Updated July 23, 2017
Fair Trade is an initiative that aims to improve the livelihood of small producers by ensuring a minimum price for their coffee. Farms participating in Fair Trade work with Alternative Trading Organizations (ATOs), which typically purchase directly from producers based on principals that support poverty alleviation, transparency and accountability, capacity building, better working conditions, etc.
See also: Coffee Sustainability
Importers receive Fair Trade labeling for their products from a labeling organization and the process is controlled by national organizations. There are also umbrella organizations, which are a conglomerate of different entities such as producers, labeling organizations, and marketing organizations. One such conglomerate is Fairtrade International (FLO). FLO works to coordinate standards and guidelines for various labeling initiatives. FLO monitors producers and traders and can decertify in cases where standards are not being met. Unlike ATOs, labeling organizations are not involved in trading products.
Only cooperatives consisting of small farms can be certified. The process usually takes six to twelve months to complete and includes establishing formal organizational structures, mechanisms of accountability and transparency, as well as accounting processes.
However, not all is sunshine and roses with Fair Trade. It has proven very difficult to trace the premium paid for fair trade coffee back to developing countries or even to producers. In too many cases, it has been found that importers don't pay a premium to the producers but do charge a premium to distributors.1
Also, why focus strictly on co-ops of small holders as opposed to farmers with larger farms but in the same predicament or small holders who aren't in a co-op? What makes the small holder, co-op member more deserving than an independent small holder or a farmer with a larger farm facing the same problems, just on a larger scale?
Given what we know about the consumer attitude-behavior gap and what we don't know about how much of the premium reaches producers, it's fair to say improvement is needed on both the supply and the demand side of the equation.
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Updated July 23, 2017: changed format of series links.