Fair Trade is Dead. Long Live the Farmer Cooperative.

Since 1999 Fair Trade USA, formerly TransFair USA, has brought Fair Trade certified coffee to the U.S. market. The organization, which manages the licensing and distribution of products in the U.S., introduced millions of consumers to the principles of Fair Trade. They did so primarily through coffee, which accounts for over seventy percent of the American Fair Trade market. Through product branding and advertising campaigns, even an award-winning documentary film, people in the U.S. have come to associate the Fair Trade label with democratically organized farming cooperatives, a minimum price that on average is higher than the price per pound paid on the open market, and social, economic, and environmental initiatives in producing communities. But, in January, 2012, Fair Trade USA (FTUSA) changed the rules dramatically. While they continue to market the small-scale farmer and the cooperative as the face of the brand, the base of it now is transnational corporations and large-scale plantations. So much for the little guy.

The certified seal of Fair Trade USA that many have come to trust.

A recent article in the New York Times explains that there are two major changes coming from FTUSA: 1. It will open up its licensing to large-scale coffee plantations, whereas up until now it has sourced exclusively from democratically organized cooperatives of small-scale farmers, and 2. It will certify products that contain as little as ten percent certified Fair Trade ingredients. You might be surprised to find that their previous standard was twenty-five percent, not one hundred, required for the label. While FTUSA describes these changes as bringing “Fair Trade for All” because they will expand the scope of sourcing, and yield an anticipated doubling of the U.S. market for Fair Trade goods by 2015, these changes represent a radical revision of a model that was initially designed to be an alternative to neoliberal trade. Now, it has been fully absorbed into mainstream capitalism.

During the late twentieth century, as global trade was deregulated, small farmers felt the squeeze of transnational corporations who enjoyed looser financial regulations and tax-breaks due to the liberalization of trade and finance. Many Americans are aware that notable free trade agreements like NAFTA and CAFTA hurt the U.S. economy and American workers by incentivizing corporations to move their production overseas where they had access to cheaper labor markets. What many are not aware of are the terrible social and economic consequences free trade has had in the places where factories were installed, and locally owned production processes were swallowed up by growing transnational corporations. Far from an economic boom for places like Haiti, Mexico, and the Dominican Republic, residents eager to take jobs found themselves laboring in sweat-shops, or under oppressive managerial regimes as wage-slaves.

The liberalization of trade, also known as “globalization,” gave corporations increased power, and allowed them to earn unprecedented profits during the late twentieth, and early twenty-first centuries. Many producers of agricultural products grown overseas, including coffee, have historically resisted the pressure from multinational corporations to sell their harvests for less than the cost of growing them. But in a competitive global market, struggling producers often find it impossible to resist offers of on-the-spot cash, even if it means taking a loss, and living in poverty. In their book titled Fair Trade: The Challenges of Transforming Globalization, Raynolds, Murray, and Wilkinson reveal that southern producers, to combat the harmful forces of globalization, formed democratically organized farmer cooperatives that gave them strength and empowerment in numbers. While on their own as individuals they felt the pressure to lower their prices to undercut their neighboring farmers, together in solidarity, they insisted on higher prices. By partnering with nonprofit organizations and NGOs in the U.S., Canada, and throughout Europe that facilitated the negotiation of prices with coffee buyers, things began to look up for some.

Two organizations emerged as the main certifying and licensing bodies for Fair Trade goods during the 1980s: Fairtrade Labeling Organization, now known as Fairtrade International (FTI), which both certifies production and trade at origin and licenses distributors; and TransFair (now FTUSA), which manages licensing and distribution in consuming nations. Both certifications, featuring similar standards yet different labels, are available in the U.S. market. Up until now, there has been little difference between the two. Now however, FTUSA has announced that it will split from FTI as of the new year.

This is not an amicable split. The game-changing new rules proposed by FTUSA have produced much discord in the global coffee community. Prior to deciding to split from FTI, FTUSA brought their proposed amendments to the global overseer of Fair Trade in the hopes of changing the terms on a global scale. FTI balked at the proposal, and denied the changes. Producers are outraged too.

