There is one other issue that did not come up in last week’s great discussion here on Direct Trade that is probably worthy of mention: the price paid to smallholder farmer organizations under different trading models.
I debated whether to publish this post at all because I am reluctant to be part of the reductionist tendency to focus primordially on the issue of price when evaluating a trading model. There are so many benefits to the prevailing approaches to “sustainable” coffees that are not related to price that get ignored by this unidimensional focus. But precisely because price is such a focal point in these comparisons, I think it is important to address a few sources of confusion.
One of the points most commonly raised by Direct Trade’s advocates is that the prices paid by Direct Trade roasters are higher than Fair Trade prices. Each of the three Direct Trade roasters I focused on last week compares its own prices with Fair Trade prices:
- Counter Culture Coffee’s Direct Trade Certified pays a minimum of $1.60 per pound — a price that “exceeds the Fair Trade Certified floor price by 19 percent.”
- Intelligentsia Direct Trade doesn’t specify its minimum price but states that it is “at least 25 percent above the Fair Trade price.”
- Stumptown Direct Trade reports that “the bottom line Direct Trade offering over the past year was 21 percent above the Fair Trade minimum.”
These are favorable comparisons, to be certain. But comparisons with one another — and with Fair Trade — are complicated by the way these comparisons are made.
TERMS OF PAYMENT.
Intelligentstia and Stumptown both provide important — an impressive — detail in terms of the recipient of these generous payments. Intelligentsia makes its payments “to the grower or the local coop, not simply the exporter,” while Stumptown “guarantees that price goes direct to the farmer.” This is an important distinction from the Fair Trade system, in which contracts are drawn up with cooperatives, which receive payment and disburse it to their members after backing out operational costs and the social premium. Counter Culture does not make clear who receives its minimum payment of $1.60.
AVERAGE v MINIMUM PAYMENTS
Counter Culture and Intelligenstia both refer to their respective guaranteed minimum price, while Stumptown refers to its average price. If Counter Culture and Intelligentsia were to follow Stumptown’s lead, their own comparisons (19 and 25 percent, respectively) would look more favorable than they do now.
“FAIR TRADE PRICE”
This is the biggest problem with the comparisons between Direct Trade and Fair Trade prices. Actually, there are two problems here. The first problem is that only that Counter Culture makes the explicit — and coherent — comparison bewteen its guaranteed minimum price and the “Fair Trade Certified floor price.” Stumptown compares its average price to the Fair Trade minimum. Intelligentsia makes reference to the “Fair Trade price,” implying that there is a standard Fair Trade price and leaving the casual observer uncertain about the point of comparison.
The second problem — related to the first — is more significant: there are lots of Fair Trade roasters out there who for years have been paying prices that far exceed the floor price guaranteed under Fair Trade Certification. (One pioneering Fair Trade roaster recently told me he can’t remember the last time he paid less than $2 for a pound of coffee.) So while each of these Direct Trade roasters may compare favorably with the Fair Trade Certification “system”, we don’t know how they compare with specific roasters within the Fair Trade system who happen to pay significant premiums. Unfortunately, the (inaccurate) conclusion many consumers draw from these comparisons is that “Direct Trade roasters pay higher prices than Fair Trade roasters.”
I do not mean for a moment to attribute this intent to the roasters mentioned here, but I do see it as a common and unfortunate misreading of Direct Trade pricing systems.
First of all, Michael, I share your discomfort to the reflexive instinct to make this about price. Not only is it difficult to reduce everything to sheer price, it gets complicated when talking about price itself- it can be complicated, as you point out!
On the other hand, the whole point of money is to reduce economic activity to a quantifiable unit, and so comparing dollars to dollars is useful. Again, to put all this in historical context, the reason that FOB prices became such a hot topic is that TransFair, during their growth period in the early 2000s, relentlessly publicized Fair Trade Certified as “a minimum wage for farmers”, putting emphasis on the base price.
At that time, let’s say 2003-2004, here’s how it worked. Fair Trade co-ops would sell most of their coffee to the commercial market at normal prices, at that time often below a dollar a pound. The Fair Trade floor price was 1.26, or 1.41 for Organic. (All prices I will refer to are in FOB terms). Pretty much every Fair Trade contract was booked at EXACTLY the fair trade minimum at that time. Those of us Fair Trade roasters who were engaged in Direct Trade (I still refuse to create a duality between those terms) were paying substantially more than that, and starting our quality work.
In the intervening years, as the C-market has risen above the Fair Trade floor price, price paid has gotten more dynamic. Thankfully, very few roasters are paying generic prices anymore. However, I am very certain of one thing- those roasters who are engaged in Direct Trade are paying better prices to farmers than those who are not.
Here again, I must stress: please don’t perpetuate the false dichotomy that a roaster is “either” Fair Trade or Direct Trade!!! A roaster engaged in Direct Trading may sell Fair Trade Certified coffees. A “100 percenter” who has committed to 100% fair trade certified coffee may source a small proportion of that coffee through Direct Trade methods. A company who sources all of their coffee through Direct Trade methods may choose not to certify ANY of this coffee as Fair Trade, even though the co-ops they buy from may have FLO certificates. It’s very complex.
I understand that you are trying to compare these two concepts, however. It’s tough to do, since there is a lot of diversity. You’ve started the process here, but you are only scratching the surface.
Since this particular thread is about price, let’s focus on that piece.
