Tuesday, March 21, 2006


Like all socialism, socialist coffee is good only for its own chosen elite. But it's a cheap ego-boost for the parlour pinks

Fair Trade certification, intended to raise the living standards of coffee farmers in Nicaragua and elsewhere, has grown into a complex bureaucracy and an industry in itself. Starbucks, the longtime Enemy No. 1 of the Fair Trade crusaders, agreed to purchase a limited amount of Fair Trade certified coffee days before a planned protest in 2000. The company bought 10 million pounds in 2005. In 2003 Dunkin' Donuts agreed to make all of its espresso drinks certified. Nestle, one of the biggest coffee companies on Earth, launched a Fair Trade line in October 2005; the same month, McDonald's agreed to test Fair Trade in 658 outlets. High-end specialty coffees are the fastest growing sector of the industry, and Fair Trade is the fastest growing specialty coffee; demand for it has ballooned by around 70 percent annually for the last five years.

You'd think this confluence of social responsibility and double lattes, good business practices and lefty politics, would make Katzeff a happy man. But he and a growing number of roasters say the Fair Trade movement has lost its way. The movement has always aroused suspicion on the right, where free traders object to its price floors and anti-globalization rhetoric. Yet critics from the left are more vocal and more angry by half; they point to unhappy farmers, duped consumers, an entrenched Fair Trade bureaucracy, and a grassroots campaign gone corporate.

The Fair Trade label was born in the Netherlands in 1989 under the brand name Max Havelaar, taken from the title of a 19th-century novel about oppressed Javanese coffee plantation workers. When the company came to the U.S. a decade later, the American branch billed itself TransFair USA. TransFair's stated goal is simple: to ensure that farmers get a decent price for their beans, and to let consumers know it. By cutting out predatory middlemen and selling a clear conscience at a premium, coffee idealists hoped to achieve humanitarian goals by capitalist means.

TransFair USA certifies Fair Trade products and audits the chain of custody from producer to finished product... The organization charges between $2,000 and $4,000 to check out a cooperative, plus annual recertification fees and a small percentage of the price of each pound of coffee. The benefits, for those that pass muster, are not insignificant: a guaranteed price floor of $1.26 a pound to Fair Trade retailers-more than double the going rate for beans globally-and a stable price in a famously volatile market.

The Fair Trade apparatus is intended to mitigate a system that seemed especially cruel just as the movement was gaining steam. Until 1989 the price of coffee was relatively stable, held in place by an international agreement that imposed both import and export quotas. That year, as the Cold War ended and stability in producing countries was less of a priority in consuming ones, the pact-known as the International Coffee Agreement-dissolved completely. When supply and demand kicked in, new producers from Vietnam to Papua New Guinea were free to try their hand at the coffee game, drastically redrawing the java map. The resulting glut sent prices spiraling downward. By autumn 1992 coffee cost 50 cents a pound-a level, according to Fair Trade marketer Global Exchange, that's comparable to prices in the 1930s.

Counterintuitively, as prices were plunging for coffee farmers, middle-class Americans were learning to pay double or triple what they once had for a single cup of joe. The major coffee companies-Sara Lee, Kraft, Procter & Gamble, and Nestle-were paying less than they had for years, and the quality of their products, connoisseurs complained, was getting progressively worse. Around the same time, specialty companies such as Green Mountain started buying high-quality beans and pitching coffee as a luxury good rather than a commodity. A "specialty revolution"-the Starbucksification of America, driven by latte-toting yuppies-spawned a massive market for pricey brewed java. By 1998 Starbucks could plan on opening a store a day, and the satirical newspaper The Onion ran a story headlined "New Starbucks Opens in Rest Room of Existing Starbucks."

As they grew in numbers and influence, it was the small, quality-obsessed specialty roasters who absorbed and perpetuated the Fair Trade ethos, thus distancing themselves from the big four, which continued to pay rock-bottom prices for low-quality coffee. Against the backdrop of schizophrenic prices, in the face of a glaring gap between impoverished Third World farmers and affluent First World consumers, Fair Trade advocates sold a vision of socially just consumption. Men like Katzeff began to travel abroad to source beans, and the industry's inequities started to emerge: Farmers were being squeezed by middlemen, known as coyotes, so that even the dismal profits from cheap mass-produced coffee failed to reach them. Growers lacked basic information about what their crop was worth, how to maximize production, and how to market their beans, and it was to the coyotes' advantage to keep it that way. Fair Traders, by contrast, sought a direct relationship between coffee farmers and coffee drinkers: clean, just, transparent transactions.

Fair Trade's pioneers sought the one best way to reform this culture of abuse, and they settled on a bucolic vision of small farms working for the collective good. The system would serve growers who formed cooperatives of small family farms. Such organizations represent only a very narrow swath of the world's 25 million coffee farmers, but as the Fair Trade brand has grown, the eligibility requirements have not budged. The result is a marketing machine meant to spread wealth across class divides that in practice draws sharp lines between winners and losers.