In a recent post by Michael Sheridan on the Coffeelands blog, the author recounted a conversation he had with Merling Preza, General Manager of Prodecoop, a farmer cooperative in Nicaragua, and president of the Latin America and Caribbean Network of Small Fair Trade Producers (CLAC), about the radical changes coming at FTUSA. Preza explained that FTUSA signed an agreement with producers in 2003 that prohibited inclusion of plantations in the Fair Trade system. This agreement was forged in order to protect the livelihoods of small-scale producers, in keeping with the original goal of the Fair Trade movement. Preza recounted that the commitment was reiterated in writing in 2006, and that she received verbal assurance that FTUSA would renew the agreement in June, 2011. But in the interest of growing the market share of the brand, FTUSA has walked away from its commitment to small producers.

Why did FTI deny the proposal that FTUSA claims represents “Fair Trade for All”? Because producers hold a fifty percent stake in decision-making at FTI, while they have no say in the workings of FTUSA. Small producers know that the changes made to the model by FTUSA will hinder their chances at making a living on coffee production. In the same post on Coffeelands, author Sheridan states Preza’s objections to the changes: “Merling says large corporate coffee buyers have been the chief opponents of farmer-led efforts in the past to lobby for increases in Fair Trade coffee prices. She fears that FT4All, which will expand the supply of Fair Trade Certified coffee for large U.S. buyers, will give this segment of the market more influence in the FTUSA agenda. In the absence of a seat at FTUSA’s decision-making table for farmer organizations, that may make it harder for smallholder farmer organizations to defend their positions on specific issues such as Fair Trade pricing and their position in the marketplace more broadly.”

Cartoon by John Klossner, 2011, critiquing the new policy and logo of FTUSA.

It is not just small producers who oppose the changes in the terms of Fair Trade. Rink Dickinson, president of Equal Exchange, a worker-owned Fair Trade importer and distributor based in Massachusetts, and the first company in the U.S. to sell Fair Trade certified coffee back in 1986, opposes the changes too. Dickinson told the NY Times that the changes show that FTUSA has “lost their integrity.” On the company’s blog, “Small Farmers. Big Change.,” Phyllis Robinson wrote about the position of small farmers in a recent post: “In the coffee sector, small farmers produce approximately 70% of the global coffee supply. Despite the current high prices in the coffee market, fair trade coops are still unable to sell the majority of their coffee under fair trade terms. Expanding fair trade certification and market access to large-scale plantations will assure that fair trade cooperatives continue to remain vulnerable to volatile international markets and undermine 25 years of fair trade development.”

Robinson also points out that inclusion of plantations in the Fair Trade model pits small farmers against farm workers, which stands in the way of solidarity between two groups that are both at risk of harm from the force and power of transnational corporations. On the other side, Green Mountain Coffee Roasters, what was once a small, local company and champion of Fair Trade, and now a major corporate buyer and distributor of coffee in the U.S. market, supports the changes because they will allow the company to streamline its sourcing, expand its market share, and grow its profits.

These radical changes at FTUSA have stripped legitimacy from the label that so many consumers have come to trust. Really, that trust was a bit off the mark in the first place. In my research with consumers of ethically sourced coffee, I found that most believed that Fair Trade prices helped farmers far more than they actually do. Sociologist Daniel Jaffee found in his comparative study of Fair Trade versus open market producers in Mexico that certified producers received only marginal financial benefit from participating in the program. This is due in part to overhead costs absorbed by the cooperative, which is often both the mill where it is processed, and the export facility for the producer members. This fact has long been a key component of my critical refrain on the feel-good consumer experience of purchasing Fair Trade coffee, but producer organizer Preza has reminded me of an invaluable aspect of the Fair Trade model: cooperative solidarity.

In her interview with Sheridan cited above, Preza points out that CLAC’s goals for Fair Trade are premised on community solidarity, while the recent changes at FTUSA reflect an individualized model of development. To her and her fellow producers, it is not the price premium that makes Fair Trade work as a development model, but rather “the processes of community organization and collective action” that empower producers and usher in positive change in their communities that is most important.

