The Fair Trade Fallacy: The Reality of TransFair Canada’s Impact on the Coffee Industry

In the last post, Heather discussed a fair trade product and brought to light some of the positive aspects of the fair trade industry. I decided to write a counter to her article showing some of the more negative lights of the fair trade industry to get some discussion and debate going on the topic since I have been skeptical of the fair trade industry and of the supposed non-profit business that is Ten Thousand Villages for quite some time.

One problem I have with Ten Thousand Villages has to do with what I see as the immense mark up of their product line.  Have you seen how expensive their products are? How much of that expense is going back to the actual artisan? Many of the products they ship in are priced significantly higher than the price they have been purchased for and my question is, where does their nearly $20 million in profits actually go? I found their annual reports vague in that respect, talking of the need to mark up to cover costs, but not the entire reality of the situation. It talks of profits, but not what happens to them in any great detail, where exactly these profits are reinvested, or what efforts they are taking to reduce their costs and overhead. Their use of volunteer labour must certainly help in this respect, but what other measures must be taken? Mixing business with non-profit status leaves Ten Thousands Villages in a precarious place. The non-profit status afforded to the business makes so that it MUST be under intense scrutiny and I do not believe that it has received enough scruitiny yet to ease my mind so that I can consider them fully “ethical”.

I have decided to take a look at one fair trade product to show the reality of the claims made by both TransFair Canada and organizations such as Ten Thousand Villages about the positive impacts of fair trade products. I chose one of the most popular choices in the fair trade consumption market: coffee. TransFair Canada, the only fair trade certification organization in Canada, attempts to bring equity and empowerment to producers in mostly developing countries through its certification, labeling and promotion of fair trade products. It maintains that it provides “living wages” for producers, sustainability and “addresses the injustices of conventional trade, which traditionally discriminates the poorest, weakest producers” (TransFair Canada, 2008). The niche the fair trade market has created for itself, however, has led to dependency instead of sustainability, the already strong thriving, and excluding the weak and poorest from the marketplace with no guarantee of poverty reduction in the long-term.

Fair trade came out of a response to the capitalist system which favors the strongest over the weakest, leaving many small players out of the international market and unable to receive equitable pricing. It attempts to level the playing field for small farmers based on two principles: paying farmers a “fair price” and providing them with some support to the international marketplace. Fair trade is not without criticism as the fair trade coffee industry demonstrates. Coffee is the second most traded commodity after petroleum in the world marketplace and is the economic backbone of many countries, with over twenty-five million families dependent on it for livelihood. Seventy percent of the world’s production of coffee comes from producers who farm less than ten acres of land, making it difficult for them to compete in the world market alone. The falling market price for coffee has led to devastation for many who were unable to join cooperatives or producing organizations supervised by international fair trade organizations (Utting-Chamorro, 2005).

TransFair Canada is the only non-profit organization in Canada devoted to certification, labeling and promotion of fair trade products. It spouts to incorporate values of equity and empowerment through its assurance of “better prices, decent working conditions, local sustainability and fair terms of trade for farmers and workers in the developing world” by addressing the “injustices of conventional trade, which traditionally discriminates against the poorest, weakest producers” (TransFair Canada, 2008). In reality, the poorest of the poor are being excluded; farmers are becoming increasingly dependent on primary commodities and undiversified crops; and wage increases are being diverted to cover other expenses among cooperatives and producing organizations.

The common perception that fair trade provides a guaranteed “living wage” to small producers and individual workers is deceiving. Fair trade certification ensures a minimum price to the organization of producers but not to individual producers or workers on fair trade farms. Poor management and heavy debts owed by producer organizations can consume much of the higher fair trade price before it ever reaches the growers. Wage standards only apply to employees of the producer organization and not to individual farmers and growers, with specific standards only available to full-time permanent employees. This presents a problem in an industry that is primarily contract and seasonally temporary with very few permanent positions available. In fact, Hal Weitzman of the Financial Times found on a visit to five Peruvian coffee farms that four out of five workers on Fair Trade certified farms received wages below the Peruvian minimum wage, which was not in violation of any Fair Trade standards (Weber, 2007).

The price of fair trade coffee is fixed at US $126 per quintal (100lbs), while the world price of coffee is flexible at around US $56 per quintal in much of Latin America. The reality of wages going to the actual growers is surprisingly similar. Fair trade coffee cooperatives in Nicaragua for instance, found themselves paying out fees of approximately $10 per quintal for processing, $18 per quintal for exporting, $31 per quintal for debt cancellation, $5 per quintal for community development and other monies for capitalization funds, resulting in farmers receiving on average only between US $40 and $85 per quintal for their coffee (Utting-Chamorro, 2005).  This is not significantly higher than the world price and in some cases is even lower. The export and maintenance costs of some organizations and cooperatives have led its member producers to be forced to sell their produce in the local market instead of the fair trade market at times to sustain a living. Most fair trade promotional material has led the consumer to believe that workers on the ground are actually receiving the legal minimum wage, if not higher by suggesting that growers are given “living wages”. Many small producers, although assured more stable sources of income, are still living well below the poverty-line despite the guaranteed price of coffee and “living wages” supposedly guaranteed by Fair Trade standards (Weber, 2007).

Dependency remains another crucial problem within the fair trade industry. The reliance on one product as the main source of income is the main cause of poverty for many of these individual farmers in the first place (Nicolls and Opal, 2005). Some experts have suggested that raising prices or wages in primary commodities for individual farmers makes it harder to move into other activities, preventing diversification, and locking the producers into charity channels that prevent them from truly escaping poverty. The price premium then, remains a charitable transfer dependent on external forces rather than a sustainable source of long-term income (Collier, 2007). The fair trade industry is extremely reliant on international support and aid to maintain pricing standards (Utting-Chamorro, 2005) and therefore is not truly sustainable in the long term.

