Coffee + Politics: How Fairtrade USA is Undermining the Goals of the International Fair Trade Movement
Despite its goal of poverty alleviation, there has been no real consensus on the impact of fair trade on developing countries and their citizens. Fair trade sales and profits are increasing globally and have been since its inception, but little is known about the distribution of profits through the supply chain back to the producer and the community, as their distribution is heavily reliant on social, political, and economic factors unique to each case-study. However, research on fair trade in developing countries has identified common conditions and strategies that enhance the likelihood for success in economic justice. With Nicaragua and Costa Rica as case studies, this piece looks at the inclusion of coffee as a fair trade commodity and its role in the political empowerment of producers as it relates to the historical relationship between the United States and Latin America.
The fair trade movement began in the 1940s, advocating for policies that “protected marginalized commodity producers against the dehumanizing impulses of global capitalism.” Coffee is one of the many commodities in the region that has further entrenched dependence on developing countries. James Fraser, Eleanor Fisher, and Alberto Arce explain in Reframing ‘Crisis’ in Fair Trade Coffee Production: Trajectories of Agrarian Change in Nicaragua that the “sale of coffee on world markets is characterized by extreme price volatility.” Signed in 1962, the International Coffee Agreement attempted to constrain oversupply, stabilize prices, and promote consumption globally in this tumultuous market. By the 80s, reinforced by neoliberal development policies, the ICA determined that prices should be regulated by the free market.
The Fair Trade Movement (FLO), historically
The definition of fair trade as a movement endorsed by FLO, the World Fair Trade Organization, the Network of World Shops, and the European Fair Trade Association reads:
Fair trade is a trading partnership based on dialogue, transparency, and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers — especially in the South. Fair Trade Organizations (backed by consumers) are actively engaged in supporting producers, in awareness raising and in campaigning for changes in the rules and practices of international trade.
FLO stresses the importance of codified representation, such as the development of value chain and market access policies specific to smallholders and workers, that contribute to the development of “organizational advocacy and representational capacity of producer organizations and the regional networks.” The institutional structure of these agreements must be transparent and democratic in to ensure that premium is distributed appropriately.
Cooperatives are historically relevant prior to the fair trade movement, during which they simply became elevated them to an international platform. Ideally, under this structure, producers have the ability to bargain with buyers and influence the terms of contracts. Producers benefit from greater accessibility to markets as well as capacity building for organizations to advocate on behalf of members. Organization in this narrative does not ignore economic empowerment entirely, but emphasizes the protection of individual and collective rights. Representation on a local scale is based on a hierarchy of producer organizations where horizontal linkages are facilitated. The voice of producers through negotiation drives change. The enhanced capacity of producers to articulate their needs and protect their rights. This narrative sets longer timescales to accomplish its goals of economic and political empowerment.
Fraser et. al point out that “the contemporary fair trade movement is party to contradictory tendencies — growing corporatization accompanied by the presence of private agrifood standards, but also diversification through Southern producer-led initiatives to gain greater control over governance of fair trade, through innovations to localize supply chains, and through initiatives to connect to producers’ social and place-based identities.” Depending on how they are adapted to the local context, fair trade policies can provide space for business interests to either empower producers or undermine local development.
Fair trade policies aren’t necessarily inclusive to all producers and should continually work to address the many barriers to inclusion. We Know Our Worth: Lessons from a Fair Trade Coffee Cooperative in Honduras by Erin Smith and William M. Loker outlines how fair trade policies are often exclusive to the rural poor, who lack access to land, technology, or other resources that prevent their participation in fair trade. The costs of fair trade and organic certification also can impose resource barriers that exclude those with the lowest resource capability.
Further barriers include communication and information barriers, which typically include a lack of access to information. This can be attributed to a variety of factors ranging from inexperience to a lack of development of telecommunications infrastructure. Lack of Internet access, unclear translation, or subpar communication structures within cooperatives all enhance barriers in communication and information.
Cooperatives tend to benefit rural people who already have access to resources but exclude rural landless workers. Further, maintenance of a cooperative requires resources to be devoted to the costs of organizing, registering, establishing compliance with rules.
Knowledge barriers often prevent fair trade certification, as new knowledge is often needed to conform to fair trade standards. The transition to organic farming significantly reduces yield, so farmers must have resource capabilities beyond what they typically produce. Coffee cherries must be picked, de-pulped, wet processed, and dried to less than 12% moisture to be considered café oro and ready to export. To meet quality standards, fair trade farmers sometimes sell to middlemen coyotes who buy coffee cherries in uva, or immediately after picking, or pergamino húmedo, after wet processing. Coyotes provide immediate returns on these products, and exist due the knowledge and resource barriers to fair trade inclusion.
Administrative barriers, especially the imposition of the “audit culture” into the everyday life of farmers, provides another way for fair trade policies to exclude producers. Fair trade criteria is not always reasonable and appropriate to the local context in which it operates. The fair trade bureaucracy takes time to adapt to, and presents a learning curve that often requires producers to hire professional administrators.
