Fair Payment and Highly Valuable Cents

2016 01 31

Customers rejoice when coffee prices drop, however that can mean hardships and loss of income for the coffee producers. On August 14-th, 2001, a drop of the price of Arabica coffee down to 35,33 cent per kg was reported for September contracts in “Äripäev”, the business newspaper in Estonia. Mid day the price declined to 35,11 cent. Concerned about the falling prices trend and weather conditions, Brazilian coffee producers wanted to sell. Alas, buyers had little interest in the harvest of the previous year. 8 % of Brazil’s harvest from the previous year remained unsold.

Consequently not only coffee farmers lost income, but also entire communities involved in coffee production suffered, also this development took its toll on the well-being of children – limiting their access to decent healthcare and education. Already prior to the drop of prices, workers had worked for a very low income and were dependent on employers; they lacked the opportunity to save or ensure a living standard in case of dropped prices. Thus, as both market prices and production costs fluctuate, it is difficult to ensure that purchase price always covers production costs. Therefore, it is essential that a minimum price is set for products – a safety net for times when market prices are low and/or production costs high.

Around the same period, a solution emerged to address such situations: Fairtrade certificate and certification system, launched in 2002. The Fairtrade certificate is issued to a product if its entire production chain is in accordance with the standards set by a Fairtrade certification organization:

  • it is forbidden to use slave and child labor;

  • production follows environmentally friendly principles;

  • wholesale buyers pay at a set minimum price for products,

  • a fair pay for the workers along with a premium used to support Fairtrade cooperatives and communities.

Should the price of coffee plummet as describe above, Fairtrade certified producers are protected by a fair minimum price. When buying Fairtrade certified products, Fairtrade Minimum Price is the lowest allowed price that the wholesale buyer (not the end consumer) pays the producer organization. It is not a fixed end price; it is the lowest possible baseline for price negotiations between the producer and the buyer. Composition of the costs is researched and negotiated with producers and experts. Fairtrade Minimum Prices are periodically reviewed. The minimum baseline is set so that the producer organizations receive the price that covers the actual sustainable production costs; and the same price protects farmers in case of threatening falls of global market prices. Should the market price be higher than the Fairtrade Minimum Price, the wholesale buyer has to pay the market price. In that case the purchase price is determined by the quality of the cocoa beans.

In addition to the minimal price and the premium, Fairtrade certified cooperatives have to be guaranteed an opportunity to receive partial advance payments for contracts. This is important so that small-scale producers are able to immediately pay farmers as they bring their crops in for selling. Wholesale buyers have to engage in long-term contracts with cooperatives so that the latter could foresight income and plan for the future. Workers have to be guaranteed the right to join trade unions to be able to collectively negotiate wages and working conditions. Wages and working conditions have to be the same for local and migrant workers. Wages have to be on the level or higher than the regional average or minimum salary and occupational health conditions have to be met to prevent accidents at work.

Isn’t it odd – a kg of bananas imported from afar costs less than a bus trip from Tallinn to Haapsalu? Or that the price per kg at retailers has dropped while the production costs have doubled? It can only be explained by an insanely low wholesale purchase price that forces producers from developing countries into even deeper poverty; forcing the use of child labor; saving on every community development and environment protection cost.

Usually we do not take time to think about the origins of, say, orange juice we grab from a shop shelf. This can lead us to enjoy good juice at the expense of the environment and lousy working conditions at orange plantations and juice factories.

Last year, when visiting Estonia, Alcimir da Carmo, the representative of orange farm workers from Parana district, Brazil, gave a thought provoking insight into their living and working conditions. Data presented by the research of European campaign “Supply Cha!nge – Fair Super Brands“ similarly highlights dangerous working conditions and environmental damage in producing orange juice. Research has surfaced that orange juice industry is doing economically well and exporters make a good profit. An average European drinks 11 l orange juice per year, 80% of which originates from Brazil. Approximately 32 million liters of juice products are purchased annually in Estonia and orange juice continues to lead in popularity. A moment of thought and interest in the origin of the particular orange juice and whether it has been produced observing environmental conditions and human rights can contribute to minimizing of environmental damage and better life quality for Brazilian workers.

