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205. Fair Trade for All: Will a rising tide lift all boats?

In a wide-ranging conversation with CRS staff last week, Fair Trade USA CEO Paul Rice defended the decision to break with FLO and open the U.S. market for Fair Trade Certified coffee to estates.  He suggested there are two theories about what will happen to smallholder farmer cooperatives once estates enter the market.  One theory is the zero-sum view that the estates’ gain will be the coops’ loss.  He prefers the rising-tide-will-lift-all-boats theory: 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.  What ultimately happens will depend on the answers to two questions: How fast and how high will the tide rise?  And who will get the lifeboats?


Whether Fair Trade for All succeeds in lifting all boats will depend on how high and how fast the tide rises when the estate coffee floodgates open. 

Rice argued during our conversation – compellingly, from my perspective – that Fair Trade for All’s success in defending the smallholder cooperative position in the marketplace should not be judged by the share of the FTC coffee market claimed by cooperatives, which will inevitably decline when their protected market niche is opened to other competitors, but rather the volume of FTC coffee sourced from cooperatives.  If coops can maintain or even increase their sales volume as estates move into the market, he argues, Fair Trade for All will have effectively protected the cooperative position in the FT marketplace.

But Rice’s theory can only play itself out in practice if the latent demand for FTC coffee in the U.S. market is huge, and the increase in supply can be absorbed by massive new corporate commitments to FTC coffee.  Rice made reference last week to corporate coffee buyers who have pledged to buy more FTC coffee if supply constraints were eased, but I haven’t seen any market research to quantify the expected growth in the market.  If the calculations are off and there isn’t enough demand to absorb the new wave of estate coffee supply, Rice’s win-win vision could be in jeopardy.

Alternatively, FTUSA could protect the cooperative market position if it is very deliberate about regulating supply and demand, and pacing the entry of estates with the growth of the market.  This would require a more gradual, brokered approach between estates and corporate buyers, but could be a reliable way to protect smallholder markets.


Even if the U.S. market for FTC coffee is big enough to accommodate the entry of estates without jeopardizing the position of smallholder cooperatives, buyers still decide where they will source their coffee.  There is no guarantee current buyers will not shift their purchase orders to larger, better capitalized, more efficient estates. 

Rice reasons that buyers of FTC coffee will not abandon their long-time cooperative partners just because estate coffee becomes available.  For Fair Trade pioneers for whom Fair Trade has always meant Direct Trade with smallholder farmer cooperatives, the advent of the estate era won’t change a thing in terms of their sourcing.

But there are countless roasters out there for whom Fair Trade hasn’t necessarily meant a direct-to-origin connection with smallholder coops; for whom Fair Trade Certified coffee has been an item on a menu of coffee offerings served up by importers.  Will these buyers remain as loyal to their cooperative trading partners as Fair Trade’s coffee pioneers?

I hope they do, but a conversation I had once with a coffee buyer for a large U.S. roaster about the challenges of smallholder coffee keeps replaying itself in my mind and sowing seeds of concern.  We were talking about the messiness of cooperative structures and the conflicts that can arise among poor farmers working to manage increasingly sophisticated grassroots enterprises democratically.  He suggested that when things get messy at origin, it is sometimes more trouble than it is worth as a buyer to get involved and try to work toward a solution.

If FTC coffee buyers start selecting estates over coops because they are less messy and more efficient, then we will have succeeded in replicating within the FT system the same structural disadvantage for smallholders that made FT for coops necessary in the first place.






  • Jeff Goldman says:

    I’m not sure that the success of any effort to defend the smallholder cooperative position should be mainly measured by increases in sales volume. More important seems to be increasing net profits. Otherwise, cooperatives might be busier than ever, and making less profits with less chance to improve their quality of life.

    As coffee supply increased dramatically in the past ten or so years, didn’t sales volume for many cooperatives and farmers increase, but prices dropped monumentally? So, many farmers and cooperatives even went out of business despite rising sales volume?

    I would argue that moving coffee smallholders and cooperatives up the value chain, so they own more of the profit-making steps, is a better effort to defend their position. Divine Chocolate seems to be doing this very well with cocoa farmers in West Africa.

    • Michael Sheridan says:


      Thanks for taking the time to weigh in. You raise a number of points that are worth addressing.

      You are absolutely right that profitability is a better metric than volume to understand how FTC coffee contributes to quality of life among smallholder farmers. What I struggle with is whether it is fair to hold FTUSA accountable for farm or coop-level profitability, which is determined by sales revenues and production costs — variables not under the direct control of FTUSA. True, FTUSA could help widen smallholder margins by reducing certification costs, increasing the FTC minimum price and investing more in improving production efficiencies to reduce costs. Even better would be initiatives to increase opportunities for FT smallholders to capture added value through vertical integration, as Divine has done in West Africa. All of these measures would be welcome and contribute on the margins to increasing smallholder profitability. But if the standard is not reducing smallholder welfare from current levels, then I still think the minimum standard to which FTUSA might be held accountable would be the one most directly related to how it regulates the pace and scope of the expansion of the FTC coffee market — the volume of FTC coffee that smallholders sell.

      My experience in the field has not been consistent with the dynamic you describe in terms of prices and coffee revenues. In fact, we have seen in our field work a steady rise in prices over the 10 years since the coffee price crisis in 2001. Prices hit historic levels during the 2010/11 harvest, when we saw many of the coops we accompany in Central America earn record prices for their coffee. We did fear that the high prices would lead lots of coop members to “side-sell” coffee to local intermediaries, putting contracts and cooperatives themselves at risk. Thankfully, those fears did not materialize, and smallholder farmers had one of their best years on record (for reasons totally unrelated to FTC).


  • Just a comment to appreciate the way you have addressed this issue. While I agree that limiting FT to cooperative structures has been in conflict with a general sense of fairness-for-all, the change to include private farms is certain to have implications. The only thing I can add is this: cooperatives need business advisors. They need this as much, if not more, than they need agronomy assistance. There will always be something attractive to the FT buyer about working with a coop instead of a farm, but much of the “mess” at coops is poor management, which also makes room for corruption. Technoserve has had a great impact with this approach. -Tom

    • Michael Sheridan says:


      Thanks for the kind words and for identifying one of the leading causes of “messiness” among smallholder coops. Our experience in the field has shown us that improving coop management can go a long way to improving efficiencies, boosting coop competitiveness and reducing the risk of commercial engagement for lenders and buyers.

      One of the most successful elements of the CAFE Livelihoods project we just closed was specialized assistance in financial management from Root Capital. Root conducted annual financial management and developed customized work plans to address the weaknesses they identified, improving cooperative performance in financial management, accounting and general administration. These gains are no guarantee against messiness, but they sure reduce the likelihood of mismanagement and increase the coops’ chances for sustained success in the market.


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