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Is Fair Trade the best answer for struggling coffee farmers around the world?

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Fair trade may not be the panacea for coffee farmers that its proponents want it to be, according to Chris D. Gingrich, PhD, economics professor at Eastern Mennonite University, and his former student, Emily J. King.

Based on research they conducted from September 2010 to April 2011, Gingrich and King found that that the fair trade system for marketing coffee – under which farmers receive a minimum price for their product regardless of the market price – provides limited benefits to a tiny minority of farmers worldwide, despite the premium that consumers pay for that coffee.

“Consumers spend between $2 and $10 extra on fair trade for every dollar that reaches participating farmers,” wrote the authors in their abstract of “Does Fair Trade Fulfill the Claims of its Proponents? Measuring the Global Impact of Fair Trade on Participating Coffee Farmers,” published in the 2012 issue of The Journal of Cooperatives.

“By comparison, projects that aim to improve coffee farmers’ production, processing, and marketing skills show the potential to provide benefits at a lower cost and also reach a broader clientele.”

Fair trade best when coffee prices low

Gingrich and King say when coffee prices are low, fair trade does benefit participating farmers, offering each producer as much as $100 per year on the average. But when market prices for coffee are relatively high, the annual benefits from fair trade fall to an average of $35 per participating farmer.

“Those in the fair trade system are doing fairly well,” Gingrich said in an interview with an EMU reporter.  “But, in order to join a fair trade cooperative, farmers usually have to be land owners, which means that fair trade cooperatives are out of reach for the most economically disadvantaged and marginalized farmers in developing countries.”

Fewer than 2 percent of the world’s coffee farmers sell any of their coffee under fair trade terms. Despite the small number of fair trade producers, the quantity of fair trade coffee on the market exceeds demand, noted Gingrich and King in their article.

For the foregoing reasons, the authors question whether “fair trade provides an attractive new paradigm for the global coffee market.”

Proponents of fair trade argue that the true benefits of fair trade “extend beyond higher prices for coffee farmers,” benefits that Gingrich and King acknowledge. “Fair trade farmers receive access to credit and technical information,” they say, as well as social benefits, such as increased women’s leadership and community development programs provided through the cooperatives.

Development projects may reach more producers

Nevertheless, in their article they tentatively concluded that “fair trade may not be the most cost-effective method of benefiting coffee producers.” They suggested that general development projects, such as quality improvements focused on productivity, may be able to reach more of the most disadvantaged producers, including those who do not own the land they farm or who are not cooperative members for other reasons.

“Part of writing the article was a call for more research,” said King in an interview. “As fair trade continues to grow, you gain more insight into how the movement can reach its full potential.”

King, a 2012 graduate of EMU, now works in Illinois at a store affiliated with Ten Thousand Villages, a nationwide retailer of fair trade products. In the absence of clarity on better ways to increase financial benefits for coffee producers, King says she remains a staunch supporter of the fair trade system.

As an undergraduate, King was mentored by Gingrich in the independent study project that led to the article published in The Journal of Cooperatives. In addition to doing first-hand research, she got college credit for her work. “I had always been interested in fair trade,” she said. “In researching it, I brought together my major in peacebuilding and development with my minor in economics.” 

“Does Fair Trade Fulfill the Claims of its Proponents? Measuring the Global Impact of Fair Trade on Participating Coffee Farmers” is accessible at www.agecon.ksu.edu/accc/ncera210/JOC%20pdfs/V26/Gingrich.pdf

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