What is a Fair Price, Anyway?

A number of people have written or called in recent days asking about a topic of perennial concern and interest: the price that farmers earn for their Fair Trade coffee. We did update folks in The Coffee Issue of our e-newsletter a few months ago, but apparently not everyone subscribes. So…here is the WHO, WHAT, WHEN, WHY and WHAT ELSE of Fair Trade coffee prices!

WHO sets the price?The Fair Trade Labelling Organizations (FLO), International, is an umbrella organization that sets the standards for all Fair Trade Certified products.

WHAT is the price of coffee?In the coffee sector, FLO standards guarantee that buyers of Fair Trade Certified coffee pay small-scale farmer cooperatives a minimum price for their coffee ($1.21 per pound) as well as a “social premium” ($0.05 per pound). Cooperative members vote on how to use the social premium, which is generally invested in community-based social infrastructure. Cooperatives selling certified organic coffee are entitled to an additional organic premium ($0.15 per pound).

WHEN were these prices set? The bad news: FLO set these prices when it was established in 1988. Yikes! The good news: FLO announced in March that it will implement five-cent-per-pound increases in both the social premium and the organic differential as of June 1. The net impact of this shift will be to increase the amounts paid to coffee cooperatives from $1.26 per pound for conventionally grown coffee and $1.41 for certified organic coffee to $1.31 and $1.51, respectively.

WHY did FLO raise prices? It’s kinda obvious, right? I mean, what would you say if you went 18 years without a raise? Raising prices was just the right thing to do, especially given that Fair Trade markets itself as a socially superior option that holds the potential to help lift disadvantaged producers out of poverty.

More specifically, however, FLO’s announcement is part of a coffee price review that was initiated at the behest of a network of Fair Trade coffee farmers in Latin America (see CLAC, La Coordinadora Latinoamericana y del Caribe de Pequenos Productores de Comercio Justo) and supported by a wide range of Fair Trade allies, including CRS. FLO also committed in its March release to complete its ongoing price review and present a proposal on the minimum coffee price of $1.21 per pound by September 2007.

I met with some of FLO’s Board members during SCAA last week, and they described some of they challenges associated with this process — surveying producers in every origin where Fair Trade coffee is grown, Fair Trade licensees in every market where Fair Trade coffee is sold, and plenty of stakeholders in between — but also confirmed that the Standards Board is still on schedule to announce a proposal this fall. Stay tuned to crsfairtrade.org for updates.

WHAT ELSE do I need to know about Fair Trade coffee prices? From my humble perspective, there are two things worth mentioning here. First, FLO may set the standards for minimum prices paid under the Fair Trade Certification system, but it does not set the standard for the concept of fairness in pricing. Some of the companies that participate in our Fair Trade Coffee Program are leading the way there.

Eight of the companies that participate in the CRS Coffee Program (Café Campesino, Coffee Exchange, Dean’s Beans, Higher Grounds, Just Coffee, Larry’s Beans, Peace Coffee and Pura Vida Coffee) are members of Cooperative Coffees, a network of more than 20 companies that buys exclusively Fair Trade coffee. In 2005, after hearing from its partners overseas that FLO’s guaranteed minimums were not enough to ensure that farmers could live with dignity, Cooperative Coffees moved unilaterally to raise its minimum prices. In 2006, in consultation with its farmer partners, Cooperative Coffees again raised its prices. At present, it pays at least $1.56 per pound for certified organic coffee — 15 cents higher than FLO’s current guaranteed minimum and five cents higher than the increased rate that will take effect on June 1.

Three of our other partners — Beans for Better Life, Earth Friendly Coffee and Providence Coffee — have also paid CRS-supported farmers prices above the guaranteed Fair Trade minimum for their coffee. (Beans for Better Life also contributes 10 percent of its gross profits back to farmer coops.)

Second, and perhaps more importantly, I believe that fair pricing is only one of a whole range of measures designed to make the coffee trade more equitable, and not necessarily the most important one. Beyond a guarantee of a minimum price, Fair Trade helps coffee cooperatives to improve organizational capacity, achieve economies of scale, establish better negotiating positions, access credit on fair terms, and build direct, lasting relationships with socially conscious consumers and the companies that buy and sell Fair Trade coffee. These are not insignificant developments in the lives of coffee farmers and their communities. Without them, access to minimum prices might not be possible, and would likely be unsustainable.

This entry was posted on Monday, May 14th, 2007 and is filed under Certification, Coffee, Fair Trade . Responses are currently closed, but you can trackback from your own site.

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