Paul Rice, the Yale graduate who spent more than a decade as a swashbuckling cooperative organizer in wartime Nicaragua before he became the CEO of Fair Trade USA, spent three hours at CRS headquarters yesterday making the case for his most daring gamble yet — withdrawing from FLO and embarking on the ambitious new Fair Trade for All initiative, which promises sweeping changes to the certification system for coffee and other smallholder crops. These are what I consider to be the highlights of the discussion.
Overcoming “internally imposed exclusions.”
Rice advanced the case for the expansion of eligibility in the Fair Trade Certified coffee market beyond cooperatives on social justice grounds. He noted that while while FTC bananas, tea and flowers are sourced from plantations, the “core” FTC products — coffee, cacao and sugar — have always been the exclusive domain of cooperatives, a contradiction he characterized as a “huge moral hazard.” By expanding eligibility in these traditional smallholder categories to include actors both up the food chain (estates) and down the food chain (unorganized farmers), Fair Trade for All aims to generate social and economic benefits for groups that have been marginalized by current Fair Trade coffee standards, namely estate workers and unorganized smallholders.
“There is a market logic.”
He argued that “Fair Trade has to evolve for mission reasons, but there is a market logic, as well.” Many large corporate coffee buyers have clearly expressed to him their desire to source more FTC coffee. They perceive the current model, which permits buyers to source only from smallholders organized into cooperatives, as a bottleneck. Paul believes that by easing the requirements for participation on the grower end of the FTC chain, the system will achieve the kinds of efficiencies necessary for bigger players in the market to make bigger commitments to FTC sourcing. He sees the inability of the big corporate buyers to “go all the way” with a 100 percent commitment to Fair Trade as a missed opportunity in terms of both generating social return at origin and generating more growth in the marketplace. With deeper commitments to FTC coffee, he also believes we will see more investment in FTC coffee marketing and increased consumer commitment to the Fair Trade Certified market.
The limitations of the cooperative model.
The discussion at our headquarters yesterday was joined by CRS Fair Trade staff and two very senior agriculture advisors with many years of experience in Africa and Latin America. They noted that while the cooperative movement has delivered enormous social and economic benefits for smallholder farmers, it has not been universally embraced. Rice was less ambiguous about both the benefits and limitations of the cooperative movement in which he cut is teeth in the coffee trade: “Fair Trade of the past was amazing. And absolutely not scalable.”
“It wasn’t political. It was business.”
When Rice described the decision to break with FLO in the context of the vision for a more inclusive brand of Fair Trade, I couldn’t help but think of the adage that ran through the Godfather trilogy to describe the motivations behind cosa nostra decision-making: “It’s not personal. It’s business.”
Rice says FTUSA sees FLO as a service provider, and felt that FTUSA was getting a relatively low level of service for a fairly high cost. And FLO held its ground against FTUSA’s push for expanding the FT standards for core smallholder crops. In the end, he says, “It wasn’t a political decision. It was business.”
Two theories.
Rice believes there are two theories on what will happen when coffee estates and other non-cooperative actors enter the FTC coffee market. One theory is the zero-sum view that opening the market to estates will reduce the amount of FTC coffee that smallholders are selling. He prefers another theory: that the entry of estates will increase the overall volume of FTC coffee in the U.S. market without reducing the volume of coffee smallholders are selling. Buyers who are eager to grow their FTC coffee volumes, he reasons, aren’t going to abandon their historic cooperative partners to shift their FTC sourcing to estates, but rather complement current cooperative purchases with coffee from other sources.
He resists market share as a metric for evaluation of the impacts of the Fair Trade for All vision on smallholder coffee coops. In a marketplace that has excluded non-cooperative actors, any new entry is going to invariably reduce the smallholder market share: it has nowhere to go but down. He thinks volume metrics are more appropriate for measuring coop impact: are cooperatives selling the same amount of coffee or more with estates in the system as they did with the old regime.
“I am not going to be the guy who abandoned coops.”
While he did not reveal any formal mechanisms to protect the market niche that smallholder farmers have developed in coffee, he was firm in his commitment to coffee cooperatives: “We’ll defend coops.”
Paul took great personal risks during the war in Nicaragua to help build PRODECOOP, a CRS partner that remains one of the most exemplary coffee cooperatives in the world. For him, the issue is intensely personal: “I am not going to be the guy who abandoned coops. I can’t do that given everything I’ve done.”
“Radical transparency.”
Finally, Rice said he wants TFUSA to adopt a policy of “radical transparency” in evaluating and communicating the impacts of Fair Trade for All’s innovations on all participants in the system. In his first demonstration of his commitment to this principle, he agreed to let me publish this blog post on the content of our discussion.