Direct trade vs fair trade coffee (Daily Footprint #8, Part 2)

Direct trade vs Fair trade coffee – which should you choose? The short answer is that direct trade coffee can be an improvement over fair trade certified coffee, but only when it comes from a trustworthy coffee roaster.

Changes in coffee industry over the last few decades are largely due to fluctuations in the commodity market price, the price that the majority of coffee farmers receive. Between 1997 and 2001 the market price for coffee crashed from a peak of over $3 per lb. to a low of around $0.40 per lb. and many farmers could no longer make a living. Some switched to intensive full-sun farming (see Part 1), removing canopy trees and growing Robusta beans or a sun-tolerant coffee variety of Arabica, while others completely deforested and switched to pasture land.

Even with high yields, if the farmer is getting a price of only 40 cents per pound, can you imagine what a coffee laborer is getting? Contrast that with the profit made by coffee roasters; if you are paying $10 per lb., that’s 2500% markup for roasting and packaging.

How to best support coffee farmers: Direct or Fair trade

To support coffee farmers, there are basically two ways that can help:

1. Purchase fair trade certified coffee from a mission-driven company.
2. Buy coffee from a small roaster that has developed “direct trade” relationships with specific farmers.

In the first case, the question becomes: which certifications are best and do they really help? In the second case we need to be able to tell if the roaster does indeed pay fair prices.

A history of fair trade certification

The first Fair Trade labeling organization, Max Havelaar, began selling Mexican coffee in Dutch supermarkets in 1988. Other organizations were established in various countries (Transfair, Fairtrade Mark, Rättvisemärkt, Reilu Kauppa) and then in 1997 Fairtrade International (their full name is Fairtrade Labelling Organizations International or FLO) was formed as an umbrella organization to coordinate pricing and monitoring for each of these certifications.

In 2011, Fair Trade USA (formerly known as Transfair USA) split away from Fairtrade International and came under fire for turning the odds against small farmers. One reason for the concern is that while Fairtrade International only certifies democratic cooperatives of small farmers, Fair Trade USA opened it up to single, larger farms. It’s complicated, but many in the fair trade community feel that Fair Trade USA will make it harder for small farmers and cooperatives to compete because the supply of Fair Trade coffee already often exceeds demand.

How does fair trade certification work?

The premium paid for coffee that’s certified by Fairtrade International or Fair Trade USA is 20 cents per pound, with an additional 30 cents if it’s also organic.  That doesn’t seem like a lot compared to what you spend on a pound of coffee, but the current commodity market price for green coffee is around $1.50 per lb., so the Fair Trade + organic premium (50 cents) represents a price increase of 33%. An important feature of Fairtrade coffee is not just the premium  but also the minimum guaranteed price (the Fairtrade price or market price, whichever is higher) which helps ensure that farms don’t collapse (and give way to larger corporations) when the commodity market price drops.

Overall, my opinion is that the Fair Trade movement, although not perfect (what movement is?), has performed and still does perform a very important role in stabilizing prices, and supporting small coffee farmers. The guaranteed price, premiums, and pre-financing all work to provide a buffer for farmers to weather any storms (either literal storms, poor weather, or coffee diseases like leaf rust) as well as price volatility in the coffee market.

Do Rainforest Alliance and UTZ support farmers?

Rainforest Alliance and UTZ certifications don’t include any price stabilization provisions (minimum price / premium). Studies have found that coffee sold with Rainforest Alliance certification sells for around 8 cents per lb. above market prices while UTZ coffee sells for a premium of around 4 cents per lb. (Source: pp 178-179 of this useful State of Sustainability report). UTZ is generally considered to be the least rigorous of the common coffee certifications (but may be still better than buying non-certified coffee from a major brand).

Do multinational corps support coffee farmers?

Laura Raynolds, Co-Director of the Center for Fair & Alternative Trade at Colorado State University, is a major voice on the fair trade movement and co-edited the 2015 book, “Handbook of Research on Fair Trade.” In her 2009 paper “Mainstreaming Fair Trade Coffee: From Partnership to Traceability” she divides fair trade coffee into three categories – mission-driven, quality-driven, and market-driven. Her conclusion:

Fair Trade’s sharpest challenge comes from the entry of market-driven buyers who vigorously pursue mainstream business norms and practices. Dominant coffee brand corporations limit their Fair Trade engagement to public relations defined minimums, using the FLO label to position themselves and their products within the market.

I tend to agree – why buy fair trade certified coffee from Nestlé when you can buy it from companies who are mission-driven and/or quality-driven?

What is direct trade coffee?

Some smaller coffee (roasting) companies bypass the fair trade labeling systems, arguing that they can do better. They often mention a “direct trade” relationship with farmers, but since this is not a regulated term it’s good to know more (and that’s where green star reviews would be helpful!). I’m only satisfied when they provide the following information:

1. Prices paid to farmers, listed either as price per pound or as a percentage premium over Fairtrade prices.
2. Assurance on sustainability, preferably in the form of certification (ideally Organic or Bird Friendly) or a statement containing hard facts. Small roasters should visit their supplier farms and report to customers.

Some of these small coffee roasters have done a good job at going beyond the fair trade labels. One of my favorite small roasters, Counter Culture Coffee, reported paying an average weighted price of $2.96/lb for all coffee and $3.53/lb for single origin coffee in 2015 (when the commodity price averaged around $1.30). The majority of their coffee is organic and their packaging is compostable.

Union Coffee in the UK pays a minimum price of the Fairtrade price + 25% (currently this amounts to $1.75 per lb.) In addition, farmers can receive further premiums for producing high quality or additional social or environmental premiums. They set up minimum purchasing commitments with farms so they can sustainably plan for their next harvest and support forward financing, critical for small scale farmers.

Equal Exchange also operates outside the Fair Trade system – in fact they started in 1986, a decade before Fair Trade existed. They get the top score of the brands covered by Ethical Consumer.

Direct trade vs Fair trade coffee?

Given the option of Direct trade vs Fair trade coffee, which should you choose? Ultimately, I do think that smaller coffee roasters that sell good quality direct trade coffee in sustainable packaging are often good choices – but do some research on them (and share your opinion!). Here’s my Yelp review of Counter Culture coffee.