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Paul Rice makes the case for Fair Trade for All

2011 October 6

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.

 

11 Responses leave one →
  1. 2011 October 6

    Michael,

    Thanks for getting the transparency started!

    I think you did a great job of summarizing many of Paul’s views and visions. For me, it is gratifying to see Fair Trade USA answer the call to radical transparency–one that Fair Trade pioneers have issued over the past many years. Of course, much remains to be seen about whether the rhetoric and passion will be backed up with real action.

    I’m hopeful because I’ve recently seen FT USA keep commitments regarding its apparel certification pilot, but I’m also remain a friendly skeptic. I think one excellent way for FT USA to demonstrate its actual and deep commitment to radical transparency–and I put this to Paul yesterday in our conversations–would be to open up the process IMMEDIATELY for standard setting in the new paradigm.

    Paul mentioned the existence of a committee that was developing estate standards. He noted those standards would be released for public comment later this month. It is a shame the committee was formed without wide consultation. But let’s look forward: FT USA can still: a) post now a list of all the members of that committee and b) issue a “request for nominations” for members of the to-be-convened committee for standards setting related to “unorganized farmers”.

    There are many change agents in the movement who, like Paul, have dedicated their professional lives to the principles and practices of Fair Trade. We need radical transparency not just of ultimate impacts of FT for All but we need transparency in the process of implementing its roll out. I suggest that FT USA bring businesses, NGOs, consumers and farmers into a multi-stakeholder process now so as not to go it alone. It will take more time, it will be a little messier, but being deliberate now and dedicated to good process will likely build trust and yield better results.

    These are just some initial thoughts about yesterday’s meetings. I hope those who were NOT there, will chime in with reactions too.

    Jackie

  2. 2011 October 10

    What struck me about your interview with Paul Rice was Paul’s comment that it’s about business. Fair Trade was a social experiment created to turn business around, not go along with it. Fair Trade was created to go against the wind, not with the wind.

    What continues to amaze me is how spectacularly successful Paul has been at the business of developing a brand image for Fair Trade. More than any other model, Fair Trade has become like Coke or Frigidaire, synonymous in the marketplace with sustainability in the coffee trade.

    Fair Trade is indeed a benefit for small-scale coffee farmers. However, that benefit pales in comparison to the benefit Fair Trade has become for coffee merchants. And, the sad reality is that despite a generation of fair trade, poverty remains commonplace at origin. That’s the true story to be told to consumers.

    Consumers interested in changing the world with their purchases have been easy prey for coffee merchants whose sound bite merchandising demeans the complexities at origin and suggests that all consumers have to do is buy fair trade coffee and their job is done.

    Buying fair trade coffee may be an important part of a solution toward reducing poverty at origin. But, it is surely not the only thing that has to be done. There are numerous organizations equally doing their part in addressing complex issues at origin. Fair trade is one of them. Besides that, fair trade has a long way to go to improve itself.

    Look, Fair Trade has 3 basic component parts, each of which could be of great value to farmers. 1) It has been cooperative-based, until now, anyway, 2) Pre-financing, and 3) the floor price.

    By itself, the cooperative may be the most important part of the fair trade model. It offers strength in unity. The difference for a farmer to be a member of a cooperative or to be on his or her own is enormous. Still, for the most part, coffee farmers don’t know what it means to be a member of a cooperative. Farmers are not fully aware of their responsibilities. Nor are they fully aware of the power they have as members, the ability to rise in the ranks, vote for more dimensions of development for their families and communities. A significant investment could have been made in educating and training cooperative members in what it means to be a member of a coop. Sure, that may have slowed down sales, but it would have improved the model.

    Additionally, over the last generation, a serious investment could have been made in management training. Coop managers have to compete with the smartest, brightest minds in the world. Literacy programs, financial and otherwise, could have been invested in on a wholesale level. Some of that has been done, but a serious effort to strengthen management over 25 years would have had an enormous impact. A long-term effort could have been made toward these and other issues and serious gains could have been made in these areas to strengthen the cooperative, one of, possibly the most important components of fair trade. It may have come at a cost of sales, but sales to what end?

