Fair Trade coffee study causes a stir

13 October, 2009 by (comments)

CIAT research into the benefits of Fair Trade coffee is the basis for an article in Time magazine. Although Fair Trade: What price for good coffee? doesn’t mention CIAT by name, we carried out the “private industry study” they refer to, in Guatemala, Mexico and Nicaragua in 2007, in collaboration with the Sustainable Food Laboratory and Green Mountain Coffee Roasters (GMCR).

The report found that many coffee producers were not benefitting from the higher retail prices for Fair Trade beans and that their families went hungry for between one-to-five months per year.

Colombian Coffee 2

CIAT’s market specialist Mark Lundy said: “These were very powerful findings and we were very pleased the results were taken seriously. CIAT is continuing to work hand-in-hand with buyers and NGOs to identify the means by which big business can engage in practices that can truly benefit smallholder rural farmers.”

As a result of the study, GMCR restructured its Corporate Social Responsibility program to focus on projects that directly benefit farmers and their families. Recently, it has partnered with Catholic Relief Services, Heifer International, Save the Children, Pueblo a Pueblo, and CAN (Community Agroecology Network) in Mesoamerica to reduce the ‘hungry months’ and provide income-generating alternatives to smallholder coffee farmers.

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Filed Under: Latin America and the Caribbean, Regions
  • http://www.blogger.com/profile/02458034558660798345 Mike

    What I don't see is a comparison as to how the fair trade coffee farmers are doing now in comparison to before the fair trade prices were instituted. They may not be doing so well, but were they better before? This is what matters, in my opinion, more than anything else…

  • http://www.blogger.com/profile/02945073804244710995 Neil

    Thanks for the question Mike. Here's CIAT's Mark Lundy with a detailed response:

    "Interesting comment for which they're probably two (or more) possible responses. In a general sense, the establishment of Fair Trade for prices served as a bulwark against declining coffee prices during the recent crisis. As such, it could be argued that Fair Trade served as an income hedge for small producers and allowed many family farmers to stay in business. For this to be true, however, several conditions need to be met. First, coffee producers need to sell a meaningful proportion of the production into Fair Trade. Second, the total volume of coffee produced needs to be sufficient to provide income for the family to make it to the next harvest. Finally, the Fair Trade system needs to provide both a refuge as well as an upside to producers when prices recover. Let's take a quick look at each of those conditions in Central America.

    Coffee producers need to sell a large percentage of their product via Fair Trade channels. While I do not have a full data set it in front of me, anecdotal evidence from fieldwork in Central America would indicate that most small producers do not sell the bulk of their product through Fair Trade channels. This is due to many reasons. A few of the most critical ones are: (a) demand for food trade coffee tends to be less than the actual supply available meaning that not all farmers can sell all of their product as Fair Trade; (b) the decision of which lots of coffee and make it into Fair Trade versus conventional channels is often far from transparent at the cooperative level; and, (c) often times farmers choose to sell higher quality coffees — especially those that can receive prices in excess of Fair Trade — on the open market. The end result of this is a system where a relatively small percentage of smallholder coffee actually gets sold through Fair Trade.

    The total volume of coffee produced by small farmers needs to be sufficient to sustain their families until the next harvest. In many cases, due to small landholdings, rudimentary production systems and limited access to inputs, the amount of coffee harvested by small producers is far less, even at Fair Trade prices, then what is needed to help the family make it to the next harvest. As a result, most small farm families in Central America manage a diversified portfolio of livelihood strategies that allow them to mix on and off farm income to make ends meet. Even if small farm families were able to sell 100% of their coffee through Fair Trade the volume is so low that the income generated would be insufficient to cover the families living expenses until the next harvest.

    Finally, Fair Trade should function both as a de facto insurance scheme against low prices and also as a vehicle to capture increased prices when market conditions rebound. Unfortunately in this case, Fair Trade only meets half of its goal. When coffee prices rebounded in Central America following the last coffee crisis, Fair Trade prices took far longer to move upward then did conventional, and most importantly, specialty coffee prices. As a result, farmers only selling into the Fair Trade channel actually lost out on income opportunities versus those who were selling into conventional or specialty coffee markets.

    Some recent studies on Fair Trade make the argument that there are both economic and noneconomic benefits to be gained from the system. In this sense, Fair Trade provides important non-income gains to participants by allowing them access to a more stable income stream than they would have without such a system. Fair Trade, however, does not necessarily lead to higher incomes but rather opens opportunities for farmers to become more innovative than they would if they did not have such a stable income opportunity.

    As you can see, this is a complex issue that goes far beyond a simple comparison of prices and income. Thanks again for the question."