June 8, 2012

The New Fair Trade

The New Fair Trade – building relationships and generating a trust between the parties is the new Fair Trade; we call this “Relationship Coffees”.

Fair Trade became a viable solution when coffee prices were in a low. Now that this is not the case, Fair Trade has become the norm when trading with high-end specialty coffee; farmers know their supplying power.”
People may ask, what is Fair Trade? And I’m sure many don’t really know – not even growers at origin actually value the strength of the words, and they just associate them with a logo.

Based on the Fair Trade Organization, this is the definition of the words: “Fair Trade is about better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world. By requiring companies to pay sustainable prices (which must never fall lower than the market price), Fair Trade addresses the injustices of conventional trade, which traditionally discriminates against the poorest, weakest producers. It enables them to improve their position and have more control over their lives.”

The definition lacks depth, since this organisation only approaches the supply side of the equation, but not the demand. When the coffee prices rose 86% from March 2010 to March 2011, nobody protected the buyers, leaving many of them in terrible conditions also. In my opinion, Fair Trade, as the words describe, is that the goods are traded fairly and all parties are receiving the fair share of the value they added to the goods, in terms of quality and price.

It’s important to dig back in history and see how Fair Trade began and its impact on the coffee industry. The first attempts to commercialise this were in the 1940s and 1950s by religious groups and various non-governmental organisations. The goods initially considered were handcrafts that were mostly sold in churches, but this attempt was more of a donation.

The current Fair Trade was reconsidered in the 1960s in Europe and was used as a slogan or tool to fight against capitalism. Following the urge of fair traded goods with developing countries, the UN started adopting the movement in their Conference on Trade and Development.

Following this, various organisations were established and had shops where all the products sold were in accordance with Fair Trade principles. Companies like Oxfam and the Alternative Trading Organization were two of the first to approach this. The success of their shops created the idea of certifications or labelling alternatives. The idea was to penetrate the market place and have a global market approach to Fair Trade. With this new twist, fair traded products could be available in big markets and chains. In 2002, the International Fair Trade Certification mark was launched by the FTO (Fair Trade Organization).

Consumers are willing to pay a higher premium for a fair traded product, but they don’t know if the actual revenues are being delivered to the less fortunate growers or being diverted to lucrative business or big landlords. Another critique is it promotes inflation and more associated costs to households, since they are buying exactly the same product at a higher price. Finally, it can be a tool for corruption, since the lack of regulation of the logo can be abused.

Regarding the coffee industry, during the 2000s coffee prices were in the low 150 cents/lb – prices that were difficult for growers to assume, while their costs increased year by year. Fair traded products with certifications were the solution, since growers could sell at a higher price – making the value of the “logo” worthwhile and ensuring it was doing its job. After a couple of years of the logo being traded in the world market, cases of misuse of the logo started to occur: issues like big landlords not paying their farmers and making them work in harsh conditions, but still being “Fair Trade” certified; or other companies in rich countries using the logo as a marketing gimmick, but losing the essence of helping producers was occurring.

In 2010, the price of coffee started to rise at an unsustainable rate, making Fair Trade certified products even more expensive. It came to a point that these products were too expensive for buyers to consider, and this is when the whole idea became flawed in the coffee industry. Nowadays, Fair Trade certified products are not a differential for buying.

With this entire situation a question arose: if buyers have been helping producers since the early 1960s, why aren’t producers helping us when they are earning 86% more revenue? Was this Fair Trade? Growers also started to be more educated in trade, and they saw their power of negotiation in the world coffee market.

High specialty buyers like us have used this issue to start a new way of approaching the movement; this is Relationship Coffees. We need to ensure growers are doing the right thing, that their picking is the correct one, that they’re wet and dry milling in sanitary conditions and finally, that the profile of the coffee is according to standards. If this is correct, we will pay the farmer what he wants and what he deserves. If he is happy with his pay and we are happy with our product, all the sides are happy … isn’t this Fair Trade? We have created a personal relationship with all our farmers; we hear their troubles and they hear ours, and we create a median where we both can excel and improve. This is the new Fair Trade!

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