[QUOTE=even sven]
Nice sound bite and I’m sure it helps you sleep at night, but it doesn’t work like that. The reasons that fair trade gets involved in the industries it does is because these are industries where the farmers have no access to the market. What your average coffee farmer makes has noting to do with the commodity price of coffee- fair trade is an attempt to fix this. Basically fair trade allows companies to charge a higher price, making it profitable for them to operate in countries where previously only monopolies could do business. This may lead to less money for middlemen, but it nearly always means more profit for the farmers- even the farmers who aren’t involved in fair trade production (since now their middlemen have to compete with the fair trade middlemen.)
[/quote]
Oh, I sleep just fine. I’m sure that the Free Trade organization’s pittance does wonders for an economy where pennies a day makes a huge difference. What is the difference in price between Free Trade Coffee (FTC) and regular coffee? I remember an article stating that the price floor was like 1.20 per pound (more for organic), or .05 above market rate if above the floor (and like $0.15 more for organic if above floor). Current market prices are like $1.26. This is going to cause market distortions as more farmers try to enter the FTC market. As more farmers enter the FTC market, the higher increase in supply of FTC, causing downward pressure on FTC prices.
But wait, there’s a price floor!
The price floor exacerbates even more farmers to enter the coffee market thereby increasing production. Worldwide demand for FTC is a small portion of the overall demand for coffee. I can’t remember what percent of all coffee produced is FTC, but it’s ridiculously small. One of the things that baffles me about the Fair Trade label is that they discriminate against large organizations. Large organizations employ lots of people, don’t fair trade proponents want to help as many people as they can? Anyway, of all the FTC coffee made (mind you, from small, often inefficient-production farms), only about 35 to 45 percent of fair-trade-certified coffee is actually sold at fair-trade prices, according to TransFair USA. The rest is sold at market prices.
Again, more farmers means an increase to supply, which leads to downward pressure in the price of coffee. Large coffee buyers like Illy, Starbucks, Seattle’s Best, Dunkin Donuts, and I’m sure a whole bunch of other retailers only buy a small percentage of fair trade coffee. According to this FTC retailer, only 12 firms in the US are 100% buyers of FTC. According to this article in Business Week 2004, P&G was committed to buying fair trade coffee, trying to become the leading US retailer of FTC, but one FTC advocate claims that P&G purchases of FTC amounted to less than 1% of its total coffee purchases.
With the price floor, combined with the production times and harvesting requirements of coffee, and the fact that it is a commoditized product, farmers are in absolutely no shape to respond to prices. The only way they can respond in the short term is to decrease production costs which leads to decreases in quality, thereby hurting the Fair Trade label. According to this site, Illy explains how they buy coffee, and the owner hereexplains other problems of the FTC label.
The price floor also sends a wrong price signal to the farmer, thinking that he can get the FTC price for his coffee. Odds are that hey won’t be able to sell the majority of his crop at that price, but because of production cycles the farmer has to gamble a year (perhaps 2) hoping to get today’s prices for coffee. However, with the glut of supply, more likely the price will drop further, causing the farmer to sell at a loss, and extending the cycle of poverty. I wish I could post an article (there might have been more than one) from The Economist and Time, but it’s subscription only (The Economist might frown upon my abuse of their privileges) and I can’t remember when the Time article was published.
Anyway, I think I made my point. As evidenced in this very thread, people are price sensitive to the price of coffee. Personally, I only usually drink mochas, so I’m especially even more price sensitive and less discerning about quality. Buying FTC will only make matters worse for both the farmer and the consumer, and as one article puts it, “only creates an island of wealth in a sea of poverty.”
Additionally, I’m nonplussed in general about organizations looking to add value (which is nothing more than marketing) through a label. I wouldn’t be surprised if a majority of the funds go to either a retailer’s profit or to the organization itself to “help spread awareness.” If one buys FTC, they should be made aware of the buying reality – little if any help to the farmer, and creating long term problems down the road, versus the warm, fuzzy feeling behind the marketing gimmick. One should concentrate on value, like organic, shade grown, etc., because at least that value is more quantifiable, i.e. what exactly is the fair trade price? who determines it? The more efficient thing to do with one’s money is to donate it to the organization that deals with that issue.
But it’s a tasty coffee (it comes in beans and we use a cheap coffee/spice grinder)