Fair Trade and Direct Trade – our perspective

The FairTade debate is a long a hard debate, especially when it comes to something as complex as coffee.

FairTrade’s objective was to increase the living wage of the farmer / grower and their staff. In a first world country that is a great objective. However in a coffee that is heavily dependent on a complex system of 6 to 8 middle men before a product is produced, this vision becomes hazy at best.

So how does Fair Trade in coffee work? Or should I rather say how is it supposed to work. Let us assume that the Fairtrade you are talking about the Fairtrade international (called FLO) or the Word Fair Trade Organization, which are similar. Rather than the US Fair Trade or as they call it Fair World Project.

FLO in coffee is an end user to producer program. Coffee has essentially sold at a speculative price (or C market price) or a processor/producer set price (which we will get to later). FLO is a levy applied to speculative pricing, or pricing fixed to speculative pricing. A roaster or importer can elect to pay a levy, let us work on 50c, to the Europe based exporter (almost all coffee in South Africa is sourced via these agents), who to be certified then pays 5c to the FLO and 45c to the exporter, that is local to origin. They then pay 5c to the local FLO and 40c to the regional agent who then pays 5c to the regional FLO and 35c to the mill, the mill then pay their 5c to their FLO certifier and 30c to the processor of the coffee.

At this point the process stops. Since the processor is then supposed to distribute the money to the people they get the coffee from. But the people that bring the coffee are either cherry transporters, or are the 100s and sometimes thousands of farmers that they work with. You need to process a lot of coffee before the 30c that is paid as a levy can actually be in a divisible enough amount to make it into the farmers pocket. And the research on the ground has found that in fact it never does. Even if the farmers form a co-operative and the co-operative then raise money to make their own processing plant, and sometimes even a mill, this small levy really only helps build infrastructure, with the hope that it will increase sales, and hence increase money in the pocket of the grower.

Now let’s get to the point. So we as Quaffee took about 2 years to figure out that Fair Trade was not really assisting the people that actually grow and process the coffee as much as it was assisting the FairTrade organization itself. And we are not alone, others have figure this out.

So how do roasters, like ourselves, that are passionate about sustainability and rewarding the grower get past this? Well we source as close to the processor and hence co-operative and grower as possible, or use a direct trade model (see picture below). We work with people that are local in the countries, that reward farmers producing a quality product with a higher price. To explain that further the coffee futures market (a publicly traded market mentioned above) sits at around $1.40 per pound at the moment (25 Nov 2015). The Fairtrade levy on that coffee is currently about 50c.

We work with the local agents and they add 20-30c to help source the coffee on their price, and we pay them from $3.20 (yes more than double) to our latest order which is $20.15 per pound. Thus rewarding the farm with a better than liveable wage. We also publish the prices we charge for the coffee online for the people we work with, and the end user to see. We publish costs online (see: our blog post: https://quaffees.com/2015/11/16/price-transparency-for-quaffees-imports-year-2015/) so that the farmers can see what we land the coffee at, and we included all the costs associate with importing. Where we can we work with grower and producer crop and production cycles telling them 4 -6 months in advanced what we need. In some cases this is a year before they pick so they can allocate coffee for us. The Colombian coffees we have are sourced using the relationship model from Virmax who are the Colombian agent, that is why we have a blend called relationship which is a blend of those coffees.

So what are our direct trade coffee? Well actually all of our 4 star and above coffees, with the exception of our Cuban coffee.

Bird rock direct vs Fair Trade
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