This is the fifth and final segment in a series that compares three alternatives in the "ethical coffee" market: fair trade, direct trade, and Starbucks’ C.A.F.E. practices.
Part one in the series explains how conditions in the traditional coffee market initially gave rise to fair trade coffee. Part two explains what fair trade means. Part three explains what direct trade coffee is. Part four explains Starbucks’ C.A.F.E. practices. The latter three articles also address criticisms of each of these types of "ethical coffee." What follows below is a set of conclusions which, while intended to be understandable if read in isolation, does rely on the preceding articles for supporting argument and evidence.
Having explored in some detail each of these three options in the "ethical coffee" market, what conclusions can be drawn for the responsible consumer? Which bag of beans should we reach for, knowing what we now know based on the research cited in the first four articles in this series?
Before answering, let me first clarify my own point of view. I am not an expert or professional within the coffee industry. I don’t work for Fair Trade, a direct trade roaster, Starbucks, or any other player in this business. Rather, I am a coffee consumer. I have taken a fair amount of time to research whatever credible sources I could find on the internet on this subject, and as an additional resource for these articles, I have interviewed via email spokespersons for fair trade, direct trade, and Starbucks.
Based on the arguments and evidence put forward in the first four articles, the most important point to recognize is that all of these options (fair trade, direct trade, and Starbucks’ C.A.F.E. practices) are much better than the traditional free trade coffee market. I have been, to put it mildly, unimpressed by arguments that free trade, unencumbered by consumer sympathy for the plight of the coffee grower, is best for everyone, including farmers.
I do understand why free trade on a global scale is important. Through the principle of comparative advantage, trade can help all boats to rise in the global community. I oppose protectionism, such as U.S. and European farm subsidies. But the free trade argument against fair trade is fundamentally flawed.
The major argument put forward by free trade opponents of fair trade is that it artificially raises the price of coffee, which will increase supply as more producers try to enter the market to take advantage of the higher price. This, the argument goes, will lead to a glut in the market for ordinary coffee, causing prices to plummet and hurting traditional coffee growers.
However, this argument makes a fundamental error in associating fair trade with the use of non-market forces to regulate price. Putting the fair trade label on a product simply gives it a distinguishing characteristic that the consumer can then choose, or not, according to preference. When consumers choose coffee with the fair trade label, they are expressing a preference for a particular type of coffee. There is no reason that this should cause the price of all coffee to rise. Rather, it should simply express increasing demand for fair trade coffee and therefore raise prices only for this type of coffee. We wouldn’t expect an increased demand for premium quality coffee or vanilla flavored coffee to lead to an increase in price for a basic can of Folgers Classic, so why would an increased demand for fair trade labeled coffee do so?
The effect of increased demand for fair trade coffee should theoretically be that more coffee farmers seek fair trade certification so that they can take advantage of the fair trade price. Qualification for fair trade certification includes the stipulation that coops applying for certification must demonstrate that there is a market for their product. So as demand for fair trade rises, what we can expect to see is more small farmers in the traditional market moving into the fair trade market, not more farmers moving into the traditional market where prices remain relatively low.
One article, which appears in the Christian Science Monitor, not only makes the above free trade supply/demand argument, but also adds the assertion that buying shade grown coffee is a good alternative because, unlike fair trade, it expresses a legitimate consumer preference for a particular type of coffee. I have no idea why the author thinks that shade grown coffee expresses consumer preference for a particular type of product, but fair trade does not. The author does not even seem to recognize that ecological sustainability through use of shade and other practices is one of the criteria used to determine whether coops qualify for fair trade certification. This sort of argument leads me to believe that some people embrace free trade more as devotees of a religion rather than as proponents of a theory who are genuinely interested in gauging whether the theory coherently explains actual facts.
What can we conclude from actual evidence on the ground about the impact of fair trade? First, I admit that I am unaware of any independent, statistical studies with a sample that is broad enough to give us a clear picture of the economic impact of fair trade on the industry as a whole. If such studies exist, I don’t believe they are yet available for wide public consumption. However, as cited in our Fair Trade Coffee article, The University of Colorado Fair Trade Research Group did do a study of several fair trade cooperatives in Mexico and concluded that they were doing considerable good for farmers. This evidence indicates that traditional farmers recognize the benefits of fair trade and are waiting to become certified as demand for fair trade coffee rises.
