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Fair trade a fair shake for farmers

guelphmercury.com

The fair trade certified coffee market is not only fairer to farmers than the conventional coffee market, it is a uniquely remarkable way to stimulate economic growth in some of the poorest communities on the Earth.

My perspective is in direct contrast to an opinion column by Gene Callahan that appeared on this page Aug. 14.

Callahan’s writing comes to us through the very conservative Foundation for Economic Education, whose perspective is akin to the Heritage Foundation, the Cato Institute, Britain’s Adam Smith Institute and Canada’s Fraser Institute.

The Foundation for Economic Education is funded by businesses and individuals who receive tax deductions for donations. Callahan is in no way exposed to the vagaries of the market, unlike most of the world’s small-scale farmers.

He begins his critique of fair trade with a classic economic discussion of the “law” of supply and demand.

According to free-marketistas, demand will dictate supply and the market will develop a “natural” equilibrium between the two.

Maybe, but it never has. Pesky “lawbreakers” like the World Bank and the World Trade Organization are always messing with “nature” and creating the conditions for shocking market volatility.

For example, in the late 1980s, arabica coffee prices soared as a result of frost, which damaged a significant part of the harvest in Latin America, limiting supply. This brought in the speculators, more of those “lawbreakers” who further drove up the price.

Subsequently, in one of those uncanny light bulb moments at the World Bank, the bank’s economists noticed that the price of coffee was going up so they decided it would be a good idea for the farmers of Vietnam to stop growing food and get into coffee.

They set up attractive financing mechanisms to encourage farmers to switch over.

Coffee takes several years to bear fruit, so by the time the Vietnamese brought their coffee to market, the price had started to recover from the frost. Suddenly there was a massive oversupply, which drove the price into the ground. Coffee farmers around the world were devastated in what has become known in the industry as the “coffee crisis.”

This spring, the prices of agricultural commodities like coffee began to rise as capital from the turmoil of the U.S. credit crisis flowed to commodities. This resulted in coffee speculators making billions of dollars, not a penny of which has gone to the farmers.

It is important to note that the market price of coffee is determined at the New York Commodities Exchange not at the farm gate. The price of coffee can go up, down or sideways, but the market price never reflects what the farmer gets.

The farmer always gets a lower price, in some cases a fraction of the commodities exchange price, especially when the market price is down.

Callahan may be shocked to discover that most of the world’s small-scale coffee farmers live in earthen huts, have limited or no access to clean water, cook over open fires with wood they have gathered themselves, do not have electricity, and certainly do no have a high-speed Internet connection to the New York Commodities Exchange so they can monitor the price of coffee to get the best price at their farm gate.

Market interventions and speculation are the reality of global trade. One Guatemalan farmer told me that at the time of the coffee crisis, they were getting 35 cents a pound for their raw coffee. Seventy-five cents is the internationally agreed upon cost of production per pound.

The fair trade certified minimum price starts at more than $1.30. Guelph’s Planet Bean pays farmers between $1.55 to $2.75 per pound.

Callahan suggests farmers faced with difficulty making a living should migrate to someplace else. In fact this is exactly what happened following the “coffee crisis.”

Many coffee farmers are now a part of the global migration of people from rural to urban areas. Research has shown that very few of these migrants find work in the city and instead find themselves living on the streets or worse. Research has also shown that fair trade certified coffee farmers have a low level of migration and stay on their farms.

Migration is a brutal way to solve a trade problem, and the existence of borders makes it more so.

Interestingly, Adam Smith identified borders as an impediment to free trade. He reasoned that people without the freedom of mobility would never have the ability to freely move in the market.

I wonder if the elimination of the U.S. border is part of Callahan’s free trade prescription.

In the midst of this nightmare market scenario, allow me make a small proposal.

What if we, as agents in the marketplace, were to develop a system that would allow us to avoid the New York Commodities Exchange and all the speculators and middlemen in the market?

What if we could have a direct trade with coffee farmers and participate in negotiating a price that reflects our notion of value and that is reasonable to the farmer? Would that not be approaching the kind of trade system that would enable us the freedom to collectively benefit from a global free exchange of goods and services?

Fair trade certified products provide us with this unique way of interacting with the market. The process is globally organized by the Fair Trade Labelling Organization and various national initiatives like Transfair Canada.

These third-party entities ensure the authenticity of the fair trade relationship communicated through the Transfair label and are run not by stock traders or government officials but by citizens.

Callahan expresses the need for coffee farmers to learn new and more viable trades. There is no doubt that coffee-growing regions need to diversify their economies, but how should they go about it?

These regions are very isolated, and rarely have anything resembling a community infrastructure. Even roads, which our friend Adam Smith described from a market development perspective as “the greatest of all improvements,” barely exist.

What is most amazing about fair trade, from my perspective, is its ability to create social and economic infrastructure in a vacuum.

The market brings people together and the face-to-face nature of fair trade causes people to create community organizations, co-operatives, credit unions, crop improvement groups, schools and even roads.

With a fair price for farmers’ products, there is enough wealth in the local economy to create the diversity and new enterprise development that Callahan advocates.

At one point in Callahan’s text he makes a sudden U-turn from his free market fundamentalism and advocates that people should buy shade-grown coffee to help the environment. For folks interested in this coffee you should know that virtually all of the fair trade certified arabica coffee sold in North America is shade grown, but beware, it also helps farmers.

From Ethiopia to Peru, we have measurable examples of positive changes that have resulted from people in Guelph buying Planet Bean’s fair trade certified coffee.

I am not suggesting that fair trade is perfect. It is, however, a far more equitable exchange of goods and services than is the conventional market. It is, in fact, another kind of market driven by people making informed, ethical and ecological choices.

And it actually exists, unlike the “free market” fantasy world of Mr. Callahan.

Bill Barrett has been involved in experiments in economic democracy like fair trade and co-operatives in Guelph for two decades. He is a founder of one of Canada’s first fair trade certified coffee companies, Planet Bean Coffee.

1 Comments

  1. Jeff Goldman

    Thanks, Bill, for your very insightful and compelling thoughts! I agree with almost all of what you assert. I’d be grateful if you provided more info on two important points.

    You state that “Research has also shown that fair trade certified coffee farmers have a low level of migration and stay on their farms.” Would you kindly refer us to such research? For example, in Jaffe’s book “Brewing Justice”, he finds that coffee farmers participating in FT in 2 villages in Oaxaca actually have higher #s of migrants to Mexican cities, and foreign countries, often youth seeking education (probably a net good thing). He also finds that heads of households migrate less than in other, non-FT coffee families.

    You also write that “Fair trade certified products provide us with this unique way of interacting with the market. The process is globally organized by the Fair Trade Labelling Organization and various national initiatives like Transfair Canada… These third-party entities ensure the authenticity of the fair trade relationship communicated through the Transfair label and are run not by stock traders or government officials but by citizens.”

    I’m wondering what your counter would be to the argument, offered by many critics, that FLO and TF have been inappropriately dominated by multi-national corporations, with profit-driven motives, to the harm of vulnerable farmers and fully committed FT organizations. Jaffe even recounts how FLO seriously tried to lower, or eliminate, the FT minimum price for coffee during the coffee crisis.

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