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Peru Fair Trade Coffee Leader Explains Challenges of FLO “Fair Trade Certified” System

Santiago Paz, co-manager of CEPICAFE and manager of Norandino cooperative in Piura, Peru, wrote an insightful essay about the current state of Fair Trade Certified coffee from a producer perspective. Seeing a crisis now in world coffee markets, he calls for the “Fair Trade Certified” system to build stronger producer organizations and strengthen benefits for producers.

He reports that the number of Fair Trade coffee cooperatives in Peru has grown 66% over the last 5 years, while the exported volume of those co-ops has grown by only 4%. That would suggest more competition, and little growth, for each co-op. Moreover, he calculates that as much as 30-50% of qualifying coffee is not generating Fair Trade Certified benefits for producers.

A further challenge is that the Fair Trade Certified system has not allowed producer co-ops to renegotiate a higher price with foreign importers when world prices rise dramatically. Co-ops end up buying from farmer members at high current prices and selling to foreign importers at low, contract prices set months earlier.

When co-ops lose money on price differentials, and receive less beneficial social premiums set by  FLO, they sometimes default on contracts, remove leaders from their positions, and face FLO suspension proceedings, for which co-ops pay further monetary costs.

Mr. Paz regrets that large corporations have gained power in FLO to lower standards and prices. He wonders if co-ops should leave the FLO system, or advocate from within it.

Read Santiago Paz’s essay in Spanish, or a translation to English by Cooperative Coffees.

4 Comments

  1. Michael

    Seems like a very unfair characterization of FLO, frankly. Santiago’s a good guy but, if I’m understanding his argument correctly,

    1. Peruvian producer coops requested and received 60% pre-finance on their contracts (something required by the FLO system, which is normally seen as a great thing)

    2. In order to get the most out pre-finance at the time, some of the coops chose to lock in the prices. Keeping in mind that within the FLO system, only the producers get to decide when to lock in prices.

    3. Prices then rose, which presented a problem for the coop managers because they’d locked in contracts for coffee they didn’t possess (because it was before the harvest), and *their members* chose to sell it elsewhere because they could get a better price than the coop was paying, due to the contract that they chose to lock in.

    Now the conclusion is FLO is bad and under the influence of transationals because:

    1. They didn’t force companies to renegotiate contracts, even through there is no leverage for FLO to do so. (There was no violation of standards, and the contracts were between the buyers and sellers. Was there even a remotely legal way for FLO to force something?)

    2. The new FTMP has only been raised to 1.40, lower than the current C price, which he believes may not drop below $2.00, even though that means the effective minimum price would still be that higher C price plus the higher premiums, for even the lowest quality coffee that someone is willing to buy as Fair Trade certified?

    Furthemore, it’s not as though CLAC makes a request and then FLO decides whether or not it’s going to grant CLAC’s request…. The new standards were developed by a multistakeholder process, with huge producer input. The producer networks (like CLAC) are the second most represented group on the FLO board, and the CLAC is the only organization to wield two votes. More than that, it’s not as though CLAC voted against the agreed on standards, did they?

    That all aside, the new standards, developed through this process, have measures in them to help prevent these sorts of situations from developing in the first place.

    Maybe I’m missing something, but how is this situation at all FLO’s fault and how does this in any way show it’s under the thrall of transnationals?

  2. Sam

    It is not unprecedented in the business world for two parties to renegotiate fixed price contracts for commodities when there are dramatic price swings that take place within the timeframe of the contract. At times the motivation behind renegotiating these contracts is that each party benefits if both parties remain strong and viable.

    Perhaps the role of FLO is not simply to be a “certifier” but also to be a moral advocate on behalf of the small coffee producer and the cooperatives they belong to. Fair trade is in fact a form of advocacy on behalf of such producers. It seems inherent within the mission and purpose of FLO and Transfair USA to keep the small producer viable. Helping them to renegotiate these contracts may be one way to do that.

    A response of “It’s not our fault” seems to miss the point that the cooperatives that work on behalf of the small producers are suffering.

  3. Michael

    And clearly some did while others didn’t. Who knows if FLO tried to persuade companies to renegotiate or not, but there doesn’t appear to be much room for negotiation if the companies simply say no.

    I’m not aware of anything out of FLO that says, “it’s not our fault”, but Santiago’s point seems to be that it largely is. And that point is worthy of closer inspection because it’s the coops’ own membership, the small coffee producers, who chose to sell their coffee outside of their coops. Who could blame them, really? But it seems trite to frame this as yet another failure to advocate for the small coffee producer when the producers ended up with better prices on the open market than their coops were able to secure for them, despite a bullish market and the exclusive right to fix those prices.

    If the point is that cooperatives who work on behalf of small producers are suffering, maybe it’s because they weren’t doing a very good job. And if the situation was as avoidable as it appears, perhaps its time for the producers to seek a change in their coop’s management.

  4. Ted Weihe

    The problem is that Fair Trade advocates do not really understand the essence of coops which is member equity. If members have no financial stake in their coop, they sell to the highest bidder or whoever shows up with cash. The history of cooperatives going back to the 1860s is that farmers or users must invest in their cooperatives based on volume and have a financial stake in their coop (equity). Fair Trade advocates want coops to be social organizations rather than group-based businesses. In my opinion, FLO and other advocates of Fair Trade do not understand or know the basic financial nature of coops. They are more concerned with their democratic nature than their critical financial structure. We are not inventing something new in coops which have a long history, but our ability to transfer their success from Western to developing countries has been pathetic. How many Fair Trade advocates grew up in rural America and truly lived the cooperative experience?

    .

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