The potential for positive selection bias should be considered in examining these barriers. Raluca Dragansanu has published extensive research on this. Written along with Daneile Giovannucci and Nathan Nunn, The Economics of Fair Trade explains causality in the selection of fair trade certified producers: “Perhaps the characteristics that cause farmers to become FT certified also cause farmers to produce and sell more, to produce better quality coffee that sells for a higher price, and to earn more income as a result.”
This phenomenon has the potential to undermine fair trade efforts. Measures to counter selection bias are necessary. Further, Dragusanu et. al find that in addition to the accessibility barriers most heavily impacting the poorest sectors of society, there is a lack of evidence in support of the claim that unskilled and/or seasonal workers benefit from certification. Although fair trade certification increases incomes for skilled coffee growers and farm owners, these benefits are not guaranteed to be felt by all members of the supply chain.
The trickle-down argument to fair trade development is often emphasized to consumers, as premiums are intended to benefit the entire communities. However, Fraser et al. argues that these barriers are an integral element of agrarian life, cannot be mitigated without upheaval of the status quo: “Crises affecting agrarian producers are not simply a failure of rational coordination between supply and demand in global markets but are a feature of rural existence, underpinned by local inequalities in access to land and capital shaped by how peoples’ material circumstances frame their capacity to produce and sell commodities.”
The case-studies illustrate this truth, and as such, this research will examine the historical effects of fair trade policies in coffee-producing countries in Central America.
Nicaragua
Nicaragua is the 3rd largest exporter of fair trade Coffee, and plays a historical role in the development of the fair trade movement. The coffee industry in Nicaragua has contributed to its historical dependency on consuming states. As with many commodities produced in Nicaragua, the coffee industry was subjected to capitalist expansion and exploitation in the 19th Century, leading to a bifurcation of the economy in the 20th Century and inequitable property relations until the Revolution of 1979.
The revolution brought agrarian reform, redistribution land to previously landless workers, small producers, and cooperatives. However, resettlement created social divisions based on origin, class, and status, and ex-landless poor remained an invisible social category.
When the Sandinistas took power in 2007, Daniel Ortega pushed for national policies that supported the cooperative movement, facilitating fair trade policies. The development of avenues for representation of producers and workers has led to advances in infrastructure, health care, and education. In 2011, fair trade monitoring and regulatory group SEPASA released a statement looking toward the future of fair trade in Nicaragua:
“Our dream is that each first-degree cooperative has its own office and our intention is to decentralize the credit programmes so local people are less dependent on the regional [cooperative.]”
Individual property and land titles have become regularized in Nicaragua, and incentives to include marginalized groups and women in the fair trade movement aim for inclusivity. However, this statement also warned of possible scenarios which could undermine this progress: another global coffee commodity crisis and/or the development of commercial relations with mainstream retailers, which has potential to “de-territorialize” fair trade organizations’ orientation and shift its focus from local social development to the national market. As explained in Reframing, Nicaragua “challenges universal representations of fairness and suggests that fair trade is not an apolitical initiative for adding value to commodities but is, instead, a strategic resource bound to power relations and politics that are negotiated and contested in a variety of arenas from international to local.” As such, fair trade policies must reflect an understanding of political and social concerns at the local level.
Further, in Delivering the Goods: Fair Trade, Solidarity, and the Moral Economy of the Coffee Contract in Nicaragua, Bradley Wilson stresses the need for great scrutiny of contractual obligations between farmers and producers. Wilson argues that contract farming, based on a vertical hierarcy of coordination in argicultural production “has been shown in cases of unequal terms of trade to nakedly exploit the subordinate position of peasant farmers to secure the production of raw product for an export enterprise.” While vertical coordination can provide producers with opportunities to participate in the open market, the relationship between farmers and processors, cooperatives, or exporters tends to be asymmetrical with peasant farmers taking on the greatest risks.
Today, farmers in Nicaragua work in a three-tier cooperative structure, with representation on a local, municipal, and regional scale. One example is the Fonseca cooperative, 90% composed of land reform beneficiaries after the Sandinista revolution. However, there are still significant levels of mistrust among farmers, workers, and producers. Wilson observes, “Counter to the assumption that farmers were inherently incentivized from benefits accruing from fair trade premiums, the producer organization was acutely aware of the limits of existing price standards alone to guarantee farmer participation.”
Incentives for participation in the fair trade system primarily emphasize the vulnerability of members to the national and global economy rather than their potential to foster sustainable livelihoods. As Wilson explains, “even as farmers experienced indebtedness and declining incomes, the majority continued to deliver the goods.” This is a very different image of fair trade than the one presented to consumers.
