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How to Set Minimum Prices for Fair Trade Certified?

ftrnjpegs.jpgby Jeff Goldman

There has been active debate for years about how to set minimum prices for Fair Trade Certified products, such as coffee, the dominant FT commodity.  A recent article in Time magazine’s October 5 issue, titled “What Price for Good Coffee? Fair Trade practices were created to help small farmers. But they may have hit their limits”, is the latest example of high profile concern.

The current worldwide Fair Trade Certified price of nonorganic coffee, as set by the Fairtrade Labelling Organization (FLO), is $1.35/lb., or 9 cents higher than the minimum price for the past few years. The current price is about 10% higher than the global market price.

Farmer advocates have urged FLO to raise prices to cover costs of production, or to a level that enables farmers to escape subsistence.  The latter price would be around $2, according to researcher Christopher Bacon.

FLO and TransFair USA counter that a higher price would serve much fewer farmers, perhaps tens of thousands instead of millions as demand decreased. The labeling initiatives prefer to increase market share for more farmers rather than the returns for each farmer.  Consumers, especially in an economic downturn, would be hesitant to pay even more for Fair Trade Certified products.

So, what minimum price strategies seem best to you for the short- and long-term for advancing Fair Trade Certified’s benefits to vulnerable farmers?

12 Comments

  1. At Peace Coffee, we’ve had a range of responses to the recent Time magazine article about the limits of the Fair Trade system. In the very first place, we’re excited to see some in-depth dialogue on Fair Trade taking place in a mainstream publication—any conversation that has people thinking about their purchasing decisions is a good one.
    And the questions that the article poses are the ones that have been keeping us fair traders up at night for a while: what would be a sustainable price for coffee? What would a fairly traded world look like? We question whether it has to be the either/or dilemma posed in the Time article. While researchers propose that it would take $2.00 or more per pound of coffee to raise coffee farmers out of their bare subsistence life, Transfair USA is quoted stating that such a price would dramatically reduce the market for Fair Trade coffee. We challenge the notion that it’s either price or volume with every aspect of our business—Peace Coffee has been in business for 13 years now and for 13 years, we’ve been paying prices well above any minimum that’s been set and have been increasing those prices through dialogue with our producer partners every single year. And we’ve done all that while running a profitable business, paying our own employees fairly, and growing at a healthy pace.

    We support raising the minimum Fair Trade price for all coffee producers–we see that price as a baseline safety net for small-scale farmers, not a final price for good quality coffee. We challenge those who don’t believe that it’s possible to pay a healthy price for coffee and question whether the fair trade supply chain really can’t support a sustainable minimum price for all farmers.

    We also believe that coffee alone will always be a challenging living for small farmers and support our farmer partners in the projects that they have taken up to improve their livelihoods by diversifying their income and increasing the quality of coffee that they grow. And that is part of the broader benefit of fair trade that we whole-heartedly support—grass-roots, farmer co-op driven development that is working to improve communities where ever we buy coffee.

    While one of the industry partners quoted in the article said that his shocked response to the survey of coffee farmers was “I was ready to quit,” our response is to roll up our sleeves, drink a bit more coffee, and get back to work!

    Sincerely,
    Lee Wallace, Peace Coffee CEO/Queen Bean

  2. Nice post! Thanks for providing this information. People use coffee more and more because it gives them energy and make person to work hard. The demand for coffee increases and that’s why its prices also increase. The prices should be at that level where a common consumer can buy it easily. The prices will be in control if the supply is increases with the increase in demand. I have visit a website afooddirectory.com which also give suggestion about which price level should be set for coffee.

  3. Hi Clara James! The prices will be in control if the supply is increases with the increase in demand. But this depends upon your organizational structure as well.

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