by Kanyon Iwami
Over a thousand years ago, the coffee bean was discovered in Ethiopia. It is now globally consumed at a rate of 2 billion cups a day and is the second most traded commodity in the world (Luttinger, and Dicum IX). Having the largest share of Fair Trade (FT) agricultural producers and workers, the coffee industry is at the forefront of the agricultural sector for social responsibility and sustainable development (Dragusanu, Giovannucci, and Nunn 219). This paper will discuss the Fair Trade model and the international market pressures placed on small producers in coffee producing regions often associated with high levels of poverty and corruption. The last sections will cover the impact of FT mechanisms on communities and cooperatives, and necessary reform that should be made to improve democracy and transparency in order to reduce the risk of human rights violations in the coffee industry.
Today, 80% of the world’s coffee is produced by small to medium sized farms, whose agrichemical inputs, such as fertilizers, and labor unfortunately eliminate most remaining profits (“Coffee Farmers”). Small farms, categorized as being less than 25 acres, contribute to over half of the global coffee supply, and nearly 25 million small-scale farmers rely on coffee as their only source of income (Daire, par. 2). These small farms take the largest hit when global prices drop, and must rely on cooperatives and subsidies to survive during downturns.
Labor on small coffee farms is split up into four categories: fixed-salary laborers, family members, temporary harvest laborers, and casual laborers (Daire, par. 5). Temporary harvest laborers are usually migrant workers working on contracts, while casual laborers work during the off-harvest season. During harvest seasons in Honduras up to 40% of temporary harvest workers are children, and in Kenya some temporary laborers make only $12 a month (“Food Empowerment Project”, par. 4). In a Verite study that surveyed 372 migrant coffee workers in Guatemala, roughly 59% reported that they were struggling to pay for daily living expenses, 34% reported a lack of understanding of the mechanisms behind their pay and deductions, and 10% reported suspicions of deception of the weight of the coffee they had picked (“Research on Indicators” 34-36). Of the 372 workers interviewed, 85.8% reported that their children helped them to harvest coffee, and 98.8% reported that minors were working at their previous coffee plantation job (“Research on Indicators” 46). Low labor wages often go hand-in-hand with labor rights violations; the dysfunctional commodity chain is at fault.
I. Fair Trade Mechanisms
The Fair Trade system creates a channel for farmers to pull themselves out of poverty. From 1997 to 2012, the program grew to an impressive 1.2 million FT-certified farmers exporting to nearly 120 countries (Dragusanu, and Nunn 2). FT works with hundreds of companies to improve sourcing to sustainable producers. The model has allowed individual farmers and cooperatives to receive much higher prices for their coffee as a result of the emphasis on the quality of the beans (Rice, par. 10). Integrated in the pricing model are premiums for cooperatives that support improving the quality of life in their communities. FT argues that its investment in quality has helped small farmers and cooperatives receive better pricing, increasing income flow to rural impoverished areas, thus fostering their development (Rice, par. 5). Although quality does not directly correlate to justice, it is one of the most effective means to promote justice in the dysfunctional coffee industry where small producers and laborers are marginalized. Fair Trade organizations have promoted sustainability movements in importing countries, trickling more money down to small producers, and aiding the economic development of local communities.
II. Price Volatility
The international market forces that determine the price of coffee have been very volatile since the collapse of the quota system of the International Coffee Agreement (ICA) in 1989. The ICA is a United Nations protected trade agreement between exporting and importing countries which helped to keep coffee prices stable during the 1960s and early 1970s and strengthened the coffee infrastructure of developing nations (“ICO,” par. 3). The collapse of its quota system ended the stability of global coffee prices, leaving farmers without a secure investment planning horizon (Mehta, and Chevas 5). The volatility of prices in the coffee market prevents governments of developing nations from investing in coffee agriculture, and it is especially damaging to small farmers who are unable to predict their annual income year-by-year and do not have the capital to sufficiently survive price drops. Fair Trade organizations attempt to bring greater income share to these producers, who are made even more vulnerable due to unpredictable global prices.
III. Impact of Fair Trade
The actual impact of Fair Trade in helping coffee producers fight poverty has recently come under heavy scrutiny. A Harvard study of Costa Rica FT coffee producers found no benefit to the poorest workers in the industry (Dragusanu, and Nunn 27). The study found evidence that FT does not particularly increase the income of coffee farm laborers who are not skilled coffee growers or farm owners (Dragusanu, and Nunn 28). However, the positive local impact of Fair Trade premiums is exemplified by the higher school attendance rates in regions of Costa Rica as a result of investments and scholarships funded by the premiums. Nevertheless, there was also a correlation to reduced school attendance rates of children of coffee growers, most likely due to children moving from schools to the workforce as a result of financial opportunities granted by Fair Trade price floors (Dragusanu, and Nunn 28).
