Why Fair Trade Has Failed Coffee Producers

Edited January 20, 2018

The quality of a product is defined by economists as being the set of the product's characteristics or attributes that a buyer seeks to acquire during a transaction.

Coffee: Terroirs and Qualities by Christophe Montagnon

Fair Trade has failed to achieve its mandate; to demonstratively get more money into the hands of coffee farmers.  It has outgrown its ability to affect meaningful change and as a result, has become pinned down under its own weight.  There are several points at which Fair Trade has failed but the critical failure was the failure to tie coffee quality directly to farmers' compensation.  By simply compensating farmers for being 1) small and 2) members of a democratically administered co-op, the movement failed to add value to the final product itself; the coffee in customers' cups.

As I mentioned in the post Sustainable Coffee: Ethical Consumption; price, quality, convenience, and brand familiarity are often the most important factors affecting a decision to buy a given product.  Fair Trade certified coffee satisfies none of those factors.  In fact, the way it's designed, it inadvertently encourages farmers, given the right circumstances, to sell their lowest quality coffee as Certified Fair Trade while selling the higher quality coffee at a premium beyond what Fair Trade pays.  Here is an example of how, from Colleen Haight:

A farmer has two bags of coffee to sell and there is a Fair Trade buyer for only one bag. The farmer knows bag A would be worth $1.70 per pound on the open market because the quality is high and bag B would be worth only $1.20 because the quality is lower. Which should he sell as Fair Trade coffee for the guaranteed price of $1.40? If he sells bag A as Fair Trade, he earns $1.40 (the Fair Trade price) and sells bag B for $1.20 (the market price), equaling $2.60. If he sells bag B as Fair Trade coffee he earns $1.40, and sells bag A at the market price for $1.70, he earns a total of $3.10. To maximize his income, therefore, he will choose to sell his lower quality coffee as Fair Trade coffee. Also, if the farmer knows that his lower quality beans can be sold at $1.40 per pound (provided there is demand), he may decide to increase his income by reallocating his resources to boost the quality of some beans over others. For example, he might stop fertilizing one group of plants and concentrate on improving the quality of the others. Thus the chances increase that the Fair Trade coffee will be of consistently lower quality. This problem is accentuated when the price of coffee rises to 30-year highs, as it has done recently.

One method of fixing this problem is to explicitly pin the price of Fair Trade Certified coffee to the coffee's quality.  In this scenario, if the coffee doesn't meet a baseline quality level, it can not qualify for Fair Trade prices.  At the end of the day, coffee is a product meant for consumption. It is an unfortunate fact that  bad-tasting coffee has less intrinsic value than great-tasting coffee regardless of any cultural or social importance that may exist in the production process.

Equipping farmers with the knowledge and skills to improve the quality of their coffee will not only help improve the marketability of their product but it  will also set them up for future success — the 'teach a man to fish' allusion, if you will.  My latest project is based on this principle.  The goal is help the farmers invest in knowledge, processes, techniques, and equipment with an eye on quality improvement across all quality tiers, not just the special, cream-of-the-crop microlots.  Improving the quality of all coffee will increase its marketability and hopefully increase its value in an appreciable manner.

I believe this is much better than paying producers extra for simply being small and members of a co-op.

This post is part of a series:

Sustainable Coffee: Ethical Consumption
Sustainable Coffee: Fair Trade Coffee
Sustainable Coffee: Ethical Trade
Sustainable Coffee: Organic Coffee

Edited July 20, 2018: minor formatting changes


Michael C. Wright

Michael is an American expat living in Singapore where he writes about many things coffee-related. A roaster by trade, Michael is also exploring coffee production and how to improve the lives of those who produce the noble bean.

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