FairTrade Coffee Problems between Developed and Developing Countries
InstitutionAffiliation
Fairtrade is perceivable as a means to bridge the gap between producersand consumers through relationships that are more direct andbeneficial to all players (Kohler, 2006). In other words, fair tradeis a trading partnership that is premised on transparency, dialogue,and respect, in a bid to enhance fairness in international trade. Theidea behind fair trade is that farmers are guaranteed a price that isfair for their coffee (Locke, Reavis, & Cameron, 2010). Thisidea was appealing to farmers in the period between the 1990s and the2000s because coffee prices had fallen below the cost of production.Knowledgeable consumers favored Fair Trade products because theybelieved they were helping serve a positive cause, even though anumber of issues were unclear, for example, the exact amount of moneyfarmers received and their profits. Also, strict certificationrequirements, in Fair Trade certification, have been seen to resultin the production of low-quality coffee for consumers and uneveneconomic advantages for coffee farmers. As a consequence, notaddressing these issues has led to a decline in industry confidencein Fair Trade coffee (Haight, 2011). Considering the issues discussedbeforehand, an understanding of the problems facing fair trade coffeebean in both developed and developing countries is ideal.
Beforedelving into the discussion about the challenges confronting fairtrade coffee bean in both developed and developing nations, anunderstanding of the reasons why it was created, in the first place,is prudent. The cyclical nature of the coffee industry is the firstreason. Since coffee is an agricultural product, it is susceptible totemperature fluctuations and growing conditions, which result inexaggerated boom-bust cycles (Haight, 2011). When farm outputdeclines, a boom in the coffee sector occurs, resulting in priceincreases due to inadequate supply. Conversely, when busts happenoutput is high large supply provokes a sharp decline in coffeeprices. Consequently, the less developed nations sought pricestability through commodity agreements. The International CommodityAgreement (ICA) came into being to bring about stability in thecoffee industry (Warrier, 2011). The 1940s witnessed the firstagreement, which was intended to achieve a state of balance duringthe war when Latin American farmers could not access the Europeanmarket.
Afterthe war, the sudden increase in coffee demand made the renewal of theagreement imperative (Haight, 2011). In the 1950s, down cycles, onceagain, threatened economies. In essence, the ICA was a cartelagreement since member states (coffee producers) restricted outputduring peak seasons (busts) to maintain higher prices, and, later,sold the beans when output was low, after storing the excess duringthe peak season. However, after the fall of the Berlin Wall andwaning of communism in Latin America, the US government withdrew fromthe agreement. After America`s exit, member states began goingagainst the set rules, leading to the dissolution of the accord (FairTrade, 2012).
Whenthe prices of coffee plummeted in the 1980s, fair trade activistscame in to provide farmers with a system that would help them gainaccess to international markets (Haight, 2011). A fair tradecertification initiative was developed in Netherlands, in 1988, byeconomic justice activists. The initiative was called Max Havelaarit was named after a Dutch writer who was opposed to the oppressivepolicies set by the Dutch colonialists in East Indies (CQResearcher., n.d.). The organization developed labels for productsthat had reached particular wage standards. Subsequent years saw therise of organizations that supported Fair Trade.
FairTrade was conceptualized by FINE, an association that came to beingafter the four main Fair Trade networks came together (Locke, Reavis,& Cameron, 2010). The main Fair Trade Networks are FairtradeLabeling Organization International (FLO), Network of EuropeanNetworks, International Fairtrade Association, and European FairtradeAssociation. As pointed out earlier, fair trade is a tradingpartnership that is premised on transparency, dialogue, and respect,in a bid to enhance fairness in international trade. Fair Tradeplays a significant role in enhancing sustainable development byoffering ideal trading conditions to marginalized workers andproducers, in addition to securing their rights. Fairtradeassociations, through the help of consumers, focus on raisingawareness, supporting farmers, campaigning for changes in thepractices and rules of traditional international trade (Zampetti,2006). Thus, deriving from its definition, Fair Trade is premised onthree assumptions. 1) To assist marginalized farmers and workers movefrom being vulnerable to a position of economic self-sufficiency andsecurity. 2) To empower employees and producers to becomestakeholders in their organizations. 3) To play a more expansive rolein the global space to bring to bear fairness in international trade.