Gregorio Martinez grows coffee on 30 hectares of land in Lepaera, Honduras, where he lives with his wife and four children. In 1998 Hurricane Mitch destroyed his crop, leaving him deep in debt; by 2004 he was set to lose his farm to foreclosure for lack of $800. That same year, he sent a bag of beans to the Princess Hotel in San Pedro Sula, where a U.S. nonprofit was hosting a contest known as Cup of Excellence. Martinez took top honors, attracted attention from buyers, and auctioned off his crop for $19,500. In his acceptance speech, he expressed relief that he would be able to pass his farm on to his family rather than the bank.

Martinez owns a small family farm and produces a high-quality coffee, but none of his beans carry the Fair Trade label. His farm isn't part of a cooperative, a Fair Trade non-negotiable that disqualifies small, independent farmers, larger family farms, and for that matter any multinational that treats its workers well. "It's like outlawing private enterprise," says former SCAA chair Cox, who now serves as president of a coffee consulting company. "What about a medium-sized family-owned farm that's doing great, treats their employees great? Sorry, they don't qualify." In Africa, many coffee farms are organized along tribal, not democratic lines. They're not eligible either, a problem that has prompted some roasters to charge cultural imperialism....

Specialty coffee roasters have always paid above-average prices, but that hasn't stopped activists from launching smear campaigns against high-end retailers who resist the Fair Trade model. In 2000, activist groups including Global Exchange launched an attack on Starbucks that has left the company stained with a reputation for mistreating farmers. Yet given its size, Starbucks likely has done far more than the Fair Trade movement to improve the lot of coffee growers in the 25 countries from which it purchases coffee. Starbucks buys 2.2 percent of the world's coffee production, and its infamous growth fuels demand for high-priced specialty coffees. In 2004 it bought that coffee at an average price of $1.20 a pound, slightly below the $1.26 Fair Trade pays but more than twice the average price for beans on the global commodity market.

Among the litany of complaints roasters voice about TransFair, cost is most resented. Roasters and retailers must pay the company to be registered as legitimate purveyors of Fair Trade goods. Organic labels cost about two cents per pound of coffee; TransFair demands ten, and there are controversies about how the money is being spent....

It may have a corporate image in the coffee industry, but Fair Trade still cultivates an aura of grassroots revolution on college campuses, where hundreds of student groups have formed to hold rallies and promote the brand. This past November, Vanderbilt undergraduate Blake Richter and 20 fellow students stood outside a Tennessee Starbucks and handed out free Fair Trade coffee while explaining to passers-by their beef with the company: Only a small percentage of Starbucks' purchases are Fair Trade Certified. The demonstration, he tells me, was a "first step" toward more equitable exchange in the area. If handing out free stuff sounds like a pretty mild protest, consider the result: "A lot of people would come by and say, `I appreciate what you're saying, but I still need my latte." Richter adds, "I think we probably increased Starbucks' business that day."

Richter's experience wouldn't surprise many specialty roasters. Since the early days of Fair Trade, many of them have argued that customer loyalty hinges on quality, not the perception of social justice. Fair Trade consumers, in other words, tend to be dabblers who are happy to pay extra for conscience-soothing coffee today, but will eventually go back to the beans they like best no matter what the social pedigree. That may be for the best: The specialty revolution, with its $4 lattes and emphasis on growing methods, has probably jacked up prices for farmers far more than the Fair Trade movement has. Starbucks buys more coffee each year than gets Fair Trade certified. When consumers become coffee snobs, prices rise, and some of that increase makes it back to growers....

The range of prices between high- and low-quality coffees is still minuscule compared to what you'll find with a highly branded beverage like wine, but it is growing, and consumers have consistently demonstrated that they're willing to pay more for better beans. The best hope for farmers lies with consumers demanding better coffee, not just from Starbucks but from the supermarket shelf. This may be inevitable; a generation weaned on high-quality lattes is not going to turn to instant Nescafe as it grows more affluent. But there are signs that Fair Trade, with its predilection for uniformity, is retarding, not accelerating, that process.

"Fair Trade does not incentivize quality," explains Geoff Watts of Intelligentsia Coffee, who has spent the last nine years training coffee farmers in Africa and Central America. Fair Trade co-ops are composed of hundreds of farmers producing vastly different qualities of coffee. Often their output is blended together for sale to roasters, masking any quality improvements one farmer may have felt motivated to implement. Money then flows back to the co-op, not the individual farmer, and is distributed equally among the members. "There is no reward for the guy who works harder than his neighbor," says Watts. Nor is there much motivation for individual farmers to learn better farming techniques, experiment with new types of coffee, or seek new markets.

The system thus breeds anonymity and mediocrity in a business that desperately needs to focus on branding and identity. Ironically, this mimics the problems brought on by multinationals: Treating coffee as a single commodity, in large undifferentiated lots, prevents any single farmer from excelling and advancing.

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