The perspective of producers like Preza’s was absent in a recent article by Kalefa Sanneh in The New Yorker. The piece, which was published in the November 21 food issue, is titled “Sacred Grounds: Aida Batlle and the New Coffee Evangelists.” The article focuses on the success of Batlle, who owns several farms in El Salvador, and who returned to the country to take over the family business after growing up in Miami. I am familiar with Batlle’s coffee. Hers is a favorite among specialty buyers and roasters who I spoke with during the course of my research on the ethical sourcing of coffee. Like others whose coffee is purchased by leading specialty roasters through a Direct Trade model of sourcing, Batlle’s coffees routinely earn high scores in the annual Cup of Excellence competitions where industry taste-makers decide the year’s hot crops. Cup of Excellence is important for producers, because with top scores come top prices.

While I have admiration for those who use the Direct Trade model for the respect they have for producers, and the far above average prices they pay per pound of coffee, this model, like the new terms of trading with FTUSA, is individualized. The model may make coffee rock stars, like Aida Batlle, out of a few, but it does nothing for the millions of small-scale farmers–they are the majority of coffee producers–who are struggling to survive around the globe. And, it certainly does not produce community solidarity. In her article in The New Yorker, Sanneh reported that Batlle travels with two armed guards and a trained German Shepherd to protect her, presumably from kidnapping for ransom, as she is well-known as a farmer of lucrative crops. Sanneh also reported that one of Batlle’s farm managers was held hostage for two days while “armed pickers” stole much of the farm’s ripened crop.

The new FTUSA logo.

I certainly do not knock Batlle’s success, which has come from dedication to her craft and hard work, but I am troubled by industry and consumer focus on a very small, elite collection of producers at a time when the majority are struggling and suffering. I find the celebration of the disproportionate success of one farmer particularly problematic because it occurs just as FTUSA has virtually obliterated the promise of Fair Trade for the millions that sought security and found solidarity through the model. The changes at FTUSA, while they may expand the market share of Fair Trade coffee in the U.S., do so at the expense of the livelihoods of small producers and their communities. When it should be working with producers and local organizations to grow the cooperative structure, FTUSA has abandoned the core principles of Fair Trade.

Of course, it is not just coffee producers that will be affected by these changed rules. FTUSA distributes a wide variety of certified products in the U.S. market, including tea, sugar, chocolate, clothing, handcrafts, herbs and spices, nuts, grains, beans, fruits and vegetables, and packaged foods, among others. Now that they will apply their new seal, seen here at right, to products that contain as little as ten percent certified ingredients, you will soon see Fair Trade chocolate bars that may contain no certified cocoa, but ten percent certified sugar. This move puts producers of certified Fair Trade cocoa, and other agricultural products that will be eclipsed by these changes, at a severe disadvantage in terms of shelf-price of certified goods.

Because of these drastic changes Fair World Project, a nonprofit organization that serves to protect the term “Fair Trade” from those who would water down its principles, stated in a letter to Paul Rice, CEO of FTUSA, that the organization would no longer recognize FTUSA as a legitimate Fair Trade distributor if it proceeds with the announced changes to the model. To try to prevent these changes from going into place in January, Fair World Project is now leading a campaign to pressure FTUSA to renounce its plans. Concerned readers can join the campaign by submitting an online letter of protest to FTUSA. But sadly, industry insiders believe that the deal is done. So after January first, the only Fair Trade seal you can trust to represent the interest of farmers is the blue and green of Fairtrade International.

Though from a sociological standpoint I am critical of the individualized approach of Direct Trade sourcing, I recognize that now it is the best available option on the market for farmers, economically speaking. Research has shown that this model benefits Fair Trade certified farmers too, because when Direct Traders purchase certified coffee, they pay more on average than the Fair Trade minimum price requires. As this info-graphic created by researcher and blogger Michael Sheridan illustrates, the Direct Trade model increases prices paid to producers of all kinds of coffee, across the board. If demand for Direct Trade coffee increases, committed roasters will be able to open up the model to more farmers around the world. I would like to see them focus on including more democratic cooperatives in the model as it expands.

By Michael Sheridan, 2011.

