PRESS RELEASE: Fairtrade Coffee Does Little to Help Farmers in Developing Countries

Media contact: Lura Forcum, Mercatus Center, (703) 993-4960 or lforcum@gmu.edu

Arlington, VA, June 25, 2007-Buying Fairtrade coffee may ease your conscience and line the pockets of coffee retailers, but it does little to improve the lives of coffee farmers and laborers in developing countries. According to a study by Colleen Berndt, published by the Mercatus Center at George Mason University, coffee marketed as "Fairtrade" fails to provide financial benefit to farmers, while imposing significant costs. In her report, "Is Fairtrade in Coffee Production Fair and Useful: Evidence from Costa Rica and Guatemala and Implications for Policy," Berndt-who is a lecturer in economics at San Jose State University-argues that the program serves as little more than a hedge for coffee farmers.  

What is the benefit of being a Fairtrade coffee farmer? About three cents.

In exchange for obtaining certification from the Fairtrade Labeling Organization's (FLO), coffee farmers in developing countries can sell their coffee at a price that is about US$0.03 higher than the regular coffee market. However, coffee farmers only reap this benefit for about 20% of their coffee crop because that's all that Fairtrade buyers currently purchase. The rest is sold on the unregulated market at a lower price.

While this isn't helping coffee farmers much, it's helping the very poorest participants of the coffee trade even less. Owners of coffee farms have some capital, but the migrant workers who provide most of the labor are far more impoverished. FLO requires that these workers be paid a minimum wage, but actual wages aren't monitored-so migrant workers probably aren't seeing their fair share.   

What are the costs of being a Fairtrade coffee farmer?

In order to sell to Fairtrade buyers, coffee farmers must organize themselves into cooperatives. The members must then follow FLO's guidelines and pay the organization to monitor their compliance. In addition, the farmers, many of whom are barely literate, are required to keep detailed records about the co-op's decision-making and distribution of profits in order to maintain certification.

There are other, less direct costs as well. Although FLO says that its goal is to help farmers become "financially secure and self sufficient," its own requirements work against that goal. For example, co-op farmers are prevented from owning more than 12 acres of land and employing any full-time employees. While this may keep large coffee plantations from profiting from the price floor, it also discourages smaller coffee farmers from expanding their businesses.

How is Fairtrade acting as a hedge?

In developed financial markets, there are various tools to distribute risk. They range from simple crop insurance to more complex forms of risk buying and selling in futures and commodities markets. Coffee farmers lack access to these types of tools, which is what makes a Fairtrade co-op appealing. Fairtrade enables farmers to benefit from the price floor when the market is down, and sell to the unregulated market when prices are higher.

And since the co-op isn't required to sell any amount of coffee to Fairtrade buyers, the farmers are inclined to sell their poor-quality beans where there is a price floor, and their higher-quality beans on the unregulated market. That's something to think about the next time you order a venti-Fairtrade-mochachino-frappe from your favorite coffeehouse.

The Mercatus Center at George Mason University is a research, education, and outreach organization that works with scholars, policy experts, and government officials to connect academic learning and real world practice.  The mission of Mercatus is to promote sound interdisciplinary research and application in the humane sciences that integrates theory and practice to produce solutions that sustainably advance a free, prosperous, and civil society.