An Analysis of Fair Trade: Reflections from a Founder (Part II)

Part II:  Building Fair Trade Coffee:  How and Why? Let’s start with coffee.  How did fair trade in coffee happen?  How was this supply chain built?  Who took...

Part II:  Building Fair Trade Coffee:  How and Why?

Let’s start with coffee.  How did fair trade in coffee happen?  How was this supply chain built?  Who took the risk?  Who benefitted?  What can we learn from this history?

It’s not like just one day Starbucks or Green Mountain or Dunkin Donuts woke up and decided it would be a really hip idea to buy from small farmers coops.   No; it took years and decades of work to organize, entice and cajole these worthy giant corporations to do it our way.  And let’s be clear; we did not ask them for their advice on how to trade fairly, how to support small farmers and how to have fair trade “impact”.  Remember that word impact because it is being bandied about quite a lot by the people who are trying to steal fair trade from us.  Their argument is whatever leads to higher volume by definition is higher fair trade impact. No, Starbucks and Green Mountain and Dunkin Donuts had very high volumes of coffee but no fair trade impact until we allowed them into our system on our rules.  And to be clear large corporations are welcome to participate in, and profit from and support authentic fair trade.  But they or their unconscious surrogates such as Transfair USA are not welcome to take over our fair trade.  They can have all the corporate responsibility programs they desire.  That is great.  But no they do not get our beautiful model that activists, consumers, small farmers and alternative trade organizations have patiently built for decades. Fair trade is ours not theirs.

The coffee supply chain was built by alternative trade organizations such as GEPA in Germany, Fair Trade Organizatie and Stichting Ideele in Holland, and Twin Trading in the UK.

These organizations and their NGO allies went out and made connections with small scale farmers.  Usually those farmers were selling to middle level traders who were exploiting them.  The farmers all were in some process of forming or strengthening democratically controlled coops that would keep the surplus made in the coffee trade with the farmers.

These organizations and their NGO allies then had to slowly build the coops’ capacity.  The coops had to learn how to wet and dry process their coffee.  Without controlling the flow of coffee into the processors and the internal terms of trade small farmers would remain exploited.

The alternative trade organizations and the coops then had to learn how to export and import.  How do you get the legal right to do that?  How do you send money in a way that it actually gets to the coop?  Speaking of money, how would all this coffee get financed?  Fair trade lenders were built from this network to solve this part of the problem.  What about quality?  How would the coops learn to control quality and educate their members to grow and process quality coffee?

There was a lot of economic risk taken and no meaningful profit to made from fair trade.  Only mission driven traders and non profits and visionary coops would take on this type of task.

For the alternative trade organizations (ATO’s), there was a whole other set of work on the market side.  The ATO’s needed to learn to import, again to learn how to understand quality and build a quality system that worked for the coops and for the alternative trade organizations.  The ATO’s needed to find sympathetic roasters who would work with them on terms that were reasonable.  And the ATO’s needed to find stores and distributors and ultimately consumers who would support small farmers and fair trade.

This Latin America to Europe coffee supply chain was built slowly, patiently and with great vision and risk.  By the late 80′s, the supply chain was strong enough to try to expand to the next level.

The U.S. version of this story is broadly similar.  Equal Exchange was able to jump onto the European supply chain because alternative trade groups in Europe and small farmers wanted to see this type of trade flourish in the U.S.  Despite their desires, the U.S.was at least a decade behind Europe in fair trade development.  We were often able to work with producer groups that already sold to European fair traders.  These groups by the early 90’s often had some experience with in country processing, quality, financing and export.  Therefore our risk was reduced dramatically.

What was more daunting was building alternative trade on U.S. soil.  There was no broad network of alternative trade food friendly stores like there was in Holland, and Germany.  There were no dominant national level coops that were open to coop to coop trade like there was in Switzerland.  There was in the first few years a strong Central American solidarity movement.  Nicaraguan coffee, legal through a loop hole in the embargo, was sold in substantial volumes in churches, solidarity groups, natural food stores, and consumer coops.

When the Central American solidarity movement lost its energy, it felt like we were in the woods alone talking about fair trade day after day, week after week.  We were living proof of what  Woody Allen said that “80% of success is showing up”.  But Europe kept growing, fair trade seals kept spreading, more producers entered the network, more fair trade banks developed and we kept telling people about this model of trade.  And because speciality coffee kept growing and it had really high profit margins, we kept growing despite paying farmers dramatically more than the world price.

