Fair Prices for Farmers: Simple Idea, Complex Reality

The New York Times
March 19, 2006

TIM TERMAN always looks for the black and white certified Fair Trade logo when he buys bags of coffee from the Mountain People's Co-op in Morgantown, W. Va. He pays nearly twice as much — up to $10 a pound — as he would for conventional coffee, hoping the extra dollars go to struggling farmers.

That's not always the case. Despite good intentions, most consumers who shop according to their social convictions don't know how much of their money makes it to the people they hope to help. Critics say too many fair trade dollars wind up in the pockets of retailers and middlemen, including nonprofit organizations.

But organizations involved in fair trade say the benefits do trickle down. Paul Rice, chief executive of TransFair USA, which controls Fair Trade certification in the United States, said the programs sometimes eliminate as many as five middlemen — a local buyer, miller, exporter, shipper and importer — and instead allow farmers to deal directly with an American wholesaler. "It is empowering farmers to create a powerful export business," he said. "When they do that, they can make dramatically higher prices, often two to three times higher."

If consumers pay a premium for those products, Mr. Rice said, it means the concept is working. "They put their money where their mouth is and pay a little more."

TransFair USA and 19 similar nonprofit agencies in other countries collect licensing fees on each product that uses the Fair Trade label. All of them answer to an umbrella group, the Fairtrade Labelling Organizations International, based in Bonn, which also monitors the farmers and assesses fees for fair trade participation.

TransFair describes its logo fees as amounting to just pennies on the pound. The pennies add up. Last year, it generated $1.89 million in licensing fees from companies that used the logo. It also spent $1.7 million on salaries, travel, conferences and publications for the 40-employee organization.

Some critics find such expenses excessive. "Farmers often receive very little," said Lawrence Solomon, managing director of the Energy Probe Research Foundation, a Canadian firm that analyzes trade and consumer issues. "Often fair trade is sold at a premium, but the entire premium goes to the middlemen."

Fair trade programs, which promise a "fair wage" to family farmers, have grown rapidly. Today, 35,000 retailers and restaurants nationwide, including some McDonald's and Dunkin Donuts stores, carry products bearing the fair trade label, an increase of 60 percent in three years.

Since 1999, more than 100 million pounds of certified Fair Trade coffee, cocoa, tea, rice, sugar, bananas, mangoes, pineapples and grapes have been imported to the United States. Sales of fair trade coffee tripled in that time, making it the fastest-growing part of the specialty coffee business.

"There are now 800,000 small-scale farmers benefiting from fair trade," said Rick Peyser, director of social advocacy at Green Mountain Coffee Roasters in Waterbury, Vt., which has watched its fair trade coffee products grow two to three times as fast as its conventional lines. Fair trade coffee now makes up 23 percent of its $161.5 million in annual sales.

Still, it can be difficult for consumers to quantify the benefit they bring to farmers or to understand the complexities of the programs they ostensibly support. As many as 137 food labels, from "salmon safe" to "ozone friendly," try to appeal to socially conscious consumers like Mr. Terman.

Fair Trade labels don't list the amount paid to farmers; that sum requires research. The amount can vary depending on the commodity. An analysis using information from TransFair shows that cocoa farmers get 3 cents of the $3.49 spent on a 3.5-ounce chocolate bar labeled "organic fair trade" sold at Target. Farmers receive 24 cents for a one-pound bag of fair trade sugar sold at Whole Foods for $3.79.

The coffee farmer who produced the one-pound bag of coffee purchased by Mr. Terman received $1.26, higher than the commodity rate of $1.10. But whether Mr. Terman paid $10 or $6 for that fair trade coffee, the farmer gets the same $1.26.

"There is no reason why fair trade should cost astronomically more than traditional products," Nicole Chettero, a spokeswoman for TransFair USA, said. "We truly believe that the market will work itself out as Fair Trade certified products move from being a niche market to a mainstream option. As the demand and volume of Fair Trade certified products increase, retailers will naturally start to drop prices to remain competitive."

In Europe, where fair trade is more pervasive, some critics complain that retailers have taken advantage of consumers who are not price-sensitive. At one point, Britain's largest chain of coffee shops, Costa Coffee, added 18 cents to the price of a cup of cappuccino brewed from fair trade coffee. Yet the coffee cost the chain just one or two cents extra, according to research by Tim Harford, author of the book "The Undercover Economist." The chain has since reduced its price for the drink.

"Fair trade products make a promise that the producers will get a good deal," Mr. Harford said. "They do not promise that the consumer will get a good deal. That's down to you as a savvy shopper. You can find out how much farmers are getting and reward retailers who don't try to charge you something on top."

Each fair trade commodity has its own fair trade price, or the lowest price farmers will receive even if conventional commodity prices fall. That price is meant to allow them to cover their cost of production and improve their lives — by, for instance, providing money to be invested in their farms and in schools.

Yet a price that is fair in one country may not be in another. In Brazil, "$1.26 per pound for coffee is a fortune," said Kevin Knox, a coffee consultant in Boulder, Colo. "In the forest in the mountains of Mexico, the money barely is enough to justify doing it. Their yields are small, and the costs of production are higher."

In some cases, the individual farmers may receive less than fair trade rules require because the money goes to cooperatives, which have their own directors who decide how much to pass on to farmers.

"We did a breakdown and saw that sometimes, what they're paying farmers is only 70 cents to 80 cents a pound" for coffee instead of the entire fair trade price of $1.26, said Christy Thorns, a buyer at Allegro Coffee, a roaster in Thornton, Colo., that is owned by Whole Foods. "There are so many layers involved."

Transfair, she said, doesn't "clearly communicate that to consumers."

Allegro is among a number of coffee and tea companies setting up their own systems to work directly with farmers and protect the environment. Allegro buys some of its coffee from fair trade farmers, but mostly it buys directly from other farmers, paying them based on quality, not market prices. In some cases, Allegro pays farmers as much as $2.25 a pound, Ms. Thorns said.

Starbucks, which bought 11.5 million pounds of fair trade coffee last year, has created a buying program called CAFE, for Coffee and Farmer Equity Practices, and tries to ensure quality and protect the environment as well as maintain equitable relationships with farmers.

The company plans to buy most of its coffee through this program, which is overseen by Scientific Certification Systems in Emeryville, Calif. Starbucks requires suppliers to provide receipts showing how each party in the supply chain was paid, but it has no fixed price for the coffee. Starbucks' Web site tells consumers about the program.

Still, the fair trade system, which is independent of the food industry, carries weight in the mind of Shel Horowitz, a writer in Hadley, Mass. He buys fair trade products when he can, especially cocoa, after he read a report that much of the cocoa produced in Ivory Coast uses child slave labor.

"When I found out about it, I was horrified," said Mr. Horowitz, who asked his wife to return a package of conventional cocoa to the store. "I didn't want to be party to that. I try to minimize the impact of my consumerism on people who have very little."

The Fairtrade Labelling Organizations International in Bonn audits cocoa farms to make sure children's rights are protected.

SHOPPING activism in the United States has helped funnel $67 million to fair trade farmers and farm workers throughout Latin America, Africa and Asia since 1999, according to TransFair. Without fair trade, supporters say, some farmers have no access to market information and can often be duped into selling to middlemen at below-market prices or, if prices fall, can be forced to quit farming.

Ms. Chettero acknowledges the fair trade system is not perfect but said it is a step toward farmers improving their lives. If not for consumers and the fair trade system, she said, "Who else is going to do it?"