[Article] Fair-trade coffee: not worth a hill of beans

[Alistair]

http://www.csmonitor.com/2008/0808/p09s02-coop.html

"The problem with fair trade is the problem with just about every so-called progressive economic policy: it ignores the laws of supply and demand."


Gene Callahan, an adjunct scholar at The Foundation for Economic Education and at the Ludwig von Mises Institute, is the author of "Economics for Real People." This essay has been adapted from a longer version in the March issue of "The Freeman."

Here's the link to that longer article:

http://www.fee.org/PUBLICATIONS/THE-FRE ... p?aid=8244

[Mark Prince]

Good grab Alistair - that was a good read.

I need to kickstart the FT article I've been writing and rewriting for months. The one that isn't going to make transfair very happy if I ever do get around to publishing it.

My big worry is I don't want anyone to try and decimate or denigrate FT too much. It's actually a quite capable welfare system for farmers, and farmers themselves say as much (I have a lot of choice audio quotes recorded at SCAA Minneapolis to this effect).

But equally, whenever I walk by the coffee lane at Meinharts or some "socially correct" grocery store, and see the blazing logo bags from Ethical Bean and others that just scream "buy us, you'll feel good", I want to scream myself, given that the ethical side of FT has long since been passed by the marketing muscle. The moment Transfair decided to not raise the base price (and I have my own guesses as to why), they started losing ground on the ethics.

The most interesting thing to me is how Dean from Dean's Beans did a double turnaround on FT. He was one of the founding supporters, then left the program a few years back because of a lack of focus on ethics and how the system was working, and pairing up with the Selfridges and Dunkin Donuts of the world, but he's back, and back full bore with FT these days. I need to have a serious talk (read: podcast interview) with Dean to get to the heart of it. It's in his book, I assume, as well - but I'm only 1/3 through it so far.

Mark

[Peter G]

It's unfortunate that people keep writing articles like this one, and that legitimate publications like the Christian Science Monitor and the Economist keep printing them. Callahan's article is way off the mark, and his criticism of Fair Trade doesn't hold water.

It's way to facile and shallow to try to shoot down the concept of Fair Trade over the base price concept, saying that it interferes with supply and demand economics. That's too simplistic. By that same logic, we should eliminate minimum wage, rent control, and every price control scheme we have developed for agricultural commodities, energy, cable tv, etc. Everyone but the most extreme libertarian understands that the free market doesn't always work, and that sometimes one needs to exert control over markets to keep them from hurting people. But, you'll notice that this article was written by an extreme libertarian.

Callahan's point seems to make sense, but is in fact patently false. He trots out a high-school free market example: claiming that Fair Trade's price floor will keep inefficient farmers in business by paying them high prices for their coffee when they should be pushed out of the market, pursuing other jobs. Makes sense, right? If FT guarantees a farmer a price over his costs of production, then he will keep overproducing coffee, leading to a global glut of coffee.

Here are some problems with that theory:

1. Callahan's theory only works if farmers are assured that their coffee will be purchased at the FT base price; that would indeed keep them farming coffee instead of other things. In fact, FT produced and certified coffee needs to compete with all other coffees on the marketplace. Callahan is confusing FT with a subsidy, which it is not. FT certification is an added quality the coffee possesses. In other words, the fact that the coffee was traded for a price above the cost of production is a competitive advantage for the coffee in the open marketplace.

2. The effect Callahan describes would also not kick in unless the majority of coffee in the world was being traded under the FT system, with its base price intact. As it stands now, less than 5% of the world's coffee production is traded under FT certification guidelines. Most FT producers don't sell all of their coffee as FT, in fact many FT certified cooperatives sell less than half of their coffee under Fair Trade contracts.

3. Callahan's free market would have a lot easier time working if coffee could be produced quickly. In fact, since it takes over 5 years between planting and harvesting coffee, simple supply-and-demand takes decades to work in coffee. This explains the pattern of 7-year "feast or famine" swings in the coffee market. The New York Board of Trade's "C" market, which was invented to deal with such price volatility, has instead become a tool for speculation (most of the activity in the coffee market is not related to the coffee trade) The FT base price is an attempt to bring some stability to a market whose volatility has nothing to do with supply and demand.

