How can coffee become a better tool for development?

Since becoming fair trade certified in 2005, Coopetarrazu, one of the largest coffee cooperatives in Costa Rica, has developed programs for its members to improve the quality of their beans and their sustainability practices.

Many farmers in the cooperative credit fair trade certifiers with everything from improved school attendance to birds returning to the plantations, according to chief financial officer Carlos Vargas Leiton. But local farmers have also benefited from growing interest by one of the largest buyers in the region, Starbucks, which uses its own certification program developed in partnership with Conservation International.

While the fair trade movement is credited with bringing the plight of the farmer to the attention of consumers, it is criticized for many of the steps it has taken along the way. Looking for alternatives to fair trade, coffee roasters and retailers from boutique shops to big brands are adopting other certifications or developing programs of their own. So what can the global development community do to support the approaches that work?

Making it fair for farmers

The fair trade movement started with the best of intentions but critics say it has fallen short of its objectives. Fair trade provides producers who meet labor, environmental and production standards with a floor price for their coffee, currently $1.40 a pound. In addition to this safety net, which stays put even when there is market volatility, there is an additional 20 cents per pound, a fair trade premium, that farmers can choose to use to improve quality or productivity.

While fair trade offers benefits like long-term contracts for the producers who participate, the development impact of the movement has been limited by factors like the high costs associated with certification.

“Coffee sort of looks like your typical developing country commodity, but it sort of looks like wine too, where there is an incredibly large quality variation in the demand market,” said Craig McIntosh, a professor at the University of California at San Diego and author of a report that, in short, says fair trade in its current form cannot serve as a development tool. His criticisms of fair trade include the fact that there is no control over the quantity of coffee certified as fair trade.

“Growing high quality coffee is more expensive than growing bad quality coffee, because it requires more care and attention,” added Colleen Haight, an economics professor at San Jose State University who has studied fair trade.

Companies buying high quality coffee not only pay more for labor, but often make long term investments in the communities where they source their coffee, in part to ensure that the high quality coffee source continues to yield.

Starbucks considers quality as well as economic transparency, environmental sustainability, and social responsibility when it sources its coffee, explained Arthur Karuletwa, director of traceability at Starbucks, at a conference last year. The company launched C.A.F.E. (Coffee and Farmer Equity) Practices to ensure the ethical sourcing of coffee using a system of scorecards.

What Karuletwa cares about, what has him traveling all over the world, is the “first 10 feet” of the coffee bean, rather than the last ten feet that most people who work for Starbucks experience. “If you had a cup of coffee today it was probably picked, washed, dried, transported, brewed, ground, and served by a woman,” he said. “We want traceability to be the keyhole through which consumers see the beautiful mess of the supply chain.”

The impact of fair trade varies by region and commodity, among other factors, but the movement is creating value for farmers, said Jennifer Gallegos, business development director for coffee at Fair Trade USA. “Can we do a heck of a lot more? Yes,” she said. “But can you imagine a world without it?

While the growing number of fair trade certifiers share a belief that all coffee should be ethically and sustainably sourced, the fractured nature of the industry has limited both its market potential and its economic impact on growers and their communities.

The fair trade movement needs to adapt and come together to stay relevant, Gallegos said, adding that the model, which has been decades in the making has significant value, especially when compared to newer, and as yet untested approaches.

“If we don’t respond now, roasters, brands, retailers are going to either believe that they can do their own thing or they’re going to look for alternative solutions,” she said. “And some of those solutions will not be as good, and they may not even benefit the producer, but they’ll be good enough for the roaster, the brand, the retailer to check a box.”

While all too often the high prices consumers pay for coffee products do not make it back to the farmers who grow those beans, third-party certifiers like Fairtrade America do not set the margins that distributors or retailers add to products imported on fair trade terms, so they have little leverage to address pricing concerns, said Rodney North, director of marketing and external relations at Fairtrade America.

But, he acknowledged, fair trade is just one of a range of approaches that are needed to create a more stable, connected and sustainable coffee economy.

