Fair Trade Coffee

To get to the point: if you want to help the families of poor coffee farmers, donate to Coffee Kids, Inc.


I will now elaborate on why buying Free Trade Coffee is not nearly the same thing.

From The Economist:

Costa, like most other coffee bars these days, offers 'Fair Trade' coffee - theirs comes from a leading fair trade brand called Cafedirect. Cafedirect promises to offer good prices to coffee farmers in poor countries...For several years, customers who wished to support third-world farmers - and such customers are apparently not uncommon in London - were charged an extra 10p. They may have believed that the 10p went to the struggling coffee farmer. Almost none of it did.


Cafedirect paid farmers a premium of between 40p and 55p per pound of coffee, and that premium was reflected in the price they charged to Costa. That relatively small premium can nearly double the income of a farmer in Guatemala, where the average income is less that $2,000 a year. But since the typical cappuccino is made with just a quarter-ounce of coffee beans, the premium paid to the farmer should translate into a cost increase of less than a penny a cup.

Of the extra money that Costa charged, more than 90% did not reach the farmer. Cafedirect did not benefit, so unless using the fair trade coffee somehow increased Costa's costs hugely, the money was being added to profits. The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino. Because coffee beans make up such a small proportion of that cost customers might have concluded that the extra 10p was to cover the cost of the fair trade coffee, but they would have been wrong. A certain Undercover Economist made some inquiries and found that Costa worked out that the whole business gave the wrong impression, and at the end of 2004 began to offer fair trade coffee on request, without a price premium...

This does raise other questions about the fair-trade enterprise, however. Why abandon the price discrimination model, for instance? If some consumers are willing to pay 10p more to double a coffee grower's salary, mightn't there be other consumers willing to pay 20p more to further increase it? Or 30p more? It seems to me that there could an entire menu of fair trade products available, allowing consumers to choose the extent to which they'd like to increase the earnings of commodity producers.

And how does this affect coffee supply? If a premium is available for fair-trade coffee, shouldn't other growers enter the market to take advantage of it until the price of coffee is bid down to market levels, leaving total producer take--baseline coffee price plus premium--where it stood before? Such a scenario would also raise distributional questions. If higher coffee prices attract market entrants, then coffee-growing nations will shift resources into that sector, which might be good for grower incomes, but could potentially inhibit the development of other economic activities.



Basically, Fair Trade Coffee doesn't work, only a fraction of a fraction gets to the people it's trying to support.  It's the worst charity ever.

This is actually a good thing.  Were it to succeed, it would actually victimize the locals by inflicting further the effects of globalization.  When a whole country is taken out of sustenance farming to serve only one small part of the Western economy, they are disastrously vulnerable to business cycles.  Incentivizing them to produce only one product hampers them from producing the broad economic base necessary for a country to leave the third world.

People need start making a bigger distinction between political actions that feel good and ones that actually make a difference in people's lives.

Honir Honir
26-30, M
1 Response Mar 2, 2010

Skepticism.<br />
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It's a basic, scientific principle, you doubt claims until they become substantiated.<br />
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I'd understand from someone who always took charitable organizations at face value, but once you realize that a lot of them are just out to make a buck, it becomes worthwhile to view all of them distrustfully. Donating for express purpose of making yourself feel good is selfish. If you're serious about being philanthropic, you will realize it takes a very small amount of work.<br />
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Luckily, we have tools to combat this. Networkforgood.org is one of the best, since it allows you to search any cause and get a breakdown of recent financial data. The numbers to watch for are Revenue and Contributions, the smaller the difference between this numbers, the more money actually goes into helping the people in question.<br />
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For instance, a quick search for 'coffee' landed me at Coffee Kids, Inc. :<br />
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http://www.networkforgood.org/donation/MakeDonation.aspx?ORGID2=050442372&vlrStratCode=FsAY3TvOqIi%2bBGnZ5Fw6FML4olQCTRY9XNraPBxQVrD5/E%2br7VLoJZez5i3%2b3iaS<br />
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Their financial report shows $997,760 in contributions versus $1,009,974 in revenue, which means a very high percent of the money sent to help the families of poor coffee farmers actually gets there.<br />
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Basically, if you want to support the people who grow your coffee, send five bucks to these people and buy whatever brand tastes good.