Strange Brew: Churches push for "fair trade" coffee

February 3, 2004

Strange Brew: Churches push for "fair trade" coffee

The “fair trade” coffee campaign (not to be confused with “free trade” coffee) is gaining traction beyond its early beachhead on college campuses and grungy latté shops. Increasingly, the campaign is finding new adherents in religious organizations, which are busily issuing guidelines for consumers. In churches and synagogues all over America, the once ideologically innocent coffee klatch has become a forum for international trade policy.

Prominent religious advocates of fair trade include the Interfaith Fair Trade Initiative , an outreach of Lutheran World Relief, and the Presbyterian Coffee Project of the Presbyterian Church (USA). The Presbyterian Coffee Project, among other things, advises its churches to “offer gift baskets of fairly traded coffee and tea for new members, as Christmas presents, or on other occasions.” And in December, Catholic Relief Services announced the launch of an effort to boost fair trade coffee consumption among the nation’s 65 million Catholics.

People of faith are working with groups like Global Exchange , a San Francisco human rights organization, which claims , “Agriculture workers in the coffee industry often toil in what can be described as ‘sweatshops in the fields.’” The fair trade movement, encouraged by victories among the religious and in corporate America, has ambitions that range all over America’s supermarket. TransFair USA , the only third-party certifier of fair trade commodities in the United States, announced on Jan. 22 that fresh fruit is its “Newest Fair Trade Certified Product Offering.” Soon, even the purchase of a bunch of bananas will force shoppers to make a political statement.

But let’s be fair to the fair traders. Their techniques are based on convincing the consuming public and working through the market to achieve their goals. This approach is vastly superior to relying solely on governmental subsidies, which has historically been the chosen means of influencing agriculture policy for many like-minded activists.

The main difficulty with this lies in the fact that these campaigns rely on guilt-tripping people who drink coffee, rather than arguing from sound economic principles. The rhetoric of the fair trade movement attacks “big business” coffee companies, and favors smaller, cooperative farms.

In addition to using such rhetoric as “sweatshops in the fields,” Global Exchange implicitly blames consumers and big business for the “crisis” with an explanation that does not explain: “Many small coffee farmers receive prices for their coffee that are less than the costs of production, forcing them into a cycle of poverty and debt.”

The “middlemen” involved in coffee importation into the United States are often called “exploitative.” The Lutheran World Relief Coffee Project asserts that big business coffee involves “a lengthy, and expensive, cast of middlemen between the coffee farmer and the consumer.” Most people, and not just economists, refer to this as a supply chain, the system by which food is delivered from field to table.

And corporate America is caving in. Last September, Proctor & Gamble announced it would begin offering Fair Trade Certified coffee though its specialty coffee division, Millstone.

The fair traders’ answer to the “sweatshop on the fields” situation is simple: fix the price of coffee at a level that will provide an adequate standard of living for the farmer. Currently they affirm that this fair level is a minimum of $1.26 per pound (compared to the current 50 cents per pound prices in the actual marketplace).

Such artificial and arbitrary measures fly in the face of economic reality. The law of supply and demand is a major player in regulating the price of coffee, which is bought and sold like any other commodity. The economic price mechanism takes into account a variety of factors that an artificial price standard cannot hope to deal with justly.

Fair traders also ignore one of the main reasons coffee growers face price drops: worldwide production has greatly expanded, especially in Southeast