How Fair is Fairtrade?

It¹s a step forward says the anti-globalization crowd. But the market for kinder, gentler capitalism is limited

By Joseph Contreras and William Underhill NEWSWEEK INTERNATIONAL

Nov. 5 issue ‹ The coffee farmers of the Marmas Valley in northern Peru are overcoming a crisis of historic proportions. In fields dotting verdant hillsides near the border with Ecuador, some old-timers remember lean seasons when they allowed the dark red beans to rot on the branch because prices had fallen so low. These days, however, 7,000 Peruvian growers are guaranteed premium prices for part of their crop by Fairtrade, a network of European and North American activists. The scheme has enabled farming cooperatives to cut out middlemen and sell their beans directly to importers willing to cough up the ³fair trade² price of $1.26 per pound, more than double the current world market price. ³Without Fairtrade we wouldn¹t have survived as farmers,² says Isidro Guerrero, a wiry 53-year-old farmer. ³We¹re grateful that there are people in other countries who¹ve given us a helping hand.²

THE HELP could not be more timely. In just four years, prices for a pound of beans have fallen from a peak of $3.18 per pound to a 30-year low that is hovering beneath the 50-cent threshold. The Association of Coffee Producing Countries abandoned its bid to become the industry¹s equivalent of OPEC and closed down operations two weeks ago. Tens of thousands of small farmers in Latin America, Asia and Africa have abandoned their plots, and in Colombia and Peru, some have switched to other crops like bananas or coca as a last resort. ³People aren¹t taking care of their coffee farms anymore,² says Raymond Kimaro, the head of a coffee cooperative representing 100,000 Tanzanian farmers. ³All their lives they have been depending on coffee, [but] they say it doesn¹t pay.²

The Fairtrade movement began in the Netherlands in 1989 with a simple idea: target socially conscious consumers who would be willing to pay a bit extra at the supermarket in exchange for the assurance that Third World farmers receive a reasonable return for their labor. Organizers have developed marketing channels for seven food products ranging from orange juice and honey to sugar and cocoa, but they focused most of their efforts on coffee as the second most heavily traded commodity in the world after oil. In the rallies that upset world-trade talks in Seattle three years ago, one of the few protest slogans that represented a solution to the problems of globalization‹not just a complaint‹was

³Fairtrade not Free Trade.²

So far, however, the ambitions of the Fairtrade movement fall well short of a global alternative to free trade. Activists have recruited gourmet-coffee importers and roasters in more than a dozen European countries, and more than 130 brands of coffee bearing the Fairtrade seal of approval are now sold in more than 35,000 European supermarkets. Fairtrade sales reached $212 million in Europe last year, just a tiny fraction of the market. Four million pounds were sold in the United States, less than 1 percent of the total.

The obstacles to wider sales for fair trade beans are numerous. The price is too steep for canned coffee companies like Nestle, which rely on high volume. Specialty coffee roasters targeted by the movement account for less than 5 percent of the industry. A 500-gram bag of Fairtrade coffee beans costs an average $5.60 at German supermarkets last year, nearly $2 more than regular beans. And it¹s not clear whether even rich consumers, accustomed to high prices for specialty coffee, will pay the same markup for politically correct tea or bananas.

In effect, the Fairtrade movement is trying to sell a kinder, gentler form of capitalism to producers and consumers alike. Its efforts have garnered financial support from both the Dutch government and the European Union. Since its establishment four years ago, the Bonn-based Fairtrade Labelling Organization has become the nerve center of the movement. It has established strict criteria governing both the 550,000 farmers who benefit from the high price as well as the importers who pay it. Coffee growers are expected to own and work their farms and belong to cooperatives that are run on a democratic basis. The importers must pay a price that covers not only production costs but also a ³social premium² that can help improve the farmers¹ working and living conditions. ³Instead of giving people money, give them a fair deal,² argues Fairtrade Labelling Organization chief Luuk Zonneveld. ³Our [goal] is covering the cost of sustainable production and sustainable living.²

The corporate response has been to play along under pressure. A concerted letter-writing campaign helped persuade the huge U.S. food conglomerate Sara Lee to add a Fairtrade-stamped brand of coffee called Prebica Rain Forest blend. Starbucks rolled out its own Fairtrade brand of beans a year ago after activists raised some pointed questions at a shareholders¹ meeting. It announced plans two weeks ago to buy up 1 million pounds of certified beans, but CEO Orin Smith says the caliber of Fairtrade stocks is not always up to snuff. ³Finding quality that meets our standards has been the principal barrier for us,² he says, ³and we¹re looking at programs with the Fairtrade people to raise those levels.²

Fairtrade has enjoyed some success largely because it is just a niche player. The bigger it gets, the more resistance there will be to a so-called fair price, as set by activists using a complex formula to calculate the ³social premium.² Some analysts argue the mark-up can¹t be truly fair unless it applies equally to all players in the industry, from farmers to buyers and countries. What of the Peruvian growers who are not protected by Fairtraders? British M.P. Vincent Cable, an international economist by training, worries that the fair price could hurt the countries it¹s meant to help, by pricing them out of export markets. At the London-based International Coffee Organisation, economist Denis Seudieu says the industry supports Fairtrade unless it gets so big that consumers ³stop buying [other] coffee at all.²

The potential for market distortions can¹t be overlooked. Yet it¹s impossible to visit the Marmas Valley and simply dismiss this as a half-baked idea. By one estimate, the Fairtrade movement brought in an additional $2.5 million in revenues last year to the 7,000 Peruvian growers in member cooperatives. Guerrero is putting his share to productive use: sending three of his children through college and making improvements on his 10-acre farm. Other Marmas farmers have invested in peeling machines that skin 100 pounds of beans in minutes, rather than the hours it takes by hand. They might survive on less. But why should they? ³In effect [Fairtrade] is just getting started, and it hasn¹t been a gangbuster in terms of sales,² says Ted Lingle, executive director of the Specialty Coffee Association of America. ³But in today¹s world, where a lot of coffee farmers are hurting, anything we can do to raise prices at the farm gate is a good thing.² Free marketer, stand warned. There is another way to trade.

© 2001 Newsweek, Inc.