Supply chain experts from I-DEV International, a leading investment and business strategy firm, met with farmers and cooperatives in Indonesia to see the real impact of FT on local communities (Spindler, and Chin-Sweeney, par. 2). They found that coffee cooperatives were investing their FT premiums and becoming highly sophisticated and well-equipped operations, while individual farmers felt disconnected from the co-ops and had no idea how much their coffee was selling for (Spindler, and Chin-Sweeney, par. 4).
The majority of farmers from a study in Nicaragua had very little understanding of the Fair Trade certification system, and were not familiar with the rights and responsibilities that were entailed with selling to the FT market (Valkila, and Nygren 16). Despite lacking this information, 46% of surveyed households in Nicaragua engaged in FT were able to make household investments, while only 10% of those not engaged in FT made similar investments. Despite farmers not being fully engaged with the FT system, they do still benefit from the local development that it enables (Bacon et al. 269).
The higher quality of coffee supposedly sold as FT is another point of debate. Due to lower demand for FT coffee, farmers will sell their lower quality bags at the FT price floor and receive $1.40/lb while selling their high-quality beans off-FT for much higher. In this way, FT can be used to sell low-quality beans at price higher than the quality deserves (Haight, par. 16).
FT labeling organizations (FLO) have helped mainstream corporations understand that sourcing is becoming important to consumer choices. Fair Trade-labeled products rose from 11% in 1998 to 42% in 2003, proving that there is a huge market gap to fill for FT-labeled products (Nicholls, and Opal 142). However, to what extent does the massive growth in Fair Trade labeled products actually help to benefit the individual producers?
Fair Trade must re-engage the individual farmer to remain relevant in the socially-conscious specialty coffee movement and must come up with a tiered specification system like LEED, a rating system established by the U.S Green Building Council which includes operations, maintenance, and design in order to promote continuous improvement (Spindler, and Chin-Sweeney, par. 4). This article is in no way an attack on FT nor does it serve to discredit the significant impact FT has on contributing to the development of rural communities.
Furthermore, co-ops need to become more democratic and transparent. The Pachamama Cooperative serves as an ideal example of how co-ops should be run and were originally meant to run. Owned by 150,000 family farmers, it is a Fair Trade co-op and the first company to use TraceableCoffee.org, a consumer-to-producer linking database that allows consumers to locate and contribute to individual coffee farmers (“traceablecoffee.org,” par. 1). Pachamama producers want consumers and retailers to realize that buying sustainable coffee shouldn’t be socially branded as a luxury or an act of philanthropy, but as a standard norm (Garvie, par. 1).
Since 2011, global coffee consumption has grown 1.3% annually and will continue to rise as the middle classes of developing nations grow (“Global Coffee Consumption”). Most of the value of the bean comes after the producers lose ownership, putting individual farmers at a huge disadvantage. Over the past few decades, coffee-producing countries have had an increasingly disproportionate income share compared to the nations involved in coffee retail. Since the ICO no longer has direct influence on the global coffee supply, socially conscious economics must be applied to prioritize individual coffee farmers and temporary harvest laborers, the most vulnerable and marginalized groups along the commodity chain. Although Fair Trade may act as a safety net to certified producers during coffee price downturns, the benefits of FT are decreased during seasons of price stability or high market prices. The increased costs from adhering to social and environmental standards favour skilled and income-stable farmers in the certified market. The modest additional income that FT provides to low-intensity and impoverished farmers may not provide them with the financial cushioning necessary to escape their poverty .
Fair Trade organizations share the goals of bringing greater income share to the individual farmers through various complex mechanisms. Despite imperfections, these models exemplify the necessity for changing a supply chain whose foundation rests upon human rights abuses. There must be constant innovation in the Fair Trade model for the coffee industry, which serves as the forefront for social responsibility and sustainable development in the agriculture sector. FT should consider a certification system tiered on coffee quality, implement stricter transparency requirements for cooperatives, and commit to developing relationships with individual farmers. Pricing mechanisms must be transparent to ensure pay equality and to improve the understanding of FT standards in producer communities. Programs must also be created which would develop the means for farmers in rural areas to obtain information on current global coffee prices, in order to prevent loss of income share to exploitative cooperatives.
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