I must admit that I had always been under the naïve assumption that Fair Traders did not speculate on market prices. Why did I hold this assumption? I believed that as Fair Trade certified coffee importers they sought to be fair and understood the historic and current issues faced by coffee cooperatives and small producer groups. Fair Traders have principles that are far above the conventional traders! Not only that, they are certified as Fair Trade, and in that certification they have our trust!
Much to my surprise, when I met with a Fair Trade exporter and later with an organic Fair Trade certified cooperative in Aceh, I learned of a case that I would have expected from a conventional trader, not a Fair Trader. Sadly enough, it is not an isolated case.
This blog post is dedicated to the Fair Trade importer who cost a coffee cooperative in Aceh tens of thousands of dollars. He is also the author of a rather blunt statement I heard repeated to me as his response to a request for dialogue from the cooperative:
With that stated, I would like to reiterate the purpose of my research and blog: This blog is the story of a journey with a purpose; a journey to present the voices of Fair Trade producers, artisans, weavers, farmers, and craftswomen and men. All too often the voices of producers are drowned out when it comes time for their voice to be heard.
Current conventional market coffee prices are quite high. So high, as a matter of fact, that FLO-Cert has had to raise the minimum pricing standards from US$1.25/lbs to US$1.45/lbs. (for kg, multiply by 2.2) Other value-added payments such as organic certification were also increased. Perhaps the time for coffee farmers has come around!
|Ready-for-export organic coffee from the|
Tunas Indah Cooperative in Aceh.
Next, I began to inquire about his dealings with Fair Trade importers. Much to my surprise he immediately responded, "There is a lot of speculation on the Fair Trade coffee market."
But how could this be? A Fair Trade speculator? I honestly didn't get it. Then I thought to myself, "Ok, so a guy speculates and secures a price - a Fair Trade price. What is wrong with that? The farmers still get a Fair Trade price regardless."
He presented me with a case of one importer. In July, 2010, an importer had made a contract with Arvis Coffee to buy three containers of Organic, Fair Trade coffee. The harvest season is in October, and in turn Mr. Sadarsah contracted with Tunas Indah Coffee Cooperative to fulfill the order. The contracted price was US$4.50 per kg of ready-for export Arabica green bean. Mr. Sadarsah requested a prepayment from the importer on behalf of Tunas Indah Cooperative, and was told that it was not possible. No reasons or rationale was offered; no negotiations. Simply, "Not possible." Within a week the conventional market prices began to rise.
|Coffee drying done locally in Takengon, employing local |
community members with a "living wage." An example of
promoting Fair Trade through local employment opportunities
Additionally, I have found that by involving communities in value-added local processing it will greatly increase a local communities knowledge of Fair Trade by experience in the system. After all, another principle of Fair Trade is to promote Fair Trade, and what better way to do that than to offer income generating opportunity! More about this and the future of Fair Trade in Part III of this series!
Whether a prepayment is requested or obligatory is not the issue. Within the context of Fair Trade, the onus to provide a prepayment should be on the importer, not on the producer. There is a power imbalance that needs to be addressed - especially when all the initial costs are taken by Southern producer cooperatives. That is the purpose of having a principle in the first place.
Back to the Findings: The problem for the cooperative was in fulfilling the contract made in July, 2010. The harvest came in October, 2010, and the conventional market prices were at US$7.00/kg, which is much higher than the contracted price US$4.50/kg. This put the cooperative in a difficult position.
From the cooperative's perspective, it will lose credibility with its members if there is no sale to any importer, and this was the one deal they had secured.
Secondly, if the cooperative offers only US$4.50/kg when the local market price is US$7.00/kg, the members will sell their organic green Arabica beans on the conventional market for $7.00/kg where it is mixed in with whatever else came in the door. Furthermore, why retain membership in a cooperative that doesn't sell your product? The cooperative faced a suddenly stark possibility - with no members, how could it continue to function?
Directly stated, the cooperative's very survival is suddenly at stake. Understand that the income generation for the cooperative itself is from this transaction from farmer to exporter who in turn ships to the importer. The cooperative is the voice and union of the individual farmers, but where it generates much needed income is with value added activities.
Answer me this, would you willingly buy at $7.00/kg from cooperative members, process the beans to be export ready, and sell at $4.50? Obviously not, so the cooperative and the exporter went to the importer to renegotiate the contract.
