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We're Officially Raising the Prices We Pay to Coffee Farmers |
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Written by Rodney North, The Answer Man
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For many people the clearest component of Fair Trade is the price paid for farmers’ crops. Fair Trade actually involves much more than just a crop-price guarantee; other aspects—affordable credit, farmer co-ops, long-term relationships, etc, are just as central to Fair Trade. Today we’re focusing on price because for Fair Trade registered coffee farmers, especially those trading with Equal Exchange, that price just went up. At Equal Exchange, we are raising the prices that we will guarantee to coffee farmer co-ops by 8-10%.
First, some background. For almost the entire period since the Fair Trade coffee concept was formalized in 1988 the guaranteed price paid to farmer co-operatives has been $1.26/lb, plus another 15¢ per lb – therefore $1.41/lb – if the coffee was certified organic. Further, if the world market price went above $1.26 the Fair Trade system required importers to pay that higher market price instead, plus an additional 5¢ Fair Trade premium. In these "high" markets the 15¢ organic premium rule still applied, too. For example, if the world market hit $1.32, we would then pay, for organic coffee, at least $1.32+5¢+15¢=$1.52.
This arrangement shifts to Equal Exchange, and other Fair Trade importers, some of the risks of market volatility historically borne by coffee growers. If the market is high the farmer co-ops get the market price plus the 5¢ premium. If the market is low, they receive, at least, the Fair Trade minimum price. And regardless of market conditions they are compensated if they put in the extra work and care of farming organically. Dedicated Fair Trade importers and roasters bear the risk that they will sometimes be paying Fair Trade prices while competing firms might be buying coffee on the conventional market for half as much.
The $1.26/1.41 minimum prices have been an important safety net for farmers. Most of the time market prices are below the Fair Trade minimums, sometimes 25-50% lower. For example, in June 2002 the market hit 42¢/lb. Sometimes the low prices can persist for several years, as they did in the 2000-2004 "coffee crisis." At the time of this writing, the world price for coffee is $1.02.
This backdrop reveals two forces in tension. On the one hand the minimum price paid for Fair Trade coffee had not gone up since the system was set up almost 20 years ago, while coffee farmers have, like the rest of us, experienced steady inflation in the prices they pay for items like food, fuel, and transportation. The Fair Trade price no longer went as far as it used to. This was something we discussed at length with our farmer partners when they came to West Bridgewater last summer for our 20th anniversary Fair Trade Summit.
But at the same time Fair Trade roasters still found themselves often paying much more for their coffee than were their competitors. Therefore raising the Fair Trade floor prices would really challenge their ability to compete and stay in business, let alone increase the volume of their Fair Trade imports and sales. For example, in the years 2000-2006 at Equal Exchange we paid our farmer co-operative partners $8.2 million more for our coffee imports than we would have at world market prices. As much as we would have liked to have guaranteed even higher prices we felt that we were already operating at the edge of financial viability. This marketplace constraint was another topic we discussed at our Summit as we jointly looked for solutions that both met the needs of farmers and enabled Equal Exchange to continue as a friendly buyer and to expand our Fair Trade work.
It should be noted that over the years we frequently did pay more than the required Fair Trade minimums, going as high as $1.65/lb, especially for the organic coffee that makes up 85% of our volume.
Now both the global Fair Trade community and Equal Exchange are raising the minimum prices paid to coffee farmer co-operatives. In March the global umbrella group that oversees the Fair Trade system, FLO (Fair Trade Labeling Initiatives International, www.fairtrade.net) announced that the new minimum prices, effective June 1st, will be $1.31/lb, and $1.51 for organic.
At Equal Exchange we have committed ourselves to an even larger price increase. As of last month our new minimum prices are $1.36 for conventional and $1.56 for organic coffee. What had been a 15¢ premium for organic is now 20¢. This is because during the last year of conversations with our trading partners they stressed that even more important than raising the guaranteed floor price was the need to give greater support and incentive to the growers who are farming organically. We heard their concerns and wove them into our new prices.
While Fair Trade is about much more than price, it is a central component, and at Equal Exchange we’re proud to make this new commitment to our farmer partners.
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