Fairtrade is a trade deal based upon transparent negotiation with respect to producers’ efforts in order to seek international trade equity. Established to assist producers in the developing countries achieve a better and sustainable trading environment, Fairtrade advocates for equitable pricing that guarantees improvement of the welfare, environment and social standards of the producers.
The trade deal gives consumers in the developed countries the impression the cost of coffee is fair while at the same time ensuring that producers in developing countries are earning fair income commensurate with their labour. This creates a psychological mind-set that consumers and producers are ‘all winners’.
Progressive opinion believes producers need to earn a minimum price that is sustainable for their production activities and their cost of living. In addition, there should also be a social cost premium of between 5%- 10% of the minimum price for technical and development assistance for the producers. Furthermore, the trade deal should make it mandatory for traders to buy from the producers and their organisations directly by means of long term contracts in other to reduce middlemen, promote stability and encourage long-term planning.
However, current developments in countries like Kenya, Uganda and Ethiopia are at odds with the intentions of both the founders of Fairtrade and progressive opinion. Oxfam research showed in 2002 one kilogram of coffee beans was traded by the farmers directly to the local middlemen in Uganda at the farmer-gate price of $0.14.
This is what producers get for their 3-5 years of intensive labour to produce the coffee and does not allow for the aforementioned social cost premium. Local middlemen receive $0.05 on each kilogram and there is a $24 profit margin to coffee retailers. This profit margin on every 1kg of coffee produces for the retailers cannot be justified or explained by the Fairtrade Labelling Organisations International (FLO).
In 2007, the BBC investigated the situation in Ethiopia, finding middlemen offered prices below the market rate. One farmer informed the BBC he sold one kilogram for $0.33, highlighting most producers in developing countries face inequality and exploitation. Going by the impressive provisions and recommendations contained in Fairtrade, coffee retailers like Starbucks need to be asked whether there’s any evidence of a fair deal in the current coffee trading system they use.
Table 1: Earnings per kilogramme at different stages of coffee trade
Farmer’s traded price $0.14
Local middleman’s margin $0.05
Local mill transportation cost, milling and miller’s margin $0.05
Bagging cost and Kampala transportation cost $0.02
Total price for Kampala exporter $0.26
Processing, off-grade discarding taxes & margin $0.09
Bagging, Indian ocean port insurance & transport $0.10
FOB Standard price for Robusta $0.45
Freight cost and insurance $0.07
CIF price $0.52
Importer landing charges, roaster’s delivery facility & margin $0.11
Factory delivered price $0.63
Soluble weight loss adjustment ($0.63*2.6) $1.638
Total so far $2.241
UK Retailer’s Price UK retail soluble price for 1kg $26.40
Source: Oxfam (2002)
Azeez Abiola Oyedele is a researcher at the School of Business and Enterprise, University of the West of Scotland