Fair trade coffee is coffee that is certified as having been produced to fair trade standards by fair trade organizations, which create trading partnerships that are based on dialogue, transparency and respect, with the goal of achieving greater equity in international trade. These partnerships contribute to sustainable development by offering better trading conditions to coffee bean farmers. Fair trade organizations support producers and sustainable environmental farming practices and prohibit child labor or forced labor.

History

Prior to fair trade, prices were regulated by the International Coffee Organization according to the regulations set forth by the International Coffee Agreement of 1962. This agreement, which was negotiated at the United Nations by the Coffee Study Group, set limits on the amount of coffee traded between countries so there would be no excess supply and consequent drop in price. The ICA existed for five years and then was renewed in 1968.

The agreement was renegotiated in 1976 due to increasing coffee prices, largely a result of a severe frost in Brazil. The new agreement allowed for the suspension of price quotas if the supply of coffee could not meet the demand, and enabling them if prices dropped too low.

In 1984, the agreement was again redrawn, this time creating a database on coffee trade, and implementing stricter import and export regulations.

Fair trade certification was then introduced in 1988 following a coffee crisis in which the supply of coffee was greater than the demand; since no price quotas had been reimplemented by the International Coffee Act, the market was flooded. Launched in the Netherlands, fair trade certification aimed to artificially raise coffee prices in order to ensure growers sufficient wages to turn a profit. The original name of the organization was "Max Havelaar", after a fictional Dutch character who opposed the exploitation of coffee farmers by Dutch colonialists in the East Indies.^[1] The organization created a label for products that met certain wage standards.

Quotas remained a part of the agreement until 1989, when the organization was unable to negotiate a new agreement in time for the next year. It was decided that the 1983 agreement would be extended, but without the quotas because they had not yet been determined. A new agreement could not be negotiated until 1992.

From 1990 to 1992, without the quotas in place, coffee prices reached an all-time low because coffee price quotas could not be decided.

The agreements of 2001 and 2007 aimed to stabilize the coffee economy by promoting coffee consumption, raising the standard of living of growers by providing economic counselling, expanding research to include niche markets and quality relating to geographic area, and conducting studies of sustainability, principles similar to fair trade.^[2][3]

Following the inception of fair trade certification, the "Transfair" label was later launched in Germany, and within ten years three other labeling organizations commenced: The Fairtrade Foundation, TransFair USA, and Rättvisemärkt. In 1997, these four organizations jointly created Fairtrade International (formerly called FLO, or Fairtrade Labelling Organizations International), which continues to set Fairtrade standards, inspecting and certifying growers.^[1]

Fair trade organizations

The fair trade labeling organizations having most of the market share and who sell through supermarkets refer to a definition developed by FINE, an association of four international fair trade networks (Fairtrade Labelling Organizations International, World Fair Trade Organization (WFTO), Network of European World shops and European Fair Trade Association (EFTA)). The standards developed by Fairtrade Labelling Organization are the most widely used.^[4] Fairtrade Labelling Organization (FLO) International is the overall body that governs the fairtrade system. It aims to achieve high standards within the fairtrade system in terms of credibility, compliance of Fairtrade Standards by producers, traders, and retailers.

FLO's Main Tasks

• Setting International Fairtrade Standards
  • FLO provides independent, transparent and competent standard setting by proposing the Fairtrade Standards to the FLO Board that decides if standards are met.^[5] Each producer or trader has to meet the Generic Standards and the Product Standards which guarantees minimum prices that are considered fair to producers. They also aim for long term trading relationships and environmental sustainability.
• Facilitating and Developing Fairtrade Business
  • The FLO works with both Fairtrade Certified producer organizations and traders to match supply and demand. It is also responsible for strengthening these organizations and improve their access to the market.
• Making the case for Fairtrade Justice
  • FLO together with other international Fair Trade organizations, IFAT, NEWS and EFTA respectively, have created a common Platform called FINE (standing for the initial letters of FLO, IFAT, NEWS and EFTA) to work together to promote the case for trade justice in debates on trade and development.^[5]

Certification scheme and competition

The certification scheme is run by Fairtrade International (FLO). Fairtrade has become the most dominant Fair Trade label and has attracted a lot of competitors challenging its monopoly as an ethical label.^[6] Several labels from competitors have been created using different certification schemes. NGOs and non-profit organizations are the main threats causing enormous headache for Fairtrade International (FLO) regulating authorities. A few examples include Bird-friendly Coffee, which promotes practices that help to protect the habitat of migrating birds, the American NGO Rainforest Alliance, whose mission is to protect ecosystems and to preserve biodiversity and sustainability of modes of production, and UTZ Certified, which focuses on improving the efficiency and market access of producers. However, most of these organizations are criticized for failing to guarantee minimum price, failing to provide pre-financing facilities, favouring plantations at the expense of family farms.^[6] The greatest idea about the certification scheme and its competitors is that they all have a logic of innovation they constantly attempt to innovate rather than generating income only but proactively meet the changing needs of different objectives with different ambitions.^[6]