A) the price is renegotiated to the current market value and the cooperative can value-add by processing it locally, employing local members of the community, and send to the exporter soon afterwards. On the other hand, while the importer is concerned about his profit margin in this lucrative commodity, when the market price goes up on this end, undoubtedly it goes up on the other end as well. So it is not that the coffee importer will lose money by increasing the contract price to the current market level. I would be very surprised if the importer made contracts with Fair Trade roasters locking in a July price, but if this was the case, this price can be renegotiated as these are Fair Trade roasters with a social conscious, or so we hope.
C) the importer replies to a request for renegotiation with a curt, "It is not my Problem."
The end result: What the importer did offer was an additional month to fulfill the contract. Unfortunately for Tunas Indah, the price on the conventional market did not retreat. Unfortunately for the importer I am bringing their business dealing to the surface by presenting the view of Tunas Indah Cooperative whose pleas for renegotiation went unheard in the office of an importer in the USA.
So, Mr. "It's not my Problem", let's take a look at your impact because it is your problem now. Essentially, you made the cooperative subsidize your purchase. Yes, a cooperative of farmers living off less than US$200/month subsidized your purchase. Where is the justice in that? You didn't even consider renegotiation, much less consider the impact your stance had on the cooperative itself.
Again, let me reiterate, when I inquired if there had been a prepayment of any amount with the contract, the answer was no. How can you, as the importer, refuse to renegotiate a contract when you didn't even provide a prepayment when it was requested by your trade partner?
When I made further inquiries into the current issues faced by local cooperatives, I learned that five of the twelve cooperatives in Aceh may collapse as a result of speculators like Mr. "It's not my Problem." A lot of time, effort and capacity building has gone into building up our Fair Trade cooperatives in the South, and it is the work of speculators that will tear it down.
Is it your problem yet?
Firstly, re-evaluate and upgrade your auditing and monitoring of Fair Trade Coffee importers to the extent you audit and monitor coffee cooperatives. Push them out of their comfort zones with frequent four or five day audits detailing their actions and policies like you do with the cooperatives. If it increases your cost to do so, increase their fees to cover the cost of policing their fellow importers unscrupulous behaviors and disregard for the cooperatives they deal with.
Secondly, this issue of prepayment. For several years there has been a flagrant disregard for any prepayment when requested. Let's re-evaluate this principle in light of the recent global economic crisis where it was difficult for Fair Trade Organizations regardless of where they were.
I suggest that FLO-Cert utilize a democratic system in which members, from farmer cooperatives to exporters to importers and yes, to coffee roasters, are engaged to arrive at a new principle establishing a lower minimum percentage prepayment that is realistic and acceptable to all. It is better to have a minimum prepayment that is agreed upon than a payment that is frequently disregarded for years and detrimental to Southern partners, as is the current situation.
Thirdly, to protect Fair Trade cooperatives from the likes of Mr. "It's not my Problem" there needs to be communication system integrated for cooperatives to contact and report speculative behaviors directly to FLO-Cert; and in turn for FLO-Cert to investigate with threat of revoking an importers certification. This has got to end now, and it is within the grasp of FLO-Cert to do it.
Fourthly, Make Trade Safe. Establish acceptable contract templates for Fair Trade importers, exporters and cooperatives to utilize that has your stamp of approval. Formalize the contracts so as to remove speculation! Mr. Johannes Egger, your auditor in Indonesia shared his challenge in tracking down these contracts because they are made over the phone. In short, as an auditor he has no paper trail to follow. I suggest you make a simple, easy-to-understand contract which specifies the quantity, but not locking in the price. Make trade safe for both parties. This is within your grasp!
Fifthly, end the certification of corporations that have long histories of labor and human rights abuses (i.e. Nestle). See their efforts to generate a brand that is Fair Trade certified for what it is: A Public Relations bid with Corporate Social Responsibility as the rational. How can you certify one hand as Fair Trade while the mindset and activities of the corporation remain unchanged with the other hand in a firm stranglehold on the throats of workers and farmers? There are so many issues with this company, in the South your certification of them has left a serious rift in the Fair Trade Movement and you need to know that! For more on your Fair Trade certified company, have a look at the Corporate Watch list on Nestle's corporate activities
Make Trade Fair to both the South and the North
and with that said, What can we do as Fair Trade advocates, supporters and consumers?
XX Coffee Importer
XXXXX Xxxxxxxxx Xxx
Bonner Talweg 177
Telephone: +49 228 949230
Fax +49 228 2421713
Part III in this series will exemplify where the future of Fair Trade must go in order to be sustainable.
Mitch Teberg, MA