Friday, March 28, 2008

Prices on Green Coffee 2

Klaus has just returned from his trip to Guatemala and Panama. He has a lot of experiences that he is trying to write down and will post shortly!

Meanwhile we have learned that the Fair Trade price has the flexibility incorporated that when market prices rise above the 'Minimum' FT-price the market price is the price that should be paid to the exporting cooperative. Check this link out to see a graphical illustration of this.

We are very glad to know that FT has this flexibility and therefore even better can be seen as a reasonable 'minimum wage'!

On top of the FT-price 10 cents/lb is paid to the producing coop for develoment projects. Therefore a higher price is still paid for the FT-coffee even when the market goes high and though the premium is given to the coop not the producer.

One of the problems that Klaus heard about in Guatemala was that selling to the ordinary market gives imidiate payment wheras selling through the Fair Trade system often delays payment. Another consideration is that when the farmer is choosing whether to get the market price through selling to the ordinary market or getting the same price through the Fair Trade market, the conditions put up by FT are demanding more work than 'just selling' to the ordinary market. However good these conditions are meant they economically will be seen as increased 'production costs' that demands extra benefits to be worthwhile. Togehter these things might make the ordinary market look more attractive in the short run. In Guatemala therefore it is feared that a lot of farmers will not fulfill their FT-contracts.


Lukas said...

Thank you for clarifying how this works, looking forward to hear about the trip!

But one thing struck me: The PDF you linked indicates that for Fair Trade, there is no such thing as inflation. To me, it looks like it just doesn't work too well.

Ben Kaminsky said...

It's an interesting topic to be sure, but I don't really see it as a dilemma. If the entire point of Fair Trade was to establish this sort of "minimum wage" in the global coffee market -which I would say it was- then why should a farmer not do the practical, economical thing by not going through Fair Trade in years that the "C" is above minimum FT price?
Point being, whats wrong with only using Fair Trade when you need it? It seems only "Fair" to me that FT allow farmers this luxury...but then again, if that means FT is not going to be there next time the "C" takes a dive, then its obviously a bad thing. I dont know...

Klaus Thomsen said...

Lukas. I would have to agree with you on the inflation issue. The Fair Trade 'minimum' was unchanged for 10 years I believe, thereby disregarding inflation.

Ben. I agree. If I were a farmer, surely I would go for the best deal; where I'd get the most money in my pocket. Now. Not spread out over a year.
As I understood it in Guatemala too, the FT primary coop 'takes the top off' the fair trade price, thereby making it less attractive to the farmer. I don't have any sources on that though, and not enough time to research into it.
I guess the dilemma is that the Fair Trade contracts might not be fullfilled. This is coffee that's basically sold before harvested. But I'm not sure what then happens.

I think FT does a great job in promoting awareness about the poor conditions a lot of commercial coffee is sold under. And we continue to support the work FT does to secure a minimum wage for some producers. But I'm still left with a feeling that we can do SO much more.

Now I'll get back to sorting through my 700 pictures from the trip so I can post sometimes soon ;-)

. said...

It is not easy to get in or out of FT contract. Point of contract is that when market is high ( while the extra .10 will not be enough incentive for grower as the coop takes more than this off the top) FT can continue to secure coffees for FT market. Growers stay in contract at this point because they want security to remain for when market is low.

If enough contracts are broken FT will need to pay more to keep people in the contract... and as a result will need to charge more. Not likely despite SBUX having under 2% of their coffee FT - they are largest buyer in U.S. and they often pay more than FT anyway. The more likely case is that FT will gravitate towards growth where cost of production is low (for individual farmers), quality is capped and there is no better opportunity cost or alternative income such as say corn, sugar, mfg, tourism etc..

- Edwin Martinez

Brad said...

It is very interesting because the whole idea of fair trade is to establish a "fair" price for producers but when inflation in coffee prices happens such as now what is the "fair" price. What i also gather is that fair trade farms also get a percentage on top of what they sell which goes to community projects which if true is a great part about fairtrade Is this correct tho??

Klaus Thomsen said...

Well, there's no fair trade "farms" as such. Only cooperatives can get FT certified. So if you're one small farmer, you cannot get fair trade certified.
I do believe there's a system in Ft that sets money aside that has to go to specific projects. If it's a great part of FT I'll leave up to others to decide. Personally I'd rather see the decisions (about how the money the farmers and pickers recieve for their coffee should be used) being made by themselves rather than people from somewhere else.

Coffee etc. said...

What is potentially worse, is that (at least here in the Netherlands) fair trade coffee is sold through businesses that have little or no understanding of coffee.

Hence the quality is poor and the consumers think that Fair trade coffee is poor quality.