It's too bad that these "academics" keep taking these sophomoric pot-shots at Fair Trade. There is a lot to criticize about the system, and these articles only muddy the waters and keep us from working to actually address the real problems.

Peter G

[Mark Prince]

I'm loathe to argue any point with you Peter, but several things in your argument stand out for me - but I just want to address one

The FT base price is an attempt to bring some stability to a market whose volatility has nothing to do with supply and demand.

I cannot agree with the statement that volatility in the market has nothing to do with supply and demand. Historically, there's many precedents where supply has driven the price in coffee. Most recently was perhaps Vietnam's ascension from a no-name in coffee producing nations to becoming the second largest grower in a decade, which drove coffee prices to historic lows.

Brazil's flooding the market / holding back crops / warehousing crops historically has had varying affects on the market as well - sometimes massive, sometimes not.

If I can address another point perhaps not made, but sort of discussed - the base price. In four years I've listened to various Transfair people discuss the base price non-movement. I've asked questions about it. I've read reasons behind it. I've heard over and over again how the premiums are accounting for better monies being funneled down to the farmer level.

I can't say the arguments are convincing. The bottom line is, the base has not changed in a decade - it has not changed with inflation. It has not changed with economic realities. One thing is very convincing though - with FT's rise in marketing popularity, and the signing on of some substantial (multi-million pound) contracts by major buyers over the years, there's a big difference between FT raising the base price a few pennies for a roaster who buys 20 bags a year, and someone who buys 200 containers a year.

I don't expect FT's base to always be 300%, 200%, heck, 100% over the C. But for it to be true to it's mission (IMO, of course), it has to evolve with the times, and economic realities.

You may not like Callahan's article, and upon a second read, I see a lot o the flaws you eloquently pointed out, but when it comes right down to it, FT today isn't really what FT was envisioned to be 8 years ago. It's become a marketing ploy, and used to great effect - more consumers today believe that FT is an ethical, hiqh quality coffee than any other type of coffee available, including things that are perhaps making more of a difference today - Direct Trade, Rainforest Alliance certified, Bird Friendly, - all of these, I believe at least, are having a much larger impact on every aspect of the coffee and the farmers' lives, not to mention the environmental conditions.

Mark

[Peter G]

Hey Mark!

The volatility I was referring to is the day-to-day and month-to-month volatility of the "C" market, which has very little to do with coffee supply and demand at the market level. Most of the volatility we have seen this year, for example, has to do with the activity of financial entities (significantly, hedge funds). Base prices are an attempt to protect coffee farmers from the low side of these swings. Roasters usually protect themselves from the high side of those swings by using hedges. You're right, however; at the macro level coffee supply (or rumors about coffee supply) drive price swings... however, in my opinion the impact of this kind of thing (like the Vietnam robusta glut, for example) are somewhat exaggerated in the popular mind. I have been amazed over the years to learn how much coffee market activity is non-fundamental. Also, remember, that the "c" market is dealing in coffee as a generic commodity: supply-and-demand differs for different coffees. For example, rumors of a large crop in Brazil may send the "C" market price low at the same time that there is a shortage of coffee in Sumatra and Ethiopia. While there is the hint of supply and demand there (world market falls because of rumors of low supply in the future), the Sumatran farmer has little to do with it; there is still a market which demands his produce at a premium. It is, admittedly, a slight exaggeration to say that the "C" market has nothing to do with supply and demand, but it has long since become a useful indicator of global supply and demand for coffee. Too bad, actually; it was designed to be a useful risk management tool for coffee farmers and roasters. It struggles to perform that function nowadays, in my opinion.

As far as the FT base price goes....it's important to remember that the FT base price is a base; a sort of failsafe. It's meant to be a number below which coffee prices should never fall. It's not a "fair price" for coffee. It's an absolute minimum.

I understand FLO's decision not to increase the base price. Mainly, it's a good indication that it is folly to try to come up with a one-size-fits-all base price in the first place.

(note: from here out, you will notice that I am pretty critical of the FT base price. This may seem contradictory to you, since I defended the base price against Callahan's criticism. In fact, I feel there is a lot wrong with the FT base price, just not for the reason Callahan gave. Ok. Continuing now...)

