Two companies making trade fairer without 'fair trade'

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Value Chains

Two companies making trade fairer without 'fair trade'

Because most of a coffee bean's value is in the roasting process, even fair trade farmers often can't survive from their coffee sales alone. Photo: CIAT International Center for Tropical Agriculture (flickr)

When fair trade farming didn’t pay enough for one farmer to make ends meet, he started a new coffee company to take control of the production process and boost profits.

Fair trade might not be all it’s cracked up to be, according to research highlighted in a recent article in Foreign Affairs. Even as "fair trade" sales totaled a whopping $5.5 billion in 2010, only about $66 million of that actually reached producers. Coffee farmer Kenneth Lander’s Thrive Farmers is stepping in to help farmers reap a greater share of the proceeds by letting them participate in the production process all the way to market.

Typically, fair trade farmers sell their green beans to buyers for a minimum price of $1.40 per pound, even when the same beans sell for $12 in retail stores in the developed world. Factor in certification fees and many farmers barely get by. Thrive solves this problem by helping farmers in its co-op roast their coffee locally, which it then markets directly to retailers. The roasted coffee fetches a much higher price than it would unroasted, and Lander claims his farmers usually net four times the fair trade price, even after the higher production costs are factored in and Thrive takes its share.

There’s a hitch, however: Thrive doesn't pay farmers until after the coffee has been sold. While this creates an incentive to produce high-quality coffee (if the roasting is bad, the coffee won’t be sold), it often leaves the farmer without cash to pay workers during harvest season. The Foreign Affairs authors note that expensive fair trade certification already excludes the poorest farmers, and even fewer would have the savings to work with the Thrive model.

But there’s an even bigger problem with fair trade in general: it only works for certain “niche” products, like coffee and tea, while it ignores the farmers producing staple crops like corn and rice. This is because fair trade is essentially a way to market to niche consumers--middle-class folks in developed countries that can pay a higher price for specialty goods.

Ghana-based Divine Chocolate is working to both sell affordable products and pay their farmers well. Like Thrive, Divine’s coffee farmers own part of the company and participate in the refinement process as well as take a piece of the profits. However, they have also developed a mainstream chocolate bar that can compete with generic brands. While the chocolate still sells in Britain instead of Ghana, it marks a step towards paying farmers a fair wage for something that average consumers will buy.

Both Thrive and Divine aim to help farmers who can’t make a living in the global market. This is no easy task: they must compete with subsidies and modern farming techniques in richer countries, and trade can actually destroy local production if the market price for a product suddenly drops. The trick is to raise earnings without raising the overall cost of production--something the companies accomplish by attacking injustices in the supply chains.

Regardless of their individual success, Thrive and Divine are proving that the standard practice of "fair trade" isn't the only way to pay workers fairly.

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