In response to a forum Question on FairTrade

Linked in has its uses, not sure what they are but we have many connections so it must be doing something. One thing it does do is allow people to post questions they post on their websites to groups that are not really supposed to respond, since these questions are actually rhetorical.

One of these posts asked about weather Fair Trade is fair. So we took a break from our covering our highly educating and informative tour and to reply. I am not sure it will be published so I thought why not publish it here, read more below:

The question of FairTrade needs to be specific to an industry, and specific to the implementation of FairTrade. There are two major players in the FairTrade industry (yes let’s call it that) – FairTrade Label Organizaton (FLO) and FairTrade America. In South Africa only FLO is represented, so I will only cover this using my own personal experience and observations as best I can.

In an industry like coffee this question gets further complicated as to how a FairTrade reward/levy gets into the real hand of the producer / grower? Almost all coffee (even Brazilian) is sold via to an export agent from an association or cooperative. These cooperatives can be government run or farmer run. NOTE: Many countries prefer not to use the word co-operative since this implies that it is government run.

In coffee, the FLO only work with cooperatives (or associations), not farmers directly, so how does the farmer get the reward if the cooperative or association get the money from FLO for being compliant. Well in two ways either as a percentage extra payment over the coffee, or if the old method is still used a minimum price (although in a coffee world this has proved to be ineffective since the coffee price is the second most volatile futures market, behind oil). So normally it is a percentage amount over the normal price. In the cooperatives and association I have seen this percentage is not large ranging from .5% to 1.25% extra. To put that in perspective if the farmer delivers a coffee that cups (scores when tasted) at 83 or higher they get about a 5% increase in payment. So quality gets a higher premium than FairTrade.

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In a well-run cooperative or association each coffee the farmers bring is normally traced so that they can get a reward. This is not always the case however since most cooperatives are government run the certification sits with them and not the farmer so they collect the levy, this is true from at least 50% of the cases, however that is a conservative estimate.

So let’s assume best case is that the farmer gets 1% for being Fairtrade certified. However the farmer needs to pay for the certification (which is a fix price) and hence needs to have a certain size crop in order to cover his costs of being FairTrade certified. This means if the farmer has a bad crop (like is the case currently in El Salvador and Nicaragua) the farmer has to rather give up the cost certification to feed his family, since their crops are 30% what they were last year.

Oh and one more thing. The FairTrade organization is a non-profit organization. What does that mean? Well it means a minimum of 21% of the money they collect must go back to the cause. What does that mean in money terms? Well let’s look a salaries; according to http://www.payscale.com/ the average salary for a CEO running an NGO is R517,732.00 per year (see link here…). At least 10 times what the average farmer producing coffee gets per year. Even if you assume the good people at FLO South Africa earn minimum salaries than the CEO of the NGO is earning R206,084 which is about 4 times what a farmers earns.

So is FairTrade fair? Well it depends what you call fair. If you are mean is it fair to famers that own land in excess of 100 hectares (like in Brazil and Vietnam) then it is fair. Otherwise buy on quality, is your coffee roaster buying from people that reward the grower on quality? Are they paying for quality? If they are then reward the roaster, who rewards the chain of people that reward the farmer on quality. And that is what direct trade is supposed to be. There are people in the chain and if a roaster tells you there are not ask them to explain.

But what if I favour a Burundian/ Rwandan Single Origin?
Africa is a complicated example (as is Central America, and most Asian producing countries). Most African farmers have very small holdings. They also do not process their own coffees. This means that the coffees are delivered to a processing plant that may or may not be Fair Trade certified. The processing plant is normally owned by a cooperative, the cooperative owns the certification not the farmer, so the cooperative gets the Levy, not the farmer.

In theory this means that they should reward the farmers, however this brings us back to the first post. Do they and if so what is the levy. If we assume they do and they give the farmers 1% more, is that making a difference?

With the drive to quality two things have happened that we have seen. Either farmers form their own associations or cooperative that they all have shares in that allows them to control quality and certifications themselves. So in Rwanda 800 female farmers formed an association called The African Sisters where all the farmers work together in picking and processing each other’s coffee. Then the association gets levies for certifications that it invests in the association’s infrastructure, however each farmer is still rewarded on quality as the major way of earning more. They do share this since that is a the founding methodology of the association. But this is an exception in Rwanda.

Another example is in Burundi where Ben and his wife started the Long Mile Project (LMP). Over the years we have worked with them, and their South African Import agent, and this has been an interesting ride since the importing agent has changed a few times. Here the LMP are promoting quality by rewarding quality cherry, so they spend time educating farmers to get the cherry to them as quick as possible (within 24 hrs of picking before it spoils the coffee), and only pick ripe. They pay the famers 50c (USD) for basic grade and almost $5 for a coffee that cups above 87. They have decided not to be FairTrade but try and sell direct (through the aforementioned agents)

There is however a real life story of African coffees and FairTrade a unnamed local roaster that pushes FairTrade, has a contract with a farmers cooperative in Sidama (or Sidamo). Here once they received a quality product and are happy with it they pay a FLO certified levy direct to the farmers cooperative, who are then tasked to distribute it.

Essentially labels are just that labels. For large supermarket chains and international brands they are important, they force accountability at some level. However if you are buying any product from a micro producer that is driven by quality and is driven to reward quality produce then this is a far better way to go a conscious consumer.

 

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