Ok. The FT base price is an FOB price meant to approximate what coffee costs to produce. Their first stab at it (1.26 in the late 90s) was a pretty good guess, probably based on some pretty good work, but ultimately a guess. This base price applied to coffee from Sumatra, Ethiopia, Colombia, Guatemala, Mexico, Peru.... all places which have different costs of production. For a while, there was talk about trying to make different base prices for different countries, but ultimately that idea was dropped. During "the crisis" of the early 2000s, the FT base price was way above the "C", so it seemed to everyone like a pretty big premium. It wasn't really meant to be a premium, however; it was meant to be a failsafe bottom-of-the-market.

That's the ironic thing about the FT base price. It's not, and it's not really meant to be, a universal "fair price". The market is the only one that can determine a fair price, along with an informed seller (the farmer). Really, if a farmer knows his costs of production and has access to the open market, he will realize the fair market value of his produce. Markets do work, when there is good information available to all parties (information symmetry). Anyway, that's one of the problem about the Fair Trade movement using the word "fair". It's impossible for FLO to determine a fair price, so they just have established a bottom-of-the-barrel lowest price possible.

When the idea came up to raise the base price, the FLO standards committee and board had to consider whether to do that. They, no doubt, looked at all the countries who were producing FT certified coffee. Interestingly, certain South American countries, like Brazil, Peru, and Bolivia, have low costs of production for various reasons. Raising the FT base price could eliminate their competitive advantage against other coffee producing countries with higher costs of production. And there you go again, trying to compare costs of production in disparate countries. I can understand throwing up your hands in desperation at that point.

As a compromise, they raised the "fair trade premium" that is paid to the co-ops (not the farmers). I found that to be a pretty lame deal, myself.

I personally think that 1.21, 1.26, 1.50, whatever are all arbitrary FOB prices that are pretty meaningless when you get down to the nitty gritty. I believe that the Fair Trade movement's emphasis on the base price as a "minimum wage" is inaccurate and misleading, and has lead to much confusion.

It is tempting to see a conspiracy in FLO's failure to raise the base price, along with Wal Mart's FT-certified offerings, McDonald's, etc. In my view, nobody in the movement is that organized. The FLO board and standards committee, who are well populated by farmers' representatives, are doing what they think is right by the movement.

I don't think it is realistic to expect FLO to develop a sophisticated pricing index that attempts to determine fair pricing for all coffees from all producing countries. Also, did you know that the FT price for close-of-business today is 1.4285? When the "C" is over 1.16, the FT base price becomes "C"+ .10 automatically. This in some ways adjusts for inflation, dollar strength, etc. It doesn't really, but it does as good a job as raising the FT base price.

The real deal is to figure out what REAL costs of production are, on a farmer-to-farmer basis, and commit to paying prices above that. The companies that are doing real work in financial sustainability in coffee are focusing their energy on that instead of worrying about base prices.

Peter G

[Robert Goble]

The real deal is to figure out what REAL costs of production are, on a farmer-to-farmer basis, and commit to paying prices above that. The companies that are doing real work in financial sustainability in coffee are focusing their energy on that instead of worrying about base prices....

Where's the incentive for the farmer to control the cost of production? Where's the quality incentive to balance the control over costs with the production of a particular quality? Does "sustainable" have different definitions over time? And ultimately what motivates companies to participate in any of this?

R.

[Peter G]

Where's the incentive for the farmer to control the cost of production?

Fixed-price, long term contracts help with this. If the farmer understands his costs of production, then he can make a contract with a roaster where both know the coffee can be produced profitably for him. The contract is then fixed, and the farmer needs to meet his own goals.

I know it violates capitalist economics 101 to always commit to paying over-cost-of-production prices, but the fact is that the (colonialist) coffee system figured out ways to exploit coffee producers for generations. During the "crisis" period, many farmers were selling their coffee at below-cost-of-production prices, and many roasters were buying these coffees (even specialty companies were doing this.) This obviously unsustainable (read: it won't last forever) practice allowed for short term profits (and suffering) and is a a causative factor for many ills, from malnutrition to mass migration.

Where's the quality incentive to balance the control over costs with the production of a particular quality?

It's very important to always include quality in the conversation; it's possible to build quality incentives into any contract, we do it all the time. Again, long term partnerships help smooth over miscalculations of costs and quality disappointment, and allow for quality development in the long term. In my view, great quality coffee is more often the result of tolerant, long term partnerships than the random action of the free market by itself.