Costa Rica
Fair trade policies in Costa Rica provide a more optimistic illustration of the potential benefits of fair trade when appropriate policies are in place. The prevalence of many small producers can create an environment where exploitation is easy, but engaged cooperatives that provide resources to workers and producers mitigate the risks of exploitation. Another piece by Dragansanu and Nunn, The Impacts of Fair Trade Certification: Evidence from Coffee Producers in Costa Rica explains, “In addition to coffee processing services, cooperatives also provide a range of services to their members such as the provision of agricultural supplies, technical assistance, marketing assistance, and credit.”
However, even with these supporting structures, a study on fair trade cooperatives operating in Costa Rica in 2009 emphasized the need for community development initiatives in fair trade strategy. At the time, ⅓ of producers in Costa Rica did not know about the social premium, and ½ felt that they had not received benefits from it. In both of the case studies, Fair Trade farmers are often reported not to have received benefits like social security, medical care, vacation, pension, or paid sick leave. This is one of many examples that illustrate the need for a more complete and localized examination of community development and social empowerment strategies in fair trade.
Fair Trade USA (FTUSA)
In 2012, the US split from FLO and created FT USA, a non-profit organization. This is not a membership organization. Fair Trade Narratives and Political Dynamics by Anne Tallontire and Valerie Nelson explain the practicalities of this distinction: “FT USA is thus more of an autonomous body which chooses to have relationships with outside bodies, [rather] than the consultative, democratic, multi-stakeholder structure and procedures of FLO.”
FT USA endorses pragmatism, which stresses the potential for economic empowerment to drive political change and “make markets work for the poor.” The policies advocated by FT USA do not address the many barriers to entry that exclude those producers with the least resource capacity. The pragmatic narrative relies on free market capitalism to equalize and empower producers. The choice to follow a more pragmatic method of fair trade implementation in Central America, and specifically decreasing constraints on capitalism, ignores historical evidence of similar systems in the region that supports the need for prioritization of social forces. Relying on the market to be the driver of change and ignoring societal interests, this model undermines the goals of the international fair trade movement.
Pragmatic narratives on fair trade rely on a larger consumer movement to ensure benefits to producers and workers. This narrative sets shorter timescales to accomplish its goals of economic empowerment, and shifts the focus away from producers and toward consumers. Sourcing and supply based on market requirements minimizes the role of producers in negotiations.
To enhance the impacts of fair trade policies, FTUSA relies on an increase in the volume of sales to enhance incomes, and does so by diluting international fair trade standards. Tallontire and Nelson explain: “Coffee is one product that FTUSA has included in its fair trade certification policies, while FLO asserts that it is difficult to facilitate worker empowerment in the coffee workforce as it is more transient and seasonal than other markets.”
This is akin to a short-term shock treatment meant to ignite consumer involvement. Although expanding the scope and reach of fair trade certification should be a long-term goal of the movement, FT USA undermines and dilutes the goals of FLO by dominating the market without putting into place mechanisms for political and social empowerment of workers, especially rural workers and the landless poor.
The FT USA model focuses on inclusivity, citing it as one of the driving factors from its split from FLO. FT USA officially states that they want to “innovate the fair trade model to include more people in more communities around the world, strengthening farming communities by investing in cooperatives and partnering with others to broaden and deepen the impact of fair trade.”
In collaboration with financial institutions, private banks, and private foundations, such as the World Bank, InterAmerican Development Bank, Clinton Global Initiative, and Starbucks, FT USA’s policies are certainly inclusive to larger producers, but do not to address the barriers that prevent inclusion to those for whom its original purpose was designed.
Although there is little research on the impacts of FT USA policy as it is relatively new, I would predict that FT USA’s 2012 split from FLO will not benefit or progress the goals of the fair trade movement.
In 2011, one year before the creation of FT USA, SEPASA in Nicaragua warned that “the development of commercial relations with mainstream retailers has potential to “de-territorialize” fair trade organizations’ orientation and shift its focus from local social development to the national market.” The inclusion of larger estates further elevates the need for ethical practices, generally ignored by FT USA. Their swift inclusion into the fair trade system alone is ethically shady, as this approach has resulted in “a deterioration of core values, a depoliticization of the cause, a dilution of standards, and a cynical image laundering by multinational retailers with ambiguous loyalties.”
Nicaragua, Costa Rica, and the Central Americas have a shared history of cooperative involvement in trade. With the rise of the social market and a greater emphasis on the representation of producers, this emphasis on two-way communication to give voice to those who typically are overlooked is vital to the development of fair trade. With the announcement of FT USA’s policy split from FLO, the Coordinadora Latinoamericana y del Caribe de Comercio Justo (CLAC) issued the following statement:
We as CLAC join the regret caused by the departure of Fairtrade USA and we express the fact that we cannot share its new vision of expansion, since it threatens the empowerment, development, and self-management of small organized producers.
Policies advocated and implemented by FT USA mirror the US’s historical relationship with the Central American region, (and for that matter, all of Latin America and even the whole of the developing world), which has been marred by exploitative policies that further entrench regional dependency.
