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Grinding the Numbers on Fair-Trade Coffee


My ethics make me an ideal candidate to be a big fan of fair-trade products. But, truth be told, I could use a little more fair and a little more trade brewed into my coffee, sweetened with a real sense that I’m getting my money’s worth of beans.

I’m as much a capitalist as anyone, but I believe the first rule of responsible capitalism is do no harm. When it won’t completely bust the budget, I shop with an eye on the big picture.

I avoid antibacterial cleaners because I want no part in creating a microscopic army of drug-resistant diseases. I avoid Wal-Mart (WMT - Cramer’s Take - Stockpickr - Rating) because despite its recent attempts to green up, I suspect those “everyday low prices” still aren’t all that good for suppliers, workers, the environment or even Wal-Mart shoppers. When I visit developing countries, I take to heart those Lonely Planet admonitions to spend my tourist dollars in ways that help and don’t undermine local residents.

The idea behind fair-trade programs is that they enable small farmers to sell their coffee beans, tea leaves, cacao pods, sugar cane and bananas directly to exporters, thereby pocketing a larger portion of the export price than they would if they were left on their own and compelled to use shady middlemen to get their goods to market.

With coffee, for example, the fair-trade groups help the farmers organize into co-ops so that they can use their collective muscle to invest in equipment to clean, sort and roast beans, provide transport to market and train farmers in sustainable farming and other techniques — all with an eye on raising the prices the members can fetch.

The co-ops also extend credit so farmers can time the sale of their beans for optimum profit. This helps people in developing regions better compete in the marketplace, and also encourages them to be more responsible to the environment. I can get behind that.

But fair trade doesn’t stop there.

Fair-trade groups often establish floors above the mass-market commodity prices of the moment. For example, in July, while the International Coffee Organization’s coffee composite index was 106.20, Transfair’s floor was $1.31, or $1.51 for organic beans.

Dave Rochlin, chief operating officer of Transfair in Oakland, Calif., explained to me that the $1.31 is just a floor and that a lot of the farmers, in particular the ones going organic, are garnering as much as $2 a pound on the basis of market forces alone. The $1.31 protects them on the downside, he says. If prices tank, the market will still reward the growers’ efforts to be industrious and responsible by assuring a minimum standard of living.

Yeah, this is where my capitalist instincts start to twitch. I’m always skeptical when someone tries to argue to me that subsidies are simultaneously superfluous and essential.

Moreover, those prices include a 10-cent premium for social and environmental programs (such as building schools and health clinics and teaching new farming techniques). In 2006, those dimes added up to roughly $91 million in social aid from the U.S. to growers in places such as Honduras, East Timor and Guatemala. That’s nice, but is it trade — communities benefiting from earned profit and prosperity — or is it non-tax-deductible charity?

The Economist did a good job last year of scrutinizing why keeping commodity prices artificially high for a select few might not make economic sense. But I’m less concerned with global economic theory than with what I fork over at the checkout counter and what I get in return.

Fair-trade products often fetch a premium over other premium and organic goods. A spread that starts out at 25% at the start of the chain can widen to 33% or more by the time goods reach your grocery aisles.

This is partly because everyone from exporter to importer to roaster to retailer has to add his own profit onto those inflated prices. Beyond that, one can’t help but feel that some retailers are happy to make as wide margin as they can on purchases spurred at least somewhat by upper-middle-class guilt (this is open-market trade for sure, but definitely not fair).

Rochlin says that when it comes to comparable products at least, the gap is closing as fair-trade goods become more widely available and consumers become more educated about sustainable commerce.

This is true to some extent. But he also argues that it’s hard to compare prices on coffee because so many factors — from region to taste to marketing — contribute to prices. If beans cost more, he says, they often were grown and roasted in a way that warrants it. This is harder to swallow.

Perusing the aisles of my nearby Whole Foods (WFMI - Cramer’s Take - Stockpickr - Rating) the other day, I spotted bags of Whole Trade coffee (the house version of a fair-trade label) priced at $13 for 12 ounces. Nearby, bags of the store’s organic house brand were $10 for 24 ounces.

What are the chances that Whole Food’s store-brand fair-trade coffee is really twice as good as its house brand organic coffee — and if it were, technically, would you really notice when you brewed it up in the morning? Both Starbucks (SBUX - Cramer’s Take - Stockpickr - Rating)) and Dunkin’ Donuts use some Fair Trade beans. Dunkin’ Donuts is known for being economically priced even for its fancier drinks, showing that fair trade-derived products aren’t always high-end gourmet items.

Even when prices fall within what seems to be a reasonable range, the quality isn’t always as comparable as fair-trade advocates would wish. Down another aisle at Whole Foods, premium chocolate was fetching $2.70 to $5 for bars that were just over three ounces. The fair-trade brand, Alter Eco, was somewhere in the middle at $3.99. But it was only 46% cacao, a prime indicator of chocolate’s quality. Just about all the bars that cost as much or more had more cacao, up to 75%. And at least one organic brand, Chocolove, had bars that were more than 60% cacao for less then $3.

I’d like to conjure up images of little kids heading off to their first village school as their parents set out to their sustainably managed fields when I sip my mug of coffee in the morning.

Unfortunately, while I can see an immediate and tangible benefit to fair trade for everyone from the farmer to my local grocer — they all make more money — the benefits to the consumer are more abstract and idealistic.


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