Why specialty coffee markets are more effective than fair trade

If you’ve ever bought coffee beans by the pound at a Starbucks store, you will have noticed there are some bags which cost significantly more than the rest. Advertised for about $5 more than the standard, you would expect that the fair trade label would boast the best quality bean. But, fair trade is not about the taste, it’s about justice.

Fair Trade is a certification that was developed to help poor farmers of commodities like cocoa, bananas and coffee. The fair trade label is supposed to guarantee that farmers have received a fair price for their goods. Typically, the system works by setting a price floor, which limits how low a commodity can be bought for. Organizations like Fair Trade USA and Fair Trade International certify products with their stamp of approval, and consumers know they are buying goods that come from farmers who were paid honest prices.

fair tradeThe advertisers from Fair Trade organizations tell us that they are taking a market-based approach to solve the problems of global poverty and injustice caused by unfair business practices and structures. Fair trade organizations like From The Earth seek to “holistically improve the lives of workers by paying fair wages and prices, developing long-term relationships, showing respect, and implementing environmentally sustainable practices.”

And, it’s not just small companies like From the Earth that have jumped on this bandwagon, but many other brands have latched onto this idea of fairness. Some stores, like the British Marks & Spencer chain, sell no other type of coffee. Large corporations like Green Mountain Coffee and Starbucks have grown from this concept too. In 2011, Green Mountain Coffee Roasters bought 50 million pounds of fair trade-certified coffee, and Starbucks bought 44.4 million pounds. Even Nestlé, the world’s biggest coffee company, sells a fair-trade brand.

coffee fair tradeBut why are all of these big companies really buying so much coffee? Is it because they want to change the world and fight against poverty…or is it because they want to make more money? It seems that Fair Trade is the feel good brand—instead of a shot of hazelnut syrup, your brew comes laced with smug self-righteousness.

We, as customers, are it seems willing pay a little bit over the odds so we can feel better about ourselves for buying fair-trade coffee. But only a little—we are able to extend a few pennies more for a bag of coffee. Even our sense of virtue comes ludicrously cheap.

As a poor college student who cares about poverty and social justice, I started to wonder exactly what’s behind all of this marketing. Should I really be feeling guilty if I don’t buy a cup of fair trade coffee? Or is spending a few extra dollars to solve poverty a method that is too easy to salve our consciences – exactly how fair is this fair trade?

I talked to missionaries from Costa Rica where the beans for my favorite coffee brand’s Café 1820 come from. The beans are grown by a farmers’ co-operative, set up in the 1920s oldest co-op, I was told. A farmer friend of these missionaries explained that they sell their coffee for $1.46 a pound to fair trade buyers, whereas the local market price was $1.26. That’s only 20 cents more than they would typically make, and here in America we buy that pound for $12.

1820These Costa Rican farmers did not receive as many benefits from the fair trade market as some other groups have reported because they were already organized into democratic cooperatives under a national system that regulated how much of the price of coffee sales processors and exporters could retain as profits. Moreover, organizational problems limited their ability to take advantage of the fair trade market.

The changes in the overall market and in the specialty market have had important effects on fair trade producers. The terms of exchange for fairtrade-certified coffee have deteriorated somewhat over the past decade. The base price for fair trade coffee remained stagnant at $1.21 a pound from 1989 to May 2008, at which point it increased to $1.25 a pound, representing only a 3 percent increase across twenty years.

The price paid to producers for a pound of green coffee should now be over a $2.00 a pound. The recent increase of $0.05 for the price differential for organic coffee and social premium improves the situation slightly but only brings the price increase to 10 percent across twenty years, well below the rate of inflation for that period. While the fair trade price paid to producers has stagnated, the demands of the fair trade market have grown more challenging for producers to meet.

In other words, Fair trade is supposed to help coffee growers avoid exploitation and receive a better price for their coffee—which sounds great in theory. But as the coffee buyer has become more sophisticated, fair trade certification hasn’t followed suit, and no longer offers farmers the best deal in terms of bang for their bean. Coffee consumers are willing to pay more than ever for a quality cup of joe. The problem is this: Fair trade doesn’t guarantee a quality bean.