Does "sustainable" have different definitions over time?

I don't think so. Sustainable only means "an activity that is able to be continued for an infinite amount of time". The meaning stays the same, but as information emerges that informs what will make something sustainable, sometimes activities need to change to adapt to that new information. Certainly, one cannot define a particular price level "sustainable" and expect that to hold over time.

And ultimately what motivates companies to participate in any of this?

Lots of things. Profit motive, certainly, but also the desire to do the right thing, the desire to pursue and create beautiful things, the desire to do good work, the pride in trading in the best of the best, and the good feeling that comes along with working together with friends.

Peter G

R.[/quote]

[IanClark]

I've long thought that these basic economic arguments against Fair Trade are the application of Mankiw introductory economics to poorly underdstood situations. Now, I'm not an experienced expert on the coffee trade nor do I have a strong background in economics, but even so I can see some serious flaws in the arguments presented.

I am inclined to agree with some parts of the article, but disagree with the two primary assumptions of the author: 1) that Fair Trade encourages overproduction and 2) that it provides a harmful disinsentive to resource reallocation.

On the subject of overproduction, as Peter rightly pointed out, the supply of Fair Trade certified coffee is highly restricted. Very infrequently are new cooperatives granted license, and within those cooperatives that do have license only a portion of their coffee is sold under Fair Trade terms. Effectively, the supply seems to be restricted by FLO Cert such that it will grow with demand. This is entirely different from setting a uninversal price floor with government gaurentees to purchase surplus production. It does mean that Fair Trade is only beneficial for a very limited number of producer communities. Indeed, Fair Trade would not work well on a massive scale.

Another important point that Peter has made is that the Fair Trade price minimum is not intended to be a "fair price" but rather a minimum acceptable price that hopefully covers the costs of production and the bare needs of farmers. For a minimum price in the coffee industry to stimulate overproduction it would have to gaurentee a standard of living that made the long and difficult process of purchasing of/transforming a coffee farm, gaining membership in a cooperative and growing coffee for 5 years before benefits could be enoyed. I hardly think a minimum price of $1.26 plus premiums and differentials is incentive enough.

It would be very interesting to get some data on the impact of Fair Trade Certification on production, but I'm inlclined to think the impact of Fair Trade on supply is irrelevent when compared to other factors that influence supply and the market price. Evidence of this can be seen in the fact that the past decade has seen a dramatic increase in both the popularity of Fair Trade coffee and, in parallel, the C-Market price. In effect, Fair Trade really creates its own independent market with negligible impact on the price of the conventional market, and within the Fair Trade side-market there are beneficial securities that ensure economic security and, to some degree, opportunity for the producers lucky enough to be involved.

On the second assumption: that Fair Trade is a disincentive to resource reallocation. The basic argument is that if resources (land & labour) are inefficient in coffee production, they should be allocated elsewhere. Fair Trade encourages continued allocation of resources in an inefficient activity and is therefor doing more harm than good.

For this argument to be meaningful, it must hold true that A) the resources can be beneficially reallocated elsewhere and B) the macroeconomy is worse off by supporting these poorly allocated resources.

Now, coffee farming is not very unique when it comes to this problem. When prices are low, resource reallocation becomes very difficult. The trouble for agricultural economies all over the world is that the land is typically being allocated most efficiently in its current use. and can't be directed towards other economic activities. Try to imagine another more productive use for the millions of acres of soybean farmland in the US.

As for labour, I'm inclined to think that producers are not better off by pursuing the life of a migrant worker or an urban factory worker. Although I have limited experience, I imagine they are better off living in their home communities as land-owners. While they may have greater economic opportunity elsewhere, they would probably suffer cultural and socially. This applies to farmers in the developed world as well as those in rural developing countries.

Even if the land and labour inputs of coffee production cannot be beneficially reallocated elsewhere, the argument remains that their inefficient allocation has to be subsidized by some other people in the economy taking a hit by paying a higher price. This isn't really a legitimate argument against Fair Trade as it is exactly what Fair Trade proposes to do. Those people purchasing Fair Trade coffee really are ludicrously wealthy - just walk into a Mac Store in a major shopping centre on the weekend and this will be plainly evident. A little economically inefficient purchasing of coffee isn't necessarily a bad thing. Buying Fair Trade coffee is a modest effort to mitigate the self-interested decision making that sometimes causes exploitation of producers.