Currently, the FLO base price for washed arabica coffee is 1.25. If the coffee is certified organic, it is to fetch a .20 cent premium. In addition, the standard mandates a .10 Fair Trade Premium, which does not go to the producer, it goes to the co-op. (it’s always hard to determine whether or not to include that in the total price, since it doesn’t go directly to the producer.) OK. This FOB price of 1.25/1.45 (+.10 “premium”) is paid to the exporter or exporting co-op.
You’ve articulated above 3 roasters’ equivalents to that base price concept. In every case, these roasters have professed their desire, and in some cases proven, that their coffee prices exceed this base price by some percentage.
Now, the way base prices (like minimum wages) work is this: some companies pay the bare minimum. You guys know who these kinds of companies are in the Fair Trade world- and they are the same ones paying minimum wage to their workers! Truly progressive companies recognize base prices-like minimum wages- as a failsafe to prevent rampant abuse, but build their own companies on more nuanced, sustainable payment schemes. Those, of course, are tough to compare, because you’re not comparing minimums any more.
So do you compare maximums? (some roasters like to bring attention to the flashy prices they pay at auction for super-rare coffees) Do you compare depth of interaction? (and how do you measure that?) Do you compare length of relationship? Reputation? Transparency? Fairness? Suddenly, we’re veering away from price….
It is my true belief, however, that the companies that are MOST DIRECTLY involved with the farmers they purchase from, will pay both the objectively best price (in terms of dollars/pound) and most useful price (i.e. paid in a way that serves the farmers needs best). Why? BECAUSE THEY ARE THERE. A roaster who is engaged in an open, collaborative partnership with a farmer is much more likely to recognize the needs of the farmer, and create a pricing structure that benefits him most. That’s part of the glory of human nature. This kind of collaboration is currently expressed in the term “Direct Trade”. So, I believe strongly that Direct Trade roasters pay the highest and best prices to farmers, period.
Now, I was surprised that at the end of your posting here, you cite an anonymous “fair trade pioneer” who seems to be bragging that they can’t remember the last time they paid less than $2 per pound for coffee. I’m afraid there is something wrong here- you definitely want to check on that statement. Are they willing to be transparent about that? You’ve done a great job of evenhandedly making comparisons up to know, why would you compare these three roaster’s relatively transparent minimum price commitments to an anonymous roaster making an obviously exaggerated claim as “evidence” that it is inaccurate to say that Direct Trade roasters pay more?
At the end, it is just further evidence that it is folly to try to contrast “Fair” and “Direct”. The best roasters interact directly and fairly with their producers, whatever name they go by. Those who do interact fairly and directly pay the best prices, and are doing the most to improve the lives of farmers and the quality of coffee.
Thanks for the lengthy comment. I agree — it is complex! I appreciate you shining a bit more light into the shadows and helping clarify some of the nuance. This was my hope with these posts and it sounds as if you think I may be missing the mark and actually distorting things a bit. Hope that is not the case and will continue to welcome your perspectives until you think I have gotten it right or until we agree to disagree!
I am very sympathetic to your frustration around the DT/FT dichotomy. As I mentioned in one of the earlier posts in this series, I came into the specialty coffee fold in the company of lots of Fair Trade roasters for whom the entire Fair Trade concept is incoherent in the absence of direct relationships with farmer organizations. Bill Harris, the visionary founder of Cooperative Coffees, once told an audience we were addressing together something that I haven’t forgotten and that speaks directly to the point you make here. He said:
We continue to collaborate with lots of these roasters in the marketplace in the United States through our Fair Trade Coffee project and here at origin in accompanying smallholder farmer organizations under our CAFE Livelihoods project precisely because of the richness of that conversation. I find it hard to envision any meaningful and lasting change in the coffee trading system that is not driven by the mutually respectful conversations that can only take place in the context of direct relationships. In sum, I am compelled by the idea of direct relationships being the defining element in both Direct Trade and the farmer-focused variant of Fair Trade, and will be more deliberate about not perpetuating false dichotomies (while also trying to respect and illuminate from my perspective what seem to be non-trivial differences).
On the business of the $2-per-pound claim, you are absolutely right — it was lazy of my to include it like that. I will go back and do some digging and let you know what I come up with. Thanks for keeping me honest!
I have published an update on the $2-a-pound claim.
Just to further complicate the issue, even when talking just about the monetary side of the trading relationship – price is still not everything.
We ought to also be looking at:
*the provision of credit, preferably at affordable rates
*sharing some of the risk with the farmers/their co-ops
*The timing of payment and deliveries/who bears the carrying cost of inventory.
At Equal Exchange we’ve worked with allies like Shared Interest, Root Capital and others to provide affordable credit for our farmer co-op partners since 1995.
We guarantee a portion of those loans (I’m pretty sure its 25%) so if the crop is lost, etc. after the credit is extending then the co-op doesn’t have to bear that loss by themselves.
We also often take delivery of the green coffee early – this is both because we’re our own importer, and because it is another way we support the farmer co-ops. They often prefer to convert the green beans into cash as quickly as possible (depending on what is happening in the market) and we’re simply better able to bear the cost of carrying all that inventory. (This always makes the accountants and bankers scratch their heads the first time they look at our books.)
To the extent other roasters/importers are doing some or all of these things then it could help to hear about it. Maybe these are now common practices and there just not sexy enough to be included in the marketing. But if they’re not yet common – maybe discussing them could help.
Here is a post I think you will like, as it gets at some of the aspects of truly fair trade that are less frequently discussed than price but no less important.