Coffee packers pay Fairtrade a fee for the right to use the Fairtrade logo, which gives consumers an assurance that the coffee meets Fairtrade criteria. The coffee with this certification mark must be produced by farmers and cooperatives that meet these criteria.^[7]

Coffee retailers

Coffee retailers are not restricted by Fairtrade to sell Fairtrade coffee as a premium product and charge as much as they like for the coffee.^[8]

Importers

Importers of Fairtrade coffee have to be registered with Fairtrade and pay a fee. Under the Fairtrade International standards they are obliged to pay a minimum price to the exporting organization, currently $1.40c/lb New York Board of Trade “C” contract, F.O.B. origin for Arabica, and $1.05 for Robusta London “EURONEXT LIFFE” contract, F.O.B origin with 30c/lb extra for organic.^[9] When the world price is above this level, they are obliged to pay 20c/lb above the world price.

Exporters

Certified Fairtrade coffee is normally exported by secondary or tertiary cooperatives, marketing this coffee on behalf of the cooperatives the farmers belong to^[10] with arrangements that may be complex.^[11] There is not enough demand to take all the certified coffee produced, so most has to be sold as uncertified. In 2001 only 13.6% could be sold as certified^[12] so limits were placed on new cooperatives joining the scheme. This plus an increased demand put up sales of certified to around 50% in 2003^[13] with a figure of 37% commonly cited in recent years. Some exporting cooperatives do not manage to sell any of their output as certified,^[14] and others sell as little as 8%.^[15]

The exporting cooperatives incur costs including certification and inspection fees, additional marketing costs, costs of conforming to standards, and additional costs of cooperative operation, costs which are incurred on all coffee production, even if little or none is marketed as certified, with a higher price, so the cooperatives may make a loss on Fairtrade membership. Weber^[14] reports cooperatives not able to cover the extra costs of a marketing team for Fairtrade, with one covering only 70% of these costs after six years of Fairtrade membership.

Any deficit after paying these costs means a lower price for farmers, while any surplus will normally go on “social projects” for “common goals” organized by the exporting cooperative rather than as extra payment for farmers.^[16] These may include the building of classrooms, baseball fields, or the establishment of women's groups, for instance.

Enforcement of standards

FLO-CERT, a for-profit business owned by Fairtrade International, handles producer certification, inspecting and certifying producer organizations in more than 50 countries in Africa, Asia, and Latin America.^[17] In the fair trade debate there are many complaints of failure to enforce these standards, with farmers, cooperatives, importers and packers.

Marketing system

The marketing system for Fairtrade and non-Fairtrade coffee is identical in the consuming countries, using mostly the same importing, packing, distributing and retailing firms. Some independent brands operate a virtual company, paying the normal importers, packers and distributors and advertising agencies to handle their brand rather than doing it themselves, for cost reasons.^[18]

Many fair trade organizations remain that adhere to a greater or smaller degree to the original objectives of fair trade than the mainstream of Fairtrade International and its associate. These market products through alternative channels where possible, and market through specialist fair trade shops, but they have a small proportion of the total market.^[19]

Criticisms

Criticisms of fair trade have been made as a result of independent research, and these are summarized in the fair trade debate.

There are also some criticisms of fair trade specific to coffee. Colleen Haight of the Stanford Innovation Review argues that fair trade coffee is merely a way to market the idea of ethical consumerism.^[20] Quality and transparency concerns regarding coffee are increasingly common amongst some consumers and coffee companies, as seen through the rise of the third wave coffee movement. Maintaining a balance between ethical and higher-quality coffee may be difficult with fair trade coffee due to what some coffee roasters deem as insufficient quality incentive within many fair-trade certified coffee farms. Deborah Sick's research, involving interviews with coffee farmers in Costa Rica, finds that many farmers often produce more fair trade coffee than they can sell, so will often end up selling to independent buyers that will often pay more than fair trade buyers can.^[21] Some scholars are concerned of the artificial stimulation of coffee production, especially since worldwide demand for coffee is relatively inelastic.^[22]

Many who believe fair trade coffee is insufficient use the direct trade model, which allows for more control over quality concerns, farmer empowerment, and sustainability issues.^[23] It is also valuable in fostering closer farmer to roaster business relationships, which can ultimately increase quality of life and profits for coffee growers and buyers alike. However, direct trade is a new concept that is only utilized by for profit businesses like Counter Culture Coffee and Intelligentsia Coffee and therefore has no third party certification.^[24][25]

Fair trade has become a repetition of free trade rather than being an alternative to the market economy which is dominated by supply and demand. Fair trade is not serving its promises of creating opportunities for economically disadvantaged producers. Poverty has become a commodity through fair trade within its label that labels goods produced by the poor giving it visibility it did not have before leaving the marginalized people in reduced circumstances.^[26]

The system could not become a solution to all humanity misfortunes; there are still concerns as the large amounts of profits does not go to the less privileged producers although much of the labor have been provided by these marginalized people. The poor may remain poor if there are no measures implemented to address the inequalities of the market as the poor cannot enjoy decent prices to what they sell to the rich countries. Prices provided by the system do not amount for inflation which can aggravate their conditions.^[27]