So what do I agree with in the author's article? Essentially the argument that most coffee producers will have to find some other form of gainful employment or use for their land if they wish to see greater economic opportunity. I see efforts like Direct Trade, relationship-structured Fair Tade, Rain Forest Alliance, maybe C.A.F.E., among others, as being "sustainable" for those producers involved. Outside of these efforts, ultimately, there is little room for those prices increases on the retail side that need to happen in order for conventional market producers to enjoy economic security. The "utility" of a double-double isn't likely to grow beyond the value of $2/cup, and it's pretty likely that the majority of that retail value is going to stay with the mega-processors and distributors.

That was a bit of a ramble, I hope it makes sense!

[Brent]

The idea of shifting from producing coffee to another product is an interesting argument, and assumes that the ability of the producer is there to make a switch in production. If the lead time to switch to say cocao is 3 years, the assumption is that the farmer has the resources to wait three years for an income from the new crop.

Plainly, I would assert, most coffee farmers are not in this position.

So reality is perhaps a little different from economic theory which is looking at a macro level does not apply as well to a micro level in the real world.

Supply and demand is a useful tool in determing a rate of exchange, but as Peter alluded, with the large hedge funds etc coming into the various marakets, and see contracts simply as financial tools for levering margins, the supply and demand is not based on consumption.

If you look at consumption, then supply basically over time meets demand.

On that basis, surely the price in the market should reflect the cost of production, a return to the producer based on the investment involved, costs plus margins for those involved in the supply chain getting the coffee to the end market, and finally a retail margin.

No one would dare suggest that a cafe open it's doors and just take what the market offers for their goods on the day. It sounds ridiculous - who in their right mind would open the doors and just hope that once everything had been sold they had received enough to cover their costs plus hopefully a bit more, but don't worry, because the market should / could be better tomorrow. I suspect very few of us would trade on that basis, yet it seems fair to expect the farmers (globally) to just produce the goods and hope like hell they can recover at least their production costs at the end of the season.

Even if you say, well coffee is a luxury (and a damn fine one at that) there are essentials out there that operate exactly the same - corn, wheat, rice, chocolate. And applying the economic theory of supply and demand will ultimately make for some very hungry economists

I am not saying that the theory of supply and demand is wrong, simply that perhaps if we allowed the theory to run properly, without the gamblers coming along for the ride, perhaps the pricing structures for produce at the farm gate would better reflect costs of production etc.

I guess another way of looking at the simple argument that it's just supply and demand is to challenge the people saying that to stop setting a price and let the market dictate the prices paid on a daily basis and see what happens...

just a couple of thoughts

[sweetmarias]

I read the article and am not really sure it is worth getting all damp about. It seems like fairly straight-forward theory misapplied to a trade that the author knows little about. It's not surprising someone would write this ... like Peter I am just a little surprised it's distilled down to the piece in the CS Monitor and not on some conservation free market think tank website. It is especially poorly conceived when we think about a coffee trade in which coffees are not replaceable, i.e. not really a commodity at all. Most of us have left the C in the dust anyway. I think most of us see flaws in FT, but still have a place for it in what we do. Those flaws have little to do with the presumptions of the article (how it ultimately fails to serve producers, and distorts the market). Few have asked FT to be a universal solution in all regions, and under all conditions. Nobody expected it to be "the answer" to the C. Nice topic though ... sorry ... I feel like I am supposed to write like 4 more paragraphs, but I think you guys have nailed this one pretty well...

[Mark Prince]

The idea of shifting from producing coffee to another product is an interesting argument, and assumes that the ability of the producer is there to make a switch in production. If the lead time to switch to say cocao is 3 years, the assumption is that the farmer has the resources to wait three years for an income from the new crop.

Plainly, I would assert, most coffee farmers are not in this position.

Just a quick hit and run comment since it's so bloody late (and the stuff I'm working on is no where near done);

The thing is, they're not always switching to long-lead time crops. In Ethiopia, for eg, during the height of the most recent coffee crisis, they were switching over to quat (chat?) production, which IIRC, is a one season conversion. In Colombia, Peru, parts of the Andes, etc, the obvious switch is to coca plants for cocaine production, with (again, IIRC) a 1 season start, with 4-6 harvests a year.