Pictured from left to right: Certifications from the Institute for Marketecology, Fairtrade International, and Fair Trade USA. / Screenshots by Devex

New approaches brewing  

All over the world, new projects or approaches are sprouting up to foster trading relationships that pay off for farmers. An example is Kahawa Bora Ya Kivu, a value chain project in the Kivu region of Eastern Congo, that aims to foster new trading relationships between smallholder growers and high quality coffee buyers in the United States and Europe through a public private partnership involving Catholic Relief Services, Eastern Congo Initiative, World Coffee Research, the Howard G. Buffett Foundation, and the U.S. Agency for International Development.

Organizations like Global Partnerships and the Grameen Foundation, are partnering with local cooperatives or credit associations to help increase productivity, improve business practices or provide access to finance.

Raising smallholder coffee farmers’ incomes could make a transformative difference for them and their communities, said Peter Roberts, an Emory University professor whose research focuses on the specialty coffee market.

“If you don't give the growers in the developing world the understanding of what these different numbers are, you'll never see progress in terms of leveraging the fact that people want to spend money on the thing that they grow,” he said.

In 2006 Bird Rock Coffee Roasters opened its first location in San Diego, California. It quickly became apparent that direct trade, rather than fair trade, would allow them to pay producers market prices while also working with them to improve quality and productivity.

“I can actually have the freedom to assess those needs and help farmers achieve their goals rather than just assuming that 15 cents of my dollar is going to a fair trade cooperative,” said Chuck Patton, the founder of Bird Rock Roasters.

According to Transparent Trade Coffee, which Roberts launched to help consumers understand coffee pricing and what share makes it to coffee growers, for every 12 ounce bag of coffee Bird Rock Roasters sells from Juan Diego de la Cerda farm in Guatemala, farmers get 21.1 percent of the final sales price.

If a roaster were to pay no more than the fair trade floor price for the green coffee, they could choose to charge a $30 per pound retail price and use a fair trade label, even though only 5 percent of the purchase price would actually end up with the people who grew and picked those beans.

Direct trade mimics some of the work done by fair traders like Equal Exchange, which was founded to challenge the existing trade model favoring large plantations, agribusinesses and multinational corporations, North explained. But he said direct trade can sometimes bypass farmer cooperatives, and high transaction costs make it difficult to scale the model.

Other models looking to put farmers first include Thrive Coffee, which has a revenue sharing model that allows farmers to sell coffee beans to directly to consumers, and Vega coffee, which sells coffee roasted locally by farmers at a processing center in Nicaragua online.

Moving the needle

Nespresso is creating shared value for smallholder farmers in countries like South Sudan, where the coffee giant works in partnership with TechnoServe. While the company was drawn to the exceptional coffee in the country, it had to build the industry from the ground up. For those kinds of partnerships and efforts to take shape across the coffee industry, roasters must see that these efforts provide a competitive advantage, Roberts said.

“Paying farmers well and being transparent is currently a burden for brands because you can have all the verbiage you want without paying more,” he told Devex.

Karen Ellis and Jodi Keane of the Overseas Development Institute proposed the creation of a “Good for Development” label. It would not create a new environmental or ethical standard, as a growing number of labels ranging from Rainforest Alliance to Ethical Trading Initiative already do that.

Rather, it would indicate to consumers the positive development impacts associated with commodities like coffee. By recognizing contributions like technical assistance or developing local infrastructure, bronze, silver or gold labels would turn development performance into a competitive advantage for retailers and importers.

Part of why coffee falls short of its development potential is that the blending, roasting, and branding take place far from the farms where the beans are grown and picked. And while it is more realistic for micro roasters to know their farmers by name, it is the big brands that have greater capacity to move the needle, but they are typically further removed from their supply chains.

The experts who spoke with Devex said that consumers can play a role in changing the industry for the better if they become as advocates for farmers as well as quality. When they go to coffee shops, they should appreciate the flavors, but also ask about the farmers who grew and picked those beans.

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