Fairtrade can be said to have been conceptualized in the mid-19th century(Locke, Reavis, & Cameron, 2010). Max Havelaar`s novel portrayedprotagonists battling the Dutch Indonesia colonial government and itsunfair coffee policies, which were directed toward producers.However, Fair Trade was not put into practice until the end of WorldWar II. Fair Trade began with handicrafts, expanded to coffee in1973, and, later, to foods such as tea, sugar, and cocoa (Oosterveer& Sonnenfeld, 2012). In the 1970s, Alternative TradeOrganizations (ATOs) distributed fairly traded foods exclusively(Locke, Reavis, & Cameron, 2010). ATOs linked coffee farmersdirectly to consumers and sold products in particular (specialty)shops this move was made after establishing well-foundedrelationships with democratic producer cooperatives. In essence, ATOsreduced the number of middlemen between producers and consumers, inaddition to facilitating the flow of communication between bothparties. ATO campaigns equipped customers with information regardingtrade conditions and production. Also, the organization transferredknowledge concerning world prices, consumer preferences, and marketconditions to producers. Fair Trade Organization was established in2004 by the International Fair Trade Association (Locke, Reavis, &Cameron, 2010). Fair Trade Organization was the firstorganization-based certification. Although ATOs kept on promotingFair Trade handicrafts, standards-based certification took overorganization-based certification in Fair Trade coffee.
Standards-basedcertification, plus the labeling of foods, was first witnessed in the1980s (Locke, Reavis, & Cameron, 2010). The standards-based FairTrade value chain got rid of the majority of middlemen, includingmillers, local buyers, shippers, exporters, and importers, unlike thecommodity coffee chain. This Fair Trade value chain broughtwholesalers and farmers closer, enabling them to deal directly. Asopposed to catering to Fair Trade interests and dealing withdistribution channels, as was the case with the ATO Fair Trade model,the standards-based approach operated independently. Thecertification organization developed standards that were premised onproduction methods and processes (PPMs). Final products were brandedwith Fair Trade labels, which had the information that had been usedto manufacture the coffee. PPM-based certification, in principle,made purchasing Fair Trade coffee from producing countries possible,and, also, selling it to consuming nations with a Fair Trade labelthat was recognized by consumers.
TheFair Trade Labeling Organization (FLO) was the most popularstandards-based certifying body in Fair Trade coffee (Locke, Reavis,& Cameron, 2010). FLO was established in 1997. A total of 20labeling groups that supported and marketed the Fair TradeCertification Mark in different nations had come together to createFLO (Desai & Potter, 2002). In essence, FLO had three mandates:setting and monitoring Fair Trade standards, Promoting the marketshare of Fair Trade, and Linking suppliers with buyers. FLO wasresponsible for giving organizations that were members of theInternational Federation of Alternative Trade and Fair Trade mark.This mark symbolized that affiliate organizations had met the minimumstandards set on wages, child labor, working conditions, and theenvironment. FLO required organizations to adhere to the minimumprice guide and Fair Trade premium that had been set. The pricepremium was used to alleviate poverty and fund community developmentprojects that catered to the healthcare and education needs ofsociety the price guarantee brought about stability in the coffeesector. Charitable organizations and producer and memberorganizations, through certification fees, funded the activities ofFLO.
Twosets of standards guided FLO`s application process: those concerninghired labor and those affecting small farmer organizations (Locke,Reavis, & Cameron, 2010). The latter was characteristic of thecoffee industry. This category had two subsets that characterized it:nonspecific and those unique to coffee. The nonspecific fair Tradestandards applied to all workers and small farmers, including thoseworking in the coffee sector. Moreover, the nonspecific standardswere separated into three groups: economic, social, and environmentaldevelopment. On the other hand, the coffee-specific standards, to alarge extent, were concerned with price. Growers affiliated to FairTrade were assured that they would get a minimum price for theircoffee, which was $.05 above the price of coffee in the world market.
Toqualify for Fair Trade certification farmers were required, first, tobe affiliated to a small family farm, which was connected to a largercooperative this was known as smallholder rule (Locke, Reavis, &Cameron, 2010). Smallholder farms that were categorized ascooperatives took up approximately 2% to 3% of coffee farmers in theworld. Getting certification to become a Fair Trade producer, formany farmers, was a significant investment. Coffee farmers wererequired to part with €500 – charged by FLO as the applicationservice. A number of factors determined the initial certificationfee: the number of members, processing installations, and products.For example, a small farmer organization that was formed legally andhad 200 members requesting coffee certification, which also operateda wet processing factory that had 45 employees, would pay €2,600.Renewal of certificates was done after tow years, but only if theseorganizations met the standards that had been set successfully. Also,depending on the performance of these organizations, thecertification ranged anywhere between €1,050 and €1,750. Theseexorbitant fees and time-consuming processes sidelined somecooperatives that could afford the associated fees and guidelines setby FLO.
