A cup of coffee… nothing special. Upon first glance, it seems just like a regular beverage. Yet it is so much more than that. Some call it the elixir of life, others liquid gold or an essential part of every morning. However, there are people for whom it has far greater value, as it is their sole source of income.
Coffee is a commodity, which means that its price can change rapidly depending on its availability and the demand for it. However, despite the increasing demand for the good, its value has experienced a general trend downwards over the last decade. 2019 marked a low in prices not seen in the last 13,5 years with 93 cents per pound of coffee.
Due to fluctuations in the value of commodities fair trade practices were put into place. They offer a stable price that is supposed to ensure sufficient income for the producer. Moreover, they protect people whose livelihood depends on getting a good price for their produce from exploitation by big corporations. Unfortunately, although fair trade might seem like the perfect solution, the deal made with farmers is not as fair as it is made out to be. In fact, it has not been so for quite some time.
In 2007, according to the Oromia Coffee Farmers Cooperative Union in Ethiopia “fair trade export [was] at about $1.60 a pound. After deducting costs, the growers [got] about $1.10. Roasters [sold] the coffee on at $20-26 per pound. Coffee retailers [made] about 52 espressos from a pound of coffee, worth up to $160 a pound.” Although this was better than the world price of coffee at the time which was around US$1.20 per pound, it still meant that coffee retailers charged 100 times the price that farmers were able to ask under fair trade. “Our people are barefoot, have no school, no clean water or health centre. They are living hand to mouth.” said the director of the Union at the time. This should have made it clear that better does not always mean good and that fair trade does not necessarily mean ethical trade.
Over the coming decade, coffee bean farmers did witness a rise in prices. The minimum fair trade price for Arabica coffee (Ethiopia’s main coffee type) increased by 30 cents per pound thus giving US$1.40 of actual earnings to growers. However, alongside the increase in coffee bean prices rose the revenues of coffee retailers.
The largest coffeehouse chain in the world as of 2019 – Starbucks, prides itself on its fair trade label as well as its revenue of US$26.5 billion, which is almost three times as much as what it was in 2007. This means an increase of 300 percent as compared to the 27 percent increase experienced by coffee growers.
What causes this imbalance?
The imbalance is a result of the fact that coffee farmers, even under fair trade, are price takers due to the homogeneity of the good they are growing (eg.: Arabica coffee originated from Ethiopia, but it is now grown all over the world) and its fixed supply in a given year (producers have to wait a whole year before they may increase the amount of coffee they grow as they cannot grow the plant mid-season). Coffee retailers, on the other hand, are more in charge of prices due their ability to differentiate their product, such as Starbucks did when it expanded its coffee menu from the traditional types of coffee (Latte, americano, cappuccino, etc.) to flavoured coffees such as their signature pumpkin spice latte. Moreover, they can increase their production at any point in time by simply buying more coffee. This is why the additional cost to Starbucks of importing coffee under fair trade restrictions is more than made up for by the company’s ability to increase the value of its product as well as adjust supply to a given demand regardless of the time of year.
Does this mean that fair trade will never live up to the true meaning of its name?
Although, fair trade farmers are seeing an improvement in their financial situation, when compared to how well off coffee retailers are this improvement is completely disproportionate; one could even say unfair. However, rather than depending on commercial businesses such as Starbucks to stop being profit maximizers it is the customers that have to change their behavior. If consumers refuse to buy a product that is not a result of a truly fair trade then businesses will be forced to adjust their practices. Therefore, next time you are enjoying your morning roast think about where it came from because you could be the one to put the fair in fair trade.
Written by Alexandra Keller
Featured image: https://www.fdfworld.com/drink/farm-cup-looking-supply-chain-fair-trade-coffee-bean
Fair Trade: https://www.fairtrade.org.uk/en/farmers-and-workers/coffee/about-coffee
Macro Trends: https://www.macrotrends.net/2535/coffee-prices-historical-chart-data