I am not aware of any evidence to support the idea that fair trade is causing oversupply or large price drops for traditional coffee growers as forecast by the free trade opponents. Rather, the admittedly limited, reliable, publicly available evidence we do have suggests that fair trade is improving the lives of suppliers.
If it is true that fair trade is actually helping farmers, then what of the other "ethical coffee" alternatives? Which one of these options is best? On this point, I am persuaded by Geoff Watt’s view made in our Direct Trade article that no single "ethical coffee" system can take credit as the best alternative for the socially conscious consumer. Fair trade has certain advantages. It has the best chance of creating consumer confidence because it establishes the greatest distance between people who profit from selling the coffee and the institutions responsible for certifying that coffee is grown in a socially and environmentally responsible manner. People who argue that fair trade is intended to raise profits for "corporations" do not seem to understand that the fair trade system is designed to prevent precisely this sort of influence. That is its greatest asset.
However, direct trade offers certain advantages over fair trade. Fair trade certification comes at a price, and I believe that there are conscientious direct trade roasters that forego the cost of certification while paying a price to farmers that exceeds the fair trade minimum. These specialty roasters seek particularly high quality coffee that can bring a high price, something that fair trade is not in a position to do, because it is the roasters who determine what "quality" coffee should taste like, and it is the roasters who decide when a coffee should bring a price that exceeds the fair trade minimum.
Nevertheless, these specialty roasters are limited in what they can accomplish. In particular, they are not able, as is fair trade, to convince larger players in the traditional market, such as Kraft, Nestle’, or Proctor and Gamble, that they should embrace socially and environmentally sound practices. Fair trade has the best chance of convincing these large corporations that they can benefit by entering a growing "ethical coffee" market. It is important to remember that the amount of coffee purchased through all three of the systems we are considering (fair trade, direct trade, and Starbucks) is dwarfed in comparison to the coffee purchased by these large corporations that control the traditional market.
So both direct trade and fair trade serve distinct, but worthwhile, purposes. But what about Starbucks? Why have I included them among the "ethical coffee" alternatives?
I understand that fair trade activists have good reason to be suspicious of Starbucks. Like many, I first became aware of fair trade coffee through the film Black Gold, which juxtaposed perky baristas touting the social benefits of Starbucks and Ethiopian farmers earning miserable wages while supplying the beans for those $3 lattes. I am aware of the campaign mounted against Starbucks by Oxfam in its attempt to convince the company to stop stonewalling the Ethiopian governments’ attempts to trademark its regional sources for premium coffees. I am also convinced by an investigative report in the Sacramento Bee, that, as recently as last year, the Starbucks C.A.F.E. program failed to adequately protect workers and the environment on the Gemadro Estate plantation in Ethiopia.
Nevertheless, based largely on Kim Fellner’s Wrestling with Starbucks and the company’s own most recent corporate social responsibility report, I am convinced that on the whole, their C.A.F.E. program is very good for farmers and the environment, and that the company is making sincere efforts to learn from the mistakes it has made in the past on the social responsibility front.
Like the smaller direct trade roasters, C.A.F.E. practices emphasize rewarding farmers who produce quality coffee with prices that exceed the fair trade minimum. But like fair trade, the C.A.F.E. system also attempts to assure consumers through third-party certification that their standards legitimately support farmers and environmental sustainability. There is plenty of evidence that this system has been beneficial to farmers and the environment in some regions, notably Costa Rica.
Starbucks’ own corporate social responsibility report indicates that they are aware that they need to extend this sort of success to other regions, such as Ethiopia. Only time will tell whether the company’s goals for East Africa are simply a short-term PR strategy or reflect a genuine commitment to improve conditions in the region. But it is refreshing to hear a corporation admit to its own shortcomings and pledge to do better. I think they understand that the public holds a company on a fairly short leash when it touts itself as socially progressive and that playing the "ethical coffee" card as a mere PR strategy with no teeth in it will hurt them in the long run.
So which bag of beans will I be buying? I’ll be asking my grocer to carry a wider selection of both fair trade and direct trade. Then I’ll reach for one bag of each. There are, by the way, some absolutely delicious choices in each of these categories, though I have only found them online. I also won’t hesitate to stop for that occasional latte.