Althoughthe remuneration received by certified producers is evident, gainingan in-depth insight into the workings of the economics of Fair Tradeis not easy (Locke, Reavis, & Cameron, 2010). A case in point isa transaction between growers and Wholesale Roaster Dean`s Beans. In2004, statistics reveal that coffee farmers who sold beans to Dean`sBeans earned approximately 17% of what a can of coffee retails at. Inaddition, some details were not very forthcoming. For example, in thetransaction between Dean`s Beans and coffee farmers, the productioncost of farmers was not factored in. Also, what farmers earned wassomewhat sketchy because the directors of cooperatives decided theamount of money that would be disbursed to each coffee grower. Infact, one farmer contended that after breaking everything down,coffee farmers only received $.70 to $.80 per pound instead of thestipulated Fair Trade price of $1.26. Thus, if one assumes thatfarmers received the entire Fair Trade price of coffee and theirproduction cost was approximately $.80 per pound of coffee theirearnings would be $.75 per pound of washed organic Arabica coffee.
TheFair Trade movement has been criticized on various occasions(Williams, 2014). First, the disparity between supply and demand forthe Fair Trade coffee is too broad. The global export capacity isseven times that of Fair Trade, meaning the Fair Trade market onlyoccupies 8% of the world coffee production. Thus, in spite ofadhering to the strict regulations and costs of production set byFair Trade, farmers are forced to sell a substantial portion of theircoffee in the common market due to a lack of demand, which is full ofvicissitudes. In the end, coffee producers fall prey to thecapitalist system, where cost competitiveness drives demand.
Consideringthe above, Fair trade is increasingly being perceived as a marketingploy (Locke, Reavis, & Cameron, 2010). Large firms, for instance,Dunkin Donuts and Starbucks, are only buying a relatively smallpercentage of Fair Trade Coffee beans, and then, turning theseminimal purchases into a marketing scheme. TransFair USA, the formerarm of FLO in the US, does not make any distinction between thesmaller 100% coffee firms like Larry`s Beans and establishedenterprises like Starbucks, whose Fair Trade transactions were only3.7%. In fact, the CEO of Transfair contended that a corporate giantthat had the capability of roasting 1 million pounds of Fair Tradecoffee in a year did more than the smaller companies that roastedsmaller amounts of coffee in their lifetime.
FairTrade has also been advanced one that does not fall within the freetrade category (Locke, Reavis, & Cameron, 2010). The reason forthis is World Trade Organization disallowed discrimination on thebasis of production methods. Thus, if Fair Trade poses any threat tothe interests of the dominant players in the market, the WTO willintervene. Lawrence Solomon, a Canadian Environmentalist, is one ofthe individuals who claimed that Fair Trade may disadvantage some ofthe major players in the coffee market. He argued that although FairTrade in a consumer driven movement that seeks to advance trade overaid, trade unions, governments, and foreign relief agencies that havethe intention of keeping the goods of the less developed nationsoutside the Western markets. He further contends that in spite of itsprimary objective being keeping small farmers` interests at heart,the movement acts as a gatekeeper that prevents small farmers fromjoining the "Fair Trade Club." Lawrence said that FairTrade does this to ensure that it remains relevant.
Inaddition to the above, the price structure of Fair Trade is somewhatconfounding (Locke, Reavis, & Cameron, 2010). The idea of comingup with a universal "fair price" is problematic. Reasonbeing, the cost of producing coffee varies across regions. Also, theprices charged by chain stores and coffee shops (for fair tradeproducts) do not reflect the primary objective of Fair Trade. Forinstance, in 2006, Costa Coffee, Britain`s largest chain coffee shop,increased the price of its "fair trade cappuccino" by $.18.After receiving a lot of criticism from clients, this move wasrescinded. The reason Fair Trade products cost higher than mainstreamproducts is because consumers are willing to pay more, assuming theadditional money goes to the certified coffee producers. Studiesreveal that only 1% of the additional profits go to the farmer(Williams, 2014).
Ina recap of the above discussion, Fair Trade was conceptualized as ameans to build the gap between producers and consumers throughrelationships that are more direct and beneficial to all players. Theidea seemed very prudent in the 1990s and the 2000s because coffeeprices had fallen below the cost of production. However, recent yearshave witnessed developments that have resulted in a decline inconfidence in Fair Trade. For instance, strict certificationrequirements, in Fair Trade-certification, are resulting in theproduction of low-quality coffee for consumers and uneven economicadvantages for coffee farmers. These fair trade coffee bean problemsin both developed and developing countries, if not addressed, maylead to the eventual collapse of Fair Trade.
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