    The public could have been made aware of these efforts and brought along for the ride. Consumers could have begun to understand the complexities of life at origin instead of treated like cattle coming to the fair trade trough to save the coffee world with their purchases.

    Pre-financing offers farmers cash in advance of the harvest so they have sufficient capital to invest the year’s crop. Without pre-financing, farmers are limited in how much they can produce and the quality of their production. While pre-financing remains a part of the fair trade model, it lags well behind.

    And of course, the floor price, to ensure that farmers never have to accept a ridiculously low price for their coffee, a condition that has occurred all too often in the past. This is the part of fair trade that gets the most attention, maybe because consumers can understand it the easiest.

    But, it never was suppose to be easy. Awakening consumers, educating consumers, struggling in the marketplace is the work that needs to be done. Pandering to consumers may sell product, but it does nothing to make consumers more aware of the complexities behind every cup and the deep poverty that continues to thrive at origin.

    Besides, at today’s prices, the fair trade floor price is all but meaningless. And, when coffee prices are low, while the fair trade price may be better than the C price, since 1988, the floor price has so eroded to inflation its value is 47% less today than it was in 1988. (The fair trade floor price of $1.31/lb in 1988 is worth $ 0.70/lb today. The sad reality is that even that floor price is a better guarantee against today’s prices dropping to $ 0.50/lb, which we all know is a distinct possibility as we have seen it in the past.)

    I’ll throw in another component, collaboration with independent, grass roots development organizations whose objectives are to improve quality of life at origin, not sales.

    This may appear like an attack on fair trade. Nothing could be further from the truth. Fair trade remains a major factor in the effort to work toward sustainability at origin. However, gains toward sustainability will only take root when more attention is paid to strengthening fair trade’s integrity before increasing sales. This is no easy path. But, like I said, it was never suppose to be easy.

    Look, this is the USA, where hamburger sales are measured in the billions. Once you’ve turned and idea into name recognition, and once that name recognition is turned into a brand image, you can sell anything here. Paul achieved spectacular success at turning the idea of fair trade into a brand, now Fair Trade USA, and that brand has become synonymous with sustainability at the origin of coffee’s supply chain.

    If it were true, it would be an equally spectacular accomplishment. But, it’s not. Poverty is prevalent at origin and will be until fair trade improves the integrity of its mission, and until development organizations can learn to work together instead of compete with each other. And, oh yes, when the business model is turned on its ear because consumers can no longer be treated be pansies because they understand the complexities at origin, and the value of a pound of coffee would necessarily have to be expressed in more dimensions than dollars and cents.

    From my perspective, it is far more important to improve the integrity of the fair trade model than to multiply supermarket sales. Fair trade is supposed to benefit farmers first. Fair trade was not created to give mega-corporate-coffee roasters another way to increase sales.

    Merchants have the extraordinary opportunity to participate in changing the way business is done and work toward a better world. But, surely that’s going against the prevailing business winds, not with them.

    Going into the wind is hard. It cannot be done directly or you capsize. The only way to go against the wind is to tack, side to side. The movement is slow, arduous and requires patience and perseverance. But it’s in the right direction. If you turn around and go with the wind, boy can you fly. The only problem is, you’re going the wrong way.

    • 2011 October 10
      Michael Sheridan permalink

      Bill:

      Thank you for this generous and powerful reflection. And for your willingness to make a lifetime’s work out of addressing the shortcomings of Fair Trade — persistent poverty and hunger at origin, even in communities selling Fair Trade Certified coffee. Your argument for depth over breadth is compelling and credible due in no small measure to your personal integrity and commitment to work on behalf of coffee communities.

      I suspect I will come back to this post periodically for perspective as we all adjust to the new Fair Trade coffee regime.

      Un abrazo,

      Michael

      • 2011 October 11

        Thanks for the note, Michael. I’m not much of blogger. But, sometimes, my frustrations get the best of me.

