Is Fair Trade "fair" enough?

How does Fair Trade affect different players within the coffee industry practically? This is no research paper, but in this post, I want to explore problems with fair trade, and then look at how K2 pursues economic justice on behalf of the Acehnese coffee farmers. Special thanks to T.H. for bringing up some of these issues. 

First, it might be helpful to review the basic definitions of Fair Trade and Direct Trade

Fair Trade -  Fairtrade is an alternative approach to conventional trade and is based on a partnership between producers and consumers. When farmers can sell on Fairtrade terms, it provides them with a better deal and improved terms of trade. This allows them the opportunity to improve their lives and plan for their future. Fairtrade offers consumers a powerful way to reduce poverty through their every day shopping. When a product carries the FAIRTRADE Mark it means the producers and traders have met Fairtrade Standards. The Fairtrade Standards are designed to address the imbalance of power in trading relationships, unstable markets and the injustices of conventional trade. (from http://www.fairtrade.net/about-fairtrade/what-is-fairtrade.html)

Picture retrieved from 
​​http://www.fairtrade.net/

---

Direct Trade -  Direct trade is a term used by coffee roasters who buy straight from the growers, cutting out both the traditional middleman buyers and sellers and also the organizations that control certifications such as Fair Trade and Bird Friendly, for example. Direct trade proponents say their model is the best because they build mutually beneficial and respectful relationships with individual producers or cooperatives in the coffee-producing countries. Some roasters do it because they are dissatisfied with the third-party certification programs, while others want to have more control over aspects ranging from the quality of the coffee, to social issues, or environmental concerns (from http://www.ethicalcoffee.net/direct.html)

Why we (K2) don't like or practice fair trade

This might make some enemies, but we have to be honest - we aren't fans of fair trade for several reasons. I am sure that Fair Trade started out as an act of good will, and that there are many people who have stories about how Fair Trade has benefited them, but overall, the case for Fair Trade is not as strong as its proponents wish it to be. 

1. First of all, Fair Trade, among other certifications, is very expensive to obtain and maintain, with large upfront costs. Most small holder coffee farmers can't afford this. Farmers can join cooperatives in order to receive the benefits of Fair Trade, but sometimes cooperatives are corrupt, or poorly run.  
2. Fair Trade creates an artificial price floor which encourages farmers to produce more coffee than they normally would, even when it might not be sustainable in the long run. For example, if a people are attracted to coffee farming because the local cooperative offers Fair Trade pricing, there will be an increase in coffee farmers, possibly transitioning away from other crops that are more risk averse. This leads to an increase in the supply of coffee which in turns leads to a decrease in the market price for coffee. The farmers still might get more than market price for their coffee, but with a falling market price, all the coffee farmers in their region are affected negatively, especially those that don't have any way to receive fair trade prices for their coffee. Not only this, but now farmers have invested time and effort in planting coffee at the expense of traditional, less risky crops.    
3. Although Fair Trade does encourage and promote better quality, it does not ensure it. In fact, if a cooperative knows that it can get a premium price above the world market price for its coffee because it's Fair Trade, the cooperative is incentivized to export/sell the best coffee for specialty coffee prices (usually 2-4 times the New York C price), and sell the worst as fair trade as long as it meets minimum quality requirements. As one importer once said, "buying Fair Trade coffee almost ensures that you are buying poor quality." This is partly because even a premium of  $.20 above New York C (as of July, 2016) is not near enough to be sustainable when producing specialty, or high quality coffee. As a comparison, we pay the farmer group here more than $2.50 per pound for their coffee, about $1 more than the Fair Trade minimum. 
4. The Fair trade system places modernized, industrial country contexts and ideals upon farmers that still largely operate family owned farms. Fair trade, for example, has limitations on child labor which has the potential to tear families apart. Poor families that normally would work together might be forced to send their children off to work jobs with strangers for extra money. In one particular case, a husband and wife coffee farming couple could not allow their children to work on their farm due to Fair Trade stipulations. This meant that the children had to work somewhere else. Long story short, the parents were devastated because they knew that once they sent their children off to work, it was a very good chance that they would never see them again. 
5.  Fair Trade has an incentive system in which profits are given back to the cooperative or farmer group which is supposed to be democratically run. Ideally, the group will decide how to use the premium for the improvement of the farmers in the group. This isn't a bad thing, but why not just pay the farmers more for better quality at the time the coffee is purchased? This incentivizes quality without making an artificial price floor, and the farmers can immediately use the extra cash for life-cycle needs rather than be dependent upon the whims of cooperative leadership which in many cases might be corrupt or simply poor managers of the premiums collected.  

For a good overview of the criticism of fair trade, you can look it up on Wikipedia and see a long list of criticisms with citations to academic studies. To be fair, there are also studies that show the benefit of free trade. We don't discount the fact that in some contexts, it might be helpful to some farmers. Our understanding, however, is that it is not as helpful as it is made out to be, and possibly damaging in many circumstances. 

Promoting Economic Justice

So, K2 does not participate in fair trade. What do we do then?

1. We pay the farmers above market price for above average quality. As mentioned earlier, we pay more than $1 over the "Fair Trade" price. 
2. We work with the farmers to find solutions to problems and improve their ability to thrive as coffee farmers. For example, the  local middlemen who buy the coffee for lower prices offer many services to the farmers, such as providing loans for fertilizer, and purchasing the coffee that comes in before peak harvest (which is poorer quality). If we desire for these farmers to become debt free to the middle men, but just buy the good coffee and none of the rest, we are leaving the farmers out to dry.  Rather, we are committed to helping the cooperative sell all of their coffee, even if this means finding new markets where there is a demand for lower quality coffee that we don't want to sell under our own brand name or export.  
3. We have a vision that the cooperative can invest in their own coffee in the future so that they will share in export profits above the price that we pay for the coffee beans. 
4. We help diversify the risk faced by the coffee farmers by pursuing markets in the province, around the nation, and internationally. We also don't put pressure on the cooperative to sell only to us - they are free to sell their coffee to anyone.
5. As a company, we have funds for corporate social responsibility that we use to invest in the cooperative for things like farmer training or for helping with coffee processing equipment.

We hope this was helpful in stimulating thinking about how to really participate in "fair trade." We would love to hear your comments, ideas, or questions.