There have also been complaints that the fair trade industry is dominated by “Northern” interests with insufficient producer representation and input into fair trade standardization. Fair Trade Labeling Organization International (FLO), the main cooperator and collaborator of TransFair Canada, responded to this charge by adding producers, traders and national labeling organizations to it Board of Directors (Taylor, Murray and Raynolds, 2005). The industry however remains mostly dominated and led primarily by “Northern” interests. As such, it is mostly unsustainable for local producers without intense international assistance. The cooperative spirit supposedly embodied within Fair Trade does not always flow through the entire process.

The price floor created by establishing set world prices for fair trade products such as coffee results in increased barriers for entry into the industry essentially excluding the poorest of the poor from participating. The set price leads to an excess of supply, which has been experienced in the fair trade coffee market for more than ten years and creates tremendous imbalance in the system. Fair TradeMark Canada, for instance, found that only around thirteen percent of fair trade coffee production was actually purchased by the fair trade market, with the rest being supplied to the conventional market at normal rates. The increased competition to secure the limited number of contracts within the fair trade industry has threatened to exclude the marginalized coffee growers that it supposedly supports. Obtaining certification requires soliciting organizations to obtain export contracts prior to certification and to find the necessary financing to buy and export the coffee, which often exceeds $15,000 per single exporting container (Weber, 2007), completely out of reach for the average coffee grower.

The excess supply in coffee has increased competition for contracts leading to increasing demands for dual certification; one in organic farming and one in fair trade. Obtaining certification in organic farming is a more expensive and demanding process than the fair trade certification process, as costs can soar to more than one-thousand dollars per producer. As the quality standards have increased, the FLO has also begun charging more hefty prices for its Fair Trade certification and has limited the number of contracts it will provide. This has resulted in the fair trade coffee industry continuing to be primarily dominated by those who were already large and privileged to begin with and not the poorest farmers and trades people made in claims. The most obvious way to increase the sales, so as to reduce the excess supply and elimate the market inequality, is to enlist mainstream retailers into the fair trade market, such as Nestle. This goes against the original design of fair trade and is seen as the biggest threat to the industry by many as corporate priorities overtake social consciousness (Weber, 2007).

There are some positives from all this. Many fair trade organizations are trying to encourage diversity, and the cooperative model based on individual democracy of all involved. All of the small producers asked in a survey among fair trade producers confirmed that they had in fact experienced an improvement in their living conditions as a result of their involvement with fair trade. This allowed many of them to switch from using fuel wood to using electricity, having better nutrition, educational opportunities and improvements for their farms. Fair trade has also allowed for more democratic decision making where small producers are given a chance to participate in community development decisions, and allowing them access to technical help, loans, and safety and quality control measures (Utting-Chamorro, 2005). Fair trade, however, has yet to reach its main stated goals of poverty reduction, sustainability and equity.

It is interesting that such a focus in fair wages and conditions has been directed towards the so-called “developing” nations in regards to agriculture while at the same time these problems are being mostly ignored within Canada. Canadian farm workers remain without a minimum wage, maximum daily and weekly working hours, guaranteed rest and eating periods, overtime pay and many other guarantees offered to workers in every other industry (Ontario Ministry of Labour, 2004). Why fair trade for the developing world has taken off while our own people remain without many of these same guarantees is frustrating, to say the least. If fair trade is the goal, it should be fair for all, sustainable and equitable so that rights are guaranteed to all and all have the chance to participate. I also believe that there should also be more stringent regulations that monitor the human rights situations and ethical claims made by these non-profit industries so that we can truly make an ethical purchasing descision.

Sources Cited

  1. “Employment Standards Fact Sheet- Agricultural Workers,” Employment Standards Information Centre, Ontario Ministry of Labour, Government of Ontario, Canada, Queen’s Printer for Ontario, 2004. Retrieved March 12, 2008, from http://www.labor.gov.on.ca/english/es/factsheets/fs_agri.html
  2. Chandler, Paul. “Fair Trade and Global Justice,” Globalizations, Vol. 3, No. 2, 2006, pp 255-7.
  3. Weber, Jeremy. “Fair Trade Coffee Enthusiasts Should Confront Reality,” Cato Journal, Vol. 27, No. 1, Winter 2007, pp 109-117.
  4. Taylor, Peter Leigh; Murray, Douglas L., and Raynolds, Laura T. “Keeping Trade Fair: Governance Challenges in the Fair Trade Coffee Initiative,” Sustainable Development, Vol. 13, 2005, pp 199- 208.
  5. “About Fair Trade,” TransFair Canada. Retrieved March 12, 2008, from http://transfair.ca/en/aboutfairtrade
  6. Utting-Chamorro, Karla. “Does Fair Trade Make a Difference? The Case of Small Coffee Producers in Nicaragua,” Development in Practice, Vol. 15., No. 3, 2005, pp. 584-599
  7. Nicholls, Alex and Opal, Charlotte. “Fair Trade: Market-Driven Ethical Consumption,” Sage Publications Inc.,  2005, pp 242.
  8. Collier, Paul. “The Bottom Billion. Why the Poorest Countries are Failing and What Can Be Done About It,” Oxford University Press, 2007, pp163-4.

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7 comments

  1. I don’t know If I said it already but …Great site…keep up the good work. 🙂 I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say I’m glad I found your blog. Thanks, 🙂

    A definite great read..Jim Bean

  2. A bibliography would certainly give more strength to this piece, as many of the points made are very strong, but questionable without a reliable academic source.

  3. There are sources cited at the bottom of the article, and facts taken from those sources are noted throughout the text in brackets ex. (source, year). If you would like more specifics on any particular points– please ask and I’ll be glad to tell you the exact details.

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