More Fair Trade Coffee

The New York Times piles on on Fair Trade goods.

TransFair USA and 19 similar nonprofit agencies in other countries collect licensing fees on each product that uses the Fair Trade label. All of them answer to an umbrella group, the Fairtrade Labelling Organizations International, based in Bonn, which also monitors the farmers and assesses fees for fair trade participation.

TransFair describes its logo fees as amounting to just pennies on the pound. The pennies add up. Last year, it generated $1.89 million in licensing fees from companies that used the logo. It also spent $1.7 million on salaries, travel, conferences and publications for the 40-employee organization.

Some critics find such expenses excessive. "Farmers often receive very little," said Lawrence Solomon, managing director of the Energy Probe Research Foundation, a Canadian firm that analyzes trade and consumer issues. "Often fair trade is sold at a premium, but the entire premium goes to the middlemen."
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The coffee farmer who produced the one-pound bag of coffee purchased by Mr. Terman received $1.26, higher than the commodity rate of $1.10. But whether Mr. Terman paid $10 or $6 for that fair trade coffee, the farmer gets the same $1.26.

"There is no reason why fair trade should cost astronomically more than traditional products," Nicole Chettero, a spokeswoman for TransFair USA, said. "We truly believe that the market will work itself out as Fair Trade certified products move from being a niche market to a mainstream option. As the demand and volume of Fair Trade certified products increase, retailers will naturally start to drop prices to remain competitive."
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Each fair trade commodity has its own fair trade price, or the lowest price farmers will receive even if conventional commodity prices fall. That price is meant to allow them to cover their cost of production and improve their lives — by, for instance, providing money to be invested in their farms and in schools.

Yet a price that is fair in one country may not be in another. In Brazil, "$1.26 per pound for coffee is a fortune," said Kevin Knox, a coffee consultant in Boulder, Colo. "In the forest in the mountains of Mexico, the money barely is enough to justify doing it. Their yields are small, and the costs of production are higher."

In some cases, the individual farmers may receive less than fair trade rules require because the money goes to cooperatives, which have their own directors who decide how much to pass on to farmers.

"We did a breakdown and saw that sometimes, what they're paying farmers is only 70 cents to 80 cents a pound" for coffee instead of the entire fair trade price of $1.26, said Christy Thorns, a buyer at Allegro Coffee, a roaster in Thornton, Colo., that is owned by Whole Foods. "There are so many layers involved."

Transfair, she said, doesn't "clearly communicate that to consumers."

I've pointed out the unfairness of Transfair's licensing system and the uncompetitive prices of Fair Trade. Now the NYT points out that the farmers don't necessarily get the higher commodity price the Fair Trade certification supposedly guarantees them. The profits still go mostly to the middlemen. So what makes Fair Trade different or better than other coffees? Nothing.

Hat Tip to Cafe Hayek which has more Fair Trade analysis.