The Fair Trade Response to the Coffee Crisis. Achievements, Limitations and Prospects of a Voluntary Certification Scheme
Fend, Ruth T
2005
- Submitted in partial fulfillment of the degree Master of Arts in Law and Diplomacy at the Fletcher School of Law and Diplomacy. Abstract: The collapse of the International Coffee Agreement in 1989 has been followed by a dramatic drop in world coffee crisis and and by a perception of a large-scale social crisis among rural populations in developing countries. The Fair Trade movement which has arisen ... read moreout of Alternative Trade Organizations based in industrial countries is an attempt to redress income differences between industrialized and developing countries through trade that benefits poor farmers to uplift them from poverty. This study examines the effectiveness of the Fair Trade system in the case of coffee at achieving its own goals which include both absolute poverty reduction as well as social justice understood as redistribution of wealth from the rich to the poor. Since Fair Trade is designed as a response to the current system of global trading relationships and the characteristics of the coffee market in particular, global trends in the coffee sector are being examined that point to paradigm shifts in both coffee demand and supply, the development of a differentiated coffee market and restructuring of the coffee supply chain. These processes have negative impacts on small-scale coffee growers in many producing countries but also offer opportunities to escape the downward spiral of coffee prices. Fair Trade represents one of them. The development mechanism of the Fair Trade system will be illustrated in a cost-benefit analysis of a participating producer cooperative in Mexico. The analysis shows that the size of increases in income for individual farmers varies according to a number of factors but can be substantial. On the other hand, it is often over-looked that obtaining and maintaining certification is expensive, and even more so if producers are also certified as 'organic', while organic certification also implies an even higher price premium. Apart from increases in income Fair Trade brings along a variety of other benefits, both individual, in the form of price stability and enhanced access to credit and training, and collective ones. The latter include environmental goods, development projects, investment in infrastructure to upgrade the cooperative's activities and organizational strengthening through better access to market information. To determine the Fair Trade system's ability to redistribute profits between actors in consuming and producing countries, gains from participation for the various operators in the coffee supply chain are examined. The results seem to indicate that apart from coffee cooperatives, all other agents, including roasters and retailers, obtain substantial price premia from Fair Trade coffee sales and that the system's successes in reducing the profits of large industry players are therefore limited. Fair Trade organizations and firms are market participants that try to challenge conventional profit-oriented companies by outcompeting them and by creating sustainable businesses. The aim of this endeavour is to ultimately induce a change to mainstream business practices in favor of producers also outside of the Fair Trade system itself, ideally with major companies behaving in an ATO like manner and guaranteeing decent trade conditions and prices to farmers. A third criterion against which Fair Trade is being evaluated is therefore the extent to which Fair Trade has had an impact on conventional business practices and in extension on the well-being of poor producers more broadly. A survey of other initiatives in the coffee market aiming at sustainability and its comparison to the Fair Trade system shows that industry changes are underway, but that the standards that are evolving are likely to show little resemblence with the Fair Trade standards. Again, the movement's success is a partial one. Finally, the growth perspectives for Fair Trade coffee both in the mainstream and in the niche market are being examined.read less
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