        It’s not only the wholesaling of fair trade that gets to me. Walking down the supermarket aisles all you see are posters and promotions about all forms of sustainability at origin. But, the trek from the supermarket to origin is an exercise in irony, as the only thing that appears to be sustainable at origin is poverty.

        It saddens me to think that the enormous potential inherent in fair trade, that can be of such benefit to struggling families at origin, has been actualized as a sales tool for business. But, don’t get me wrong. I haven’t given up on fair trade. In fact, when the fickle marketplace finds a more profitable sales tool, the public will find itself back where it started, and know the heart of fair trade, and understand the depth of fair trade, possibly for the first time.

        • 2011 October 12
          Michael Sheridan permalink

          Bill:

          I think you are being a bit modest about your blogging abilities. Thanks for the eloquent expression of frustration…and hope.

          M

      • 2011 October 24

        Hi Michael,

        I’ve been thinking. There are always at least two sides to an argument. So, I’m going to argue with myself for a moment.

        The reality is that this is a capital system. And so far, FLO has been pretty much alone in terms of cerifiying fair trade. Well, in a capital economy, a business that has no competition has no incentive to improve itself beyond its own perspective. If Fair Trade USA provides tougher competition for FLO, certification standards could very well improve for both parties and the farmers would benefit from such competition. Of course, that would require both Fair Trade USA and FLO to raise the bar on Fair Trade, not lower it.

        Personally, I prefer to go against the prevailing winds of the marketplace. I just don’t trust the fickle market. The lure of short term profits can undermine the even best of efforts. But, like I said, there are always many different ways to look at a situation and there might be something of value to the split after all. But, don’t quote me on that. It could soil my reputation.

        All the best,

        Bill

  3. 2011 October 21

    Wow. Thanks, Bill, for writing that.

    pg

  4. 2011 October 24

    Bill:

    I am glad I took so long in getting around to responding to the content of your original comment on this post – you have generated a better debate with yourself than I could have ever managed in reply!

    I admire the humility and spirit of open-mindedness that have prompted you to argue with yourself here, or at least to make the effort to see this issue from the other side and to register a valid point or two in its defense. I think it is a good example for the rest of us at a time when the Fair Trade movement has been roiled by the Fair Trade for All vision and process. We all come to this discussion freighted with so much ideology and history and other baggage that it takes a heroic effort to see from another perspective.

    I admit that I struggle some with the expansion of the Fair Trade coffee system based on my own experience. My first professional engagement with specialty coffee was through the CRS Fair Trade Coffee Project, and my relationships in the marketplace with fully committed Fair Trade roasters and at origin with smallholder cooperatives. Both of them — the pioneering Fair Trade roasters in the United States and the farmer organizations at origin — continue to impress and inspire me with their commitment to improve life in the coffeelands for disadvantaged farming families.

    But, like you do here, I try to focus also on the potential positive impacts on poor and marginalized people in the coffeelands. In this case, it has helped me to see the opportunities that lie on the other side of the razor’s edge of the threat Fair Trade for All poses to smallholder cooperatives already in the FT system. I still recall vividly my first visit to a coffee estate in Nicaragua and the terrible conditions in which the migrant workers lived, and wonder whether Fair Trade for All might create opportunities for social and economic impact among seasonal laborers, easily the most vulnerable actors in coffee chains. Or, as I mentioned here recently, the potential Fair Trade for All has to deliver opportunities to unorganized smallholder farmers in places where there is no cooperative.

    On the content of your latest comment – the idea that introducing some competition to the Fair Trade Certification marketplace may ultimately bring some benefits for smallholder farmers and other marginalized participants in the coffee trade – I am glad you mentioned it. In fact, I am surprised I haven’t seen mention of it sooner in all the reaction to the FTUSA decision.

    Years ago, when progressive Fair Trade roasters started breaking publicly with Transfair USA, a common complaint was the monopoly Transfair had on the FTC seal. In fact, I recall some exploration of a plan to introduce other FTC labels in the U.S. market to compete with Transfair USA. It would seem that now the door would be open to a new national initiative in the United States that complies with Fairtrade International standards across the board.

    Michael

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