Some leading Direct Traders in the specialty coffee industry include Stumptown Coffee located throughout the Pacific Northwest and in New York City, Intelligentsia Coffee which has locations in Chicago and Los Angeles, and Counter Culture Coffee based out of North Carolina. In the San Francisco Bay Area readers can find Direct Trade coffee at Ritual Roasters and FourBarrel. Each of these companies has online stores where you can buy Direct Trade coffee, as does Sweet Maria’s, an Oakland, California-based purveyor of green coffee for the adventurous home roaster. And, at the online portal of the innovative Direct Trade Coffee Club, you can sign up to subscribe to receive coffee from assorted roasters. There are likely some coffeehouses in your area that are using a trustworthy Direct Trade sourcing model. If you want to know, just ask your barista the next time you stop for a coffee. If you cannot find Direct Trade in your area, your safest bet to ensure that farmers are receiving just prices for their product is coffee certified by Fairtrade International, or that is sourced exclusively from a democratically run cooperative of small-scale farmers. Remember, your choices as a consumer matter. In the wake of recent changes at FTUSA, they matter more now than ever.

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148 thoughts on “Fair Trade is Dead. Long Live the Farmer Cooperative.”

  1. And then there is this: http://www.slate.com/blogs/moneybox/2011/12/15/are_slaves_growing_your_fair_trade_cotton_.html.

    Precisely why I don’t attempt to buy fair trade products. The incentive to trick people into believing they are doing something more ethical is just too high, and too easy. If you personally know enough about a company to see they behave more ethically/responsible I say give them your business. If you are not going to personally do that level of research just buy the product you like most and don’t believe what some amorphous non-profit tells you is a good idea.

    Thanks for laying it out Nicki – the whole thing is a sad state of affairs.

    1. Dan, thanks for joining the conversation and for the link. Yikes, what a blow for Fairtrade International. You know, I’d hate for the take-away from my post to be that people should stop trying to be conscientious or ethical consumers. I am the first to critique the practice as a self-gratifying experience and as well-intentioned reactionary purchasing, but there are in fact differences among products out there, certainly in the coffee market, but for most other agricultural products too. You make am important point, though. We should not blindly follow any corporation, whether we perceive them as “good” or “bad,” but take the time to find out where the product comes from, and in what conditions it is likely made. Of course, this is a time consuming, and in some cases, impossible task. It is not realistic to put this kind of responsibility on the average American, especially considering most of us are overworked and underpaid. This is why I advocate a reduction in consumption, and backing away from consumerism as a way of life. Buy less, but buy more intentionally, and hopefully, buy products that afford fair compensation to those laboring to make them. It is important to know the differences among the certified and ethically branded products out there. In terms of coffee, I can point you and others to this article I wrote for Conducive Magazine that breaks down a variety of coffee labels: http://www.conducivemag.com/2010/08/a-peek-behind-the-coffee-label/.

      I offer some more details on the differences between Fair Trade and Direct Trade here: http://www.dtcoffeeclub.com/blog.asp?action=post&id=4&AffId=6/

  2. This is precisely why I pointed out on the blog from which you have taken the graphic that the conclusions you draw above cannot be drawn from the data Michael presented. The original analysis suffered, as Michael acknowledged, from what is known as “omitted variable bias” or “self-selection bias,” and the difference between participants (in any of the certifications or Direct Trade) and non-participants cannot be attributed to participation. Co-ops/growers self-selected into the two groups and very likely differ in ways other than participation. As Michael pointed out, quality is one dimension in which participants and non-participants probably differ, as are “demographic data (such as level of formal education), overall household income data (such as poverty/asset levels), commercial data (duration of trading relationship), etc.” To these I would add organizational capacity and integration into international networks. It is very possible that the price outcomes are attributable to these variables rather than–or in addition to–the certifications or DT.

    To illustrate, college graduates make a lot more money on average than those who didn’t graduate from college. Can we then just compare the salaries of the two groups and say that the difference is attributable to going to college? No, because the groups differ in other ways, include the education and income of their parents (parents’ income being one of the best predictors of a child’s income), the primary-high schools they attended and, if we believe college admission is at least somewhat meritocratic, their academic abilities. These other variables play a significant role in determining income.

    So, you just can’t draw the conclusions you have drawn and it frustrates me that you did so despite the discussion that took place on the other blog.