So a coffee supply chain was slowly built for the purpose of maximizing control, opportunity, democracy and development for small producers.  When that chain was so strong that the small farmers capacity was greater than the alternative trade organizations, those farmers and their allies built a system to bring bigger commercial companies into the fair trade system on terms that worked for small farmers.  We need to be clear: the idea for controlled mainstreaming of fair trade came from the south, most specifically from one coop (UCIRI) in southern Oaxaca, Mexico. The idea was not to give control of the fair trade system to European non- profits, or bureaucrats, or multi-national companies or to plantations; but that is exactly what is happening.

The coffee supply chain that we all built has been an A or a B on almost every key level.

Leverage  – (my grade is A)  By this, we mean both in country and up in the north, the coffee industry was organized in a manner so that the farmer coops and fair traders in the north could build their model over time and then leverage tremendous change.  In the 90’s, we often talked about reforming the coffee trade and in a very real way we did just that.   Leverage is very close to impact.  If we have leverage, we can build a system that benefits small farmers and then use market forces to politely but firmly on our terms entice others to trade fairly.  If we have leverage, which is impact, we can build volume.  But volume follows impact.  So when Transfair says lets go get more volume in x,y,z commodity by talking to the businesses that already have volume so we can have impact, they have it 100% wrong.  It would be like going to Starbucks or Dunkin Donuts before there was fair trade and asking them to invent fair trade.  Suppose you got a hearing with the Director of Corporate Responsibility at one of those companies.  And you say to them, “we want you to support small farmers”.  They reply:  “we would love to.  Unfortunately that just isn’t possible.  There really aren’t any small farmers.  And to the extent there are they don’t know how to export.  And just between you and me, their quality (that is if they do exist) is just not up to snuff”.

From their point of view, they are right what; we are asking is not possible.  Which is why they are only able to help us after we have built a supply chain and why we cannot give control of our movement to them or a misguided, dangerous organization such as Transfair.

Education – (my grade is a B)  Coffee has always been a political product.  Just read the history of coffee both in the north and in the producing countries in the south.  Because this history is real to all of us we know that injustice is part of coffee.  And that meant and means there is a great potential to educate consumers.  Americans want to give small coffee farmers a better deal.

Economics – (my grade A) (the Equal Exchange perspective)   We were damn lucky.  We were at the right place at the right time.  At almost the exact time that we were imagining Equal Exchange, the specialty coffee industry was being born in the U.S. led by companies such as Peets, White Coffee, and Gillies.  These companies were reacting to the lowering of quality and price by the mainstream roasters such as Maxwell House and Folgers.  They slowly built a differentiated market for higher quality and higher priced coffee.  We were able to take advantage of that market, pay farmers well above market price, and find stores and consumers who cared about farmers and fairness as well as product quality.  Coffee is a fairly magical product that has a high price point, a high margin, and high turns or movement as well.  So almost by luck it was the product that allowed fair trade to work well and deliver real benefits to farmers while slowly building the supply chain.

As fundamental as coffee is to the development of fair trade, the goal is to create healthy effective supply chains for small farmers in all kinds of products.  Our experience beyond coffee has been most extensive in tea, chocolate and bananas.  Each of these commodities is much more challenging than coffee and in each of them the small farmer model is much weaker than coffee.  In part,  because of these challenges, the northern seals such as Transfair gave up the fight and sold out their base of small farmers.  Only in writing this has it become clear to me how easy it was for the seals to ignore all the history of the ATO’s/farmers/and non profits from the building of supply chains.  For the most part, the folks running the certification seals had not done that work.  And they probably looked down on it. They did not understand how coffee really had worked and then not knowing what they didn’t know, decided they knew enough to go create fairness in other commodities.  So when they negotiated with plantations and multi-nationals it was readily apparent they knew next to nothing and in the negotiation they gave away the store.  It felt too hard to build an effective small farmer supply chain in tea, or bananas, so Transfair/FLO over the repeated strong objections of the small scale farmers who in fact created the fair trade seals in the first place, decided to introduce and then promote the idea of the fair trade plantation.

The Trojan horse for plantations was tea.

Continued tomorrow.

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