Mark

[sweetmarias]

Perhaps quick conversion is true with coca, but not qat. Qat and coffee can occupy the same terraces and they compete for scarce water. What I have seen of coca in Boliva and Peru, it was not competing with coffee - in Colombia I have seen it planted nearer coffee. In S. America I have seen coca planted above coffee, and poorly done so that it appears to contribute to erosion. Qat and Coca have more immediate economic benefit to the farmer. Qat is used for income and coffee is often considered "savings". Qat is harvested 3-4 times per year, from what I understood talking with farmers.

The idea of shifting from producing coffee to another product is an interesting argument, and assumes that the ability of the producer is there to make a switch in production. If the lead time to switch to say cocao is 3 years, the assumption is that the farmer has the resources to wait three years for an income from the new crop.

Plainly, I would assert, most coffee farmers are not in this position.

Just a quick hit and run comment since it's so bloody late (and the stuff I'm working on is no where near done);

The thing is, they're not always switching to long-lead time crops. In Ethiopia, for eg, during the height of the most recent coffee crisis, they were switching over to quat (chat?) production, which IIRC, is a one season conversion. In Colombia, Peru, parts of the Andes, etc, the obvious switch is to coca plants for cocaine production, with (again, IIRC) a 1 season start, with 4-6 harvests a year.

Mark

[Edwin Martinez]

Not mentioned in the article is the word quality.

Which I suppose I'm happy about. I used to think FT should have a quality component and there certainly would be benefits to this, however if quality became too big a part of the conversation it would then begin to go against it's mission. I see FT as a charity or subsidy, a band-aid that is there to help those who need it most who have NO BETTER alternative. I think it does this quite well so long as demand for FT doesn't disappear leaving farmers with a product that may be worth less than when they first connected with FT.

I am inclined to agree with some parts of the article, but disagree with the two primary assumptions of the author: 1) that Fair Trade encourages overproduction and 2) that it provides a harmful disinsentive to resource reallocation.

Ian - I must say I agree with you on your second point so long as the C is perceived as an attractive alternative to an FT farmer. When C is far below FT it's quite amazing how very small farmers in a coop can suddenly have a HUGE jump in production when the C is low, in fact they all magically produce the maximum amount their land is capable of producing over night. In the same way any direct trade that doesn't have the C as a base component in calculating price risks having containers disappear into thin air when the C is high. These are grey areas in the market where we say "we don't care what the C is doing, we're doing our own thing for whatever reason".

And this is where the "relationship" is tested.

[IanClark]

I see FT as a charity or subsidy, a band-aid that is there to help those who need it most who have NO BETTER alternative. I think it does this quite well so long as demand for FT doesn't disappear leaving farmers with a product that may be worth less than when they first connected with FT.

Hmm, well in my experience Fair Trade incentivises quality through market mechanisms, ie negotiations for a higher price due to high quality. I guess this depends on the knowledge of the producers and the interests of the buyer. I agree that it is important for farmers selling under FT license to constantly improve their productivity and quality in case demand dwindles or they get de-certified. I'd like to think there aren't too many coops that are just riding on the price minimum and not improving their operations.

[Brent]

valid points on switching to coca and qat

Mark

Um yeah, but I also assumed that the desired produce the west wants the farmer to switch to is not illicit.

That is always an option, and I guess an argument for paying a decent price for a decent product and getting out of the walmart mindset - do it or stop whinging about the illicit drug trade...

Brent

[Demian L]

Howdy Folks,
This is my first time posting on coffeed.com. I've been an avid reader for a while and I stop by every day to see what's up. I'm usually disappointed whenever I see a lag in posts. The topics here have for the most part provided a great education as well as a few moments of roflmao.

I wanted to enter this thread to provide some information regarding Fair Trade Certified pricing. Pricing for washed Arabicas coming from FLO certified producer groups is as follows:

Base Price $1.25/lb
Fair Trade Premium (or "social premium") 10 cents/lb.
Organic Premium 20 cents/lb.

Thus, the prices that are commonly referred to as the FTC minimum prices are $1.35/lb and $1.55/lb.

