebook.com/FairtradeFoundation and follow us on twitter @FairtradeUK

CONCLUSION

The Fairtrade seal puts back the protective clauses the farmers enjoy during the ICA years. Except this time, the protection is initiated by private enterprises, influenced by the market forces and implemented at the ground, the farmers. It’s not perfect, but to tweak a line from the movie Argo, it is the best not perfect idea by far.

DO YOU THINK FAIRTRADE IS MAKING A DIFFERENCE
OR IS IT JUST ANOTHER MEDIA-HYPED ADVOCACY?

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Robin Renford

Robin talks about a wide range of financial topics, from macro-economics to personal finance, and investment portfolios to proprietorship. He focuses on providing financial advice to his readers as part of the FinancesOnline team. He is also working on a book about wealth management for the average American, using his more than a decade of experience on and exposure to the business sector as inspiration.

Category: Ideas Worth Spreading

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