What does Fair Trade guarantee?

Question

As a result of my social environment, i always buy coffee that has the Fair Trade label. Of course it means i spend some extra cash that goes to the coffee producing farmers in exotic countries. But i would like to know what the organisation is, that supervises the coffee trade, and what exactly the label guarantees.

Answer 1

If you mean the coffee bean farmer by 'end-producer', Fair Trade guarantees a relative increase of the contract that the farmer can negotiate.

Say, for example a farmer gets USD 20,- for his entire crop usually, then

He might get USD 140,- for the same amount of beans when selling to a Fair Trade contracter. Also see: How much do the farmers get about prices in Ethiopia.

Answer 2

As Jose Manuel Villasante Armas said, Fair Trade guarantees a minimum price for the farmers.

Another good point is, it has local/provincial social supports.

However, it does not care about environmental effects that much. UTZ certification or Rainforest Alliance are for that. They try to minimize the environmental impacts of coffee production. Unfortunately, those two do not care about farmer revenues, etc. ¯\_(ツ)_/¯

Answer 3

Sadly, the accepted answer by @Jose is incorrect. These days, "Fair Trade" guarantees pretty much nothing. As some researchers noted, the original idea of Fair Trade Coffee's long gone. For example, refer to Colleen Haight of the Stanford Innovation Review: The Problem with Fair Trade Coffee.

The concept was adopted in 1988 to address the issue of so called "coffee crisis," caused by overproduction of coffee beans worldwide. The initiative was aimed to artificially raise the prices to make sure that coffee growers do not go bankrupt. The whole idea eventually backfired, as it didn't eliminate overproduction, and it is now not uncommon for participating coffee farmers to sell their product to independent buyers, just because those often pay more than so called "fair trade" buyers. See Coffee, Farming Families, and Fair Trade in Costa Rica: New Markets, Same Old Problems?

Nowadays, Fair Trade has been reduced to a simple marketing trick to facilitate "ethical consumerism" and make consumers pay a few dollars more per each bag of coffee, all that for a sole benefit of the distributor or the retailer. In other words, you are being duped and the farmer gets nothing extra.

See also: Fair Trade Debate

Answer 4

I think there are quite a lot of misconceptions about Fair Trade floating around here. There are several obvious key points addressed by the Fair Trade concept and several not so obvious points. There's also some discrepancy between what the Fair Trade company propagates and what actually happens to small scale coffee farmers. So I'll first summarize what Fair Trade says it does and then go on to summarize some of the literature on it.

1. Fair Trade guarantees a so called floor price to the producers. That's a minimum price guaranteed to protect against market fluctuations. It is 140 cents per pound for Arabica and 110 cents for a pound of Robusta if I remember correctly.

2. In addition a so called Fair Trade premium, 20 cents I believe is paid, which goes into community development, business development, environmental projects and similar things.

3. Also an additional 30 cents per pound are paid if the beans or produced using organic farming practices. So there is some incentive to switch to organic farming wherever it is feasible.

4. Participating in Fair Trade means that the producers must have some cooperative form. This is in many ways beneficial. Cooperative form means there is some kind of democratic process involved. Forming cooperatives usually increases market power, increases economy of scale, just to name a few benefits.

5. Fair Trade helps small-scale farmers (most coffee farmers are) finance their operations with cheap loans repayable after the produce has been sold. Getting loans is often difficult for small scale farmers.

So far so good. This is what the Fair Trade company says it is doing (Fairtrade Foundation 2012). The scientific evidence is however less straight forward and does not only produce a positive picture, however it does suggest that it has overall benefits.

There are many impact and case studies that suggest that farmers participating in the Fair Trade scheme have a significantly reduced livelihood vulnerability. They are e.g. in Nicaragua 4 times less likely to loose their land titles due to market price fluctuations of coffee. However it is also acknowledged that a lot of the produce has to be sold on the conventional market due to too low demand (Bacon 2005).

Other research suggests that Fair Trade does have a positive effect, but only for the most skilled and people owning a farm. However this income effect is not observed for unskilled farm workers. There's also in increase in school attendance in affected regions, although for children of farmers and workers the opposite may be true, probably due to increased economic opportunities (Dragusanu and Nunn 2015).

Anna Milford (2012) summarizes evidence of positive benefit of Fair Trade schemes for farmers, such as higher living standards, decreased child mortality etc. She notes that the forming of cooperatives to participate in the Fair Trade scheme reallocates market power and makes markets more competitive.

So in conclusion, if you go through the literature, you will find that there are very likely positive effects on the livelihood of small scale farmers. The picture is not very straight forward though and which mechanisms contribute to the increased living standards is also not clear. It could just be higher prices, but it could also be the forming of cooperatives and very likely it's a combination of several things.

One last note: Rainforest Alliance and UTZ have much lower environmental standards than organic farming certificates and also much lower social standards than Fair Trade. They are green washing and likely not much more.

References:

• Bacon, C. (2005). Confronting the coffee crisis: can fair trade, organic, and specialty coffees reduce small-scale farmer vulnerability in northern Nicaragua?. World development, 33(3), 497-511.
• Dragusanu, R. and Nunn, N (2015). The Impacts of Fair Trade Certification: Evidence From Coffee Producers in Costa Rica. Working Paper.
• Fairtrade Foundation (2012). Fair Trade and Coffee: Commodity Briefing.
• Milford, Anna B. (2012). The pro-competitive effect of coffee cooperatives in Chiapas, Mexico. Journal of Agricultural & Food Industrial Organization, 10(1).