    Matt Warning
    Professor of Economics
    University of Puget Sound

    1. Matt, thanks for joining the conversation. Actually, I did not read through all of the comments on Michael’s blog, so I did not see your critiques of his piece until just now. You are absolutely right that there are likely other unaccounted for socio-economic variables that influence which farmers participate in Direct Trade and which do not. For instance, Aida Batlle, the farmer profiled in the recent New Yorker food issue, was raised and educated in the U.S., is very familiar with American coffee culture, and these elements of her life experience are rightly attributed by Sanneh as significant factors in her success. But background aside, Direct Trade does pay more than Fair Trade. This is well known in the specialty industry. While Michael’s data might be limited, it points to trends that are already clear to those paying attention to how Direct Traders work.

      I understand you are an economist while I am a sociologist so we approach the problem of farmer poverty from different perspectives. We ask different questions, and we see different solutions. From my perspective, the question is not “Why are some coffee farmers making more money than others?” Which is a question about farmers, but, “Why has coffee been historically undervalued, and why does it continue to be so?” This is a question about the legacy of colonialism, it relationship to racism, the uninhibited power of transnational corporations, and the lens of the Western/Northern consumer. Quality and farmer education aside, the vast majority of coffee farmers have never been adequately compensated for their labor in producing a much sought after product, and pickers have had it even worse.

      I appreciate your approach. You ask questions that when answered help shed light on the nuances of power and domination in global society. As a sociologist, I often rely on the kind of data you say is required in this case. Can you recommend publications, maybe some of your own, that would offer this?

      1. Nicki, in this case the issue being raised as nothing to do with how someone approaches farmer poverty, it’s about data interpretation.

        For example, you say, “Direct Trade does pay more than Fair Trade. This is well known in the specialty industry”, and cite Michael Sheridan’s infographic as evidence of a trend. Yet, without more data on the quality of coffee purchased and the price ranges within each category, you can’t actually make that determination.

        On the former point, quality is usually a significant determinant of price, so if the Direct Trade buyers are buying much higher quality coffee, then you should expect them to pay more because they’re paying for that quality, regardless of how they purchased it or the certifications attached.

        On the question of price range, suppose some of the Fair Trade buyers are purchasing equivalent quality coffee at the same or higher prices, but this is being masked by lower-quality Fair Trade purchases that pull down the average prices (what the infographic shows) in the Fair Trade categories.

        These are in addition to the points Matt raises about organizational capacity, networks, etc. But it’s not to say your conclusions are wrong either, only that the evidence isn’t there to support them. Michael knows this too, which is why he’ll continue to look at the data and to refine his methods for measuring future projects.

        I also want to address a few conceptual issues.

        First, it sounds like you think Fair Trade is defined entirely by FTUSA’s policies. FTUSA is a certification body, and their policies establish their own particular version of Fair Trade. Companies registered with them must meet or exceed their standards of Fair Trade.

        However, there are many different ways that people understand and practice Fair Trade. Indeed, you already mention alternative certifiers and at least one company that has been involved with Fair Trade longer than any certifier. Each has its own version of Fair Trade (with varying degrees of agreement with others), and its own processes to evolve those definitions.

        To some extent, this may explain why you (and some others) pit Direct Trade and Fair Trade as two qualitatively different things. I personally don’t.

        Second, you have the role of FTUSA and Fairtrade International wrong. FTUSA is an independent organization that came into being shortly before the creation of Fairtrade International. It was a member of TransFair International, just before the other TransFairs, Max Haavelars, and the Fairtrade Foundation founded the Fairtrade Labelling Organizations (FLO) International, which would become Fairtrade International earlier this year.

        FTUSA is the US member of Fairtrade International, responsible for labelling and certification in the US (just like the other Labelling Initiative members who are responsible for their own countries). FTUSA has resigned from Fairtrade International, effective at the end of the month, having decided to go its own way. FTUSA has not, “manage(d) licensing and distribution in consuming nations”, except in the US, though this changes with their decision to go their own way.

        Finally, the title of your post doesn’t make any sense to me.

      2. A good publication for this kind of analysis is one by the IDB:

        Designing Impact Evaluations for Agricultural Projects

        Impact-Evaluation Guidelines
        Technical Notes
        No. IDB-TN-198
        December 2010

        Paul Winters
        Lina Salazar
        Alessandro Maffioli

        I should probably add that it’s unwise to speak from stereotypes about disciplines. The questions you raise above are ones that many economists care about. (I did my dissertation work at Berkeley under Alain de Janvry–“The Agrarian Question and Reformism in Latin America”).

        Matt

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