These prices went into effect for contracts made after June 1, 2008. The pricing review process that created the changes that went into effect June 1 was completed at the end of 2007 and voted on by the FLO board (which by the organization's constitution has 4 producer representative seats with full voting power.) The process included input from coffee producer co-ops around the world, industry in countries with Nation Labeling Initiatives (like TransFair USA, Max Havelaar Netherlands, etc.), and academic research. I can speak for the pricing survey here in the USA which had input from a wide range of our licensees-big, small, movement-based, etc. While the responses were varied, almost all of the companies agreed that having regular reviews with adequate lead time would be best so they could properly forecast price changes and alert their customers. The pricing review will now be every two years with the next one happening in 2010.

The social premium was raised from 5 cents/lb to 10 cents/lb mid-2007. This premium is spent in development projects in the co-op communities. How it's spent is voted on democratically by the co-op general assembly. The investments take many forms-and I'm sure you've all heard of the schools, health clinics, and pension funds, but there are also a great number of projects focused on quality.

While quality standards have never been the purview of FLO standards, the system itself empowers co-ops to invest in quality. We're also working with other organizations such as USAID, Root Capital, and private foundations to develop projects related to quality. Also be on the lookout for news on one of our projects in Brazil later this year-I'll be blogging it on Barista Exchange so keep your eyes peeled...

Without getting into too much detail or diving into the myriad of questions raised in this thread, the one main point I want to make is that Fair Trade Certification is an evolving system. It was never intended as a be-all-end-all solution to the plight of coffee farmers around the world. While the CSM article that was pulled from "The Freeeman" (a right wing libertarian rag that has a picture of Ronnie & Nancy Reagan reading a copy on their homepage) used high school econ to dismiss Fair Trade, I've seen some great questions raised here. As I'm sure you all know, the "invisible hand" isn't really there in the coffee supply chain and the fourteen conditions Adam Smith deemed necessary for a free market simply don't exist. There are many points at which problems in the coffee market can be corrected and Fair Trade Certification addresses some of them.

Thanks for reading,

Demian Luper
TransFair USA
dluper@transfairusa.org

p.s. the average price for FTC coffee sold to the USA in 2007 was $1.59/lb, and $1.71/lb if you exclude Peru and Brazil. the number of co-ops selling 100% of inventory through FT is increasing, with most co-ops doing so in Latin America. many coffee co-ops are now producing other FLO certified products-e.g. honey at UDEPOM in Chiapas, cocoa in Peru, spices in Costa Rica.

[Jeff Jassmond]

While quality standards have never been the purview of FLO standards, the system itself empowers co-ops to invest in quality. We're also working with other organizations such as USAID, Root Capital, and private foundations to develop projects related to quality. Also be on the lookout for news on one of our projects in Brazil later this year-I'll be blogging it on Barista Exchange so keep your eyes peeled...

I would love to know more about this assertion if you would care to share.

[edit: and welcome to posting here. it's good to have you.]
j. jassmond
unaffiliated

[Tim Dominick]

p.s. the average price for FTC coffee sold to the USA in 2007 was $1.59/lb, and $1.71/lb if you exclude Peru and Brazil. the number of co-ops selling 100% of inventory through FT is increasing, with most co-ops doing so in Latin America. many coffee co-ops are now producing other FLO certified products-e.g. honey at UDEPOM in Chiapas, cocoa in Peru, spices in Costa Rica.

I've always wondered what percentage of coffee that is eligible for fair trade contracts ends up being sold as FT. Is there a rough global estimate? Should there be some concern that lesser-grade coffees sold into the FT system could ultimately undermine the brand?

Ethiopia seems to be an example of an origin where there is a measurable amount of truly bad coffee (mostly FTO and plain old O) being sold for excessively high prices. What message does it send to a farmer when a roaster pays $2.85-$3.15 FOB for utterly defective coffees that are not showing year over improvement, or even worse continual decline? Sumatra comes to mind as another origin which seems to have an alarmingly high amount of sub-par FTO coffee at a premium price.

If you remove those two origins from the equation instead of Peru and Brazil, what is the average? (Sorry, I find statistics can be misleading, especially when we selectively exclude data)

There was an outpouring of support for Ethiopia after Black Gold and the SBUX TM issues, honestly if a consumer has a cup of flooded basement funk FT Harrar all that goodwill can disappear as quickly as the cup is poured into the sink.