Fairtrade certificate is criticized too – for example: Fairtrade certificate is really not that noble; a mere quarter of the consumer price actually reaches the farmers; or Fairtrade certification is expensive enough to make farmers work without pay for years. What should cause the most concern is that the workers and producers of the poorest countries have generally not joined in cooperatives and there are almost no products from those countries. No doubt, Fairtrade system has its flaws and it is always possible to improve, but as of today it is one of the best and most reliable systems that helps both the producer and the buyer. This has been confirmed by my personal experience. I have read about textile producers in India, coffee growers in Ecuador and coca producers in Ghana who have exactly the experience Fairtrade foresaw: good working conditions, investments in the community and ban on child labour has developed communities – at the same time offering the consumer a very high quality product at a reasonable price. I was further convinced by the visit to Ikuru nut plantation (Mozambique) that received the Fairtrade certificate in 2006. In addition to Indian nuts, Ikuru’s sesame and soy products got certified. The comparison between Ikuru and the plantation 10 km away is comparable to the former West vs East Germany. The nut farmers at Ikuru were the only farmers in Mozambique who also owned the plantation; they received a fair compensation for their work and premium was invested in acquiring new machinery and new seeds; and building schoolhouses and water wells.

Second criticism is the claim we first need to feed our own poor. Once such a claim is presented, two issues need to be elaborated on. First, producers from developing countries often live in conditions where they have an income below a particular threshold or no income at all – they live in absolute poverty. Although they do work, this threatens their health and coping.

In 2008-2009 54,7 % of the inhabitance of Mozambique lived in absolute poverty (research data by International Fund for Agricultural Development). The majority of people living there have to cope with 1 euro per day (the absolute poverty threshold) and they lack access to basic services such as clean water, healthcare services or schools. In comparison, Estonia is a wealthy country, not even mentioning having a functional social security system that is non-existent in Mozambique. Furthermore, the products this article focuses on are not competing with Estonian products – coffee, tea and cocoa are not produced here and only one Estonian chocolate product – Chocolala – has the Fairtrade certificate.

So, if we wanted to support just our people, we should reject the products that are produced elsewhere. But, this is not the case, and when buying coffee, tea, cocoa or fruits, we can think before basketing the first random or cheapest item – where it has been produced, what kind of production and supply chain it has come from – and we can opt out of buying suspiciously cheap products. In this manner we can shop for suitable quality products and at the same time contribute to the rising of life quality of other people.

The third criticism suggests Fairtrade is obstructing the market. Unfortunately, the global agricultural market is leagues away from the ideal perfect functional model of buyers and sellers that Adam Smith envisioned. Moreover, if we support our farmers, why should we not support systems that help to do the same in poorer countries?

Since 2002, Fairtrade certified products such as coffee, tea, sugar, chocolate, cocoa and wine have become regularly available in Estonian shops too. Purchasing those, we as consumers can continuously contribute to the development of various parts of the world. Awareness of what we actually buy and transparency of the use of the money we pay, strengthens my faith in the possibility of fair development and economy. Those interested and those skeptical can access the prices of every Fairtrade product category at Fairtrade.net*

And finally it is worthwhile to ask oneself – what is the cost of a purer conscience of mine? When selecting products that have reached me from afar, I always opt for Fairtrade certified coffee, tea, cocoa, fruits or chocolate because of transparent and responsible pricing. The difference is rather small – in case of my last week’s shopping, it was around 2 Euros or 200 cents. This is exactly what I paid extra for my Fairtrade certified tea, bananas and chocolate form Biomarket as opposed to the cheapest products from a local supermarket chain. Everyone can make a decision to help or harm the world by one’s purchase.

*Exact link: http://www.fairtrade.net/standards/price-and-premium-info.html