With the rise in popularity of fair trade goods, the expectation has become that fair trade indicates higher quality. But this isn’t necessarily true. Fair trade “really only opens up the supply chain, but they don’t add any value,” explains coffee exporter Bill Harris.

Fair trade coffee can be any quality grade, so, as this video by Vocativ reports, “the taste of a fair trade-certified cup of java may not be as ‘grande’ as it’s served up to be.”

Coffee growers are now turning away from the fair trade certification towards and just getting their coffee graded as “specialty” because retailers will pay a higher premium for it. Farmers are finding they can grow better beans for a grade where quality matters, and sell them for a higher price.

Companies like the Specialty Coffee Association of America evaluate the quality of coffee by grading three aspects: the taste of brewed coffee — a clean aftertaste is ideal; the number of defects in the beans — the fewer the better; and the degree to which the roasts are unique, and offer something different.

Consumers, inundated with the fair trade label, may not know that the “specialty” label can actually indicate higher quality. Growers could often make more money (many multiples of the basic price) by producing higher quality beans and selling them directly into the more profitable specialty market.

Starbucks and Fair Trade organizations are failing at helping those who really need the money. The issue with the current system is that those living in abject poverty, the migrant farmers who pick the crops, never get to see a dime of the profit. They get paid minimum wage, and the money from fair trade goes to the head farmer. The rich just get richer as the poor become poorer.

But there is some hope. The farmers I learned of who were in a coop in southern Costa Rica reported that their work with an American university to sell directly to North American consumers has been reasonably successful. When the middle man, fair trade buyers was eliminated, and the coffee was sold directly to specialty markets than the farmers would receive a much higher profit.

coffeeAnother positive is that changes in the specialty market have made it easier for small producers to enter it. Today, a much wider array of coffee flavors and characteristics are prized, with “distinctiveness” highly valued. This distinctive coffee is sold in much smaller batches, which allows small and medium-sized producers to compete on more equal terms with the large producers that traditionally dominated this market.

Now, there are less regulations and certifications required, so there are more emerging routes through which smaller producers and cooperatives could enter the specialty market. Another emerging trend is national coffee competitions, such as the Cup of Excellence and Quality Coffee auctions. These auctions are organized by groups who have an interest in providing technical assistance to promising producers. The Coffee Quality Institute states that its main goal is providing technical assistance, with the associated coffee auctions a secondary goal. Even the competitions and auctions that do not directly provide assistance help to put producers in touch with buyers willing to pay for exceptional coffee, with other sophisticated producers who can share know-how, and with organizations that work to assist coffee producers.

The Cup of Excellence competitions were created in 1999 to bring previously unknown Brazilian coffee producers to the attention of the international market; since then they have spread to seven other Latin American countries. Winners of these competitions have included small-scale farmers and coffee cooperatives; the judged coffee is then auctioned, with winners often receiving bids of over ten dollars a pound for their coffee. The Quality Coffee and Best of Panama auctions sell small batches of coffee for record prices year after year; while small producers and cooperatives have not on the whole done as well as medium-sized producers in these auctions, they are well represented.


Clearly, these alternative markets are not a solution for all small producers, as many cannot produce coffee that can compete at this level. These programs do not aim to help producers who are not already at an elite level. However, increasingly all fair trade coffee producers must at least aspire to an elite level, if they hope to sell their coffee to vendors such as Starbucks. The days of relatively poor quality coffee sold only for social justice reasons are over; today fair trade coffee must meet the standards of specialty coffee.

As I look back to my original question. “How does the consumer know that the business does what it says?” Its answer is not encouraging: “The proof is in the cup. Quality is not an accidental thing, and does not happen without very careful attention to detail at every step of the way.” It is difficult for an uninformed consumer to distinguish between the variety of claims made by sellers about fair-trade-certified coffee, Intelligentsia’s Direct Trade, Starbucks’s CAFE system, and Fair Trade USA’s independent certification system.

So, if you’re going to spend the money on justice, it’s best to go for the specialty brand. That way the farmers are the ones that get the money. If you still feel unsure of whether the company will honor its commitments to giving the profits back to the farmer, then donate directly. That’s the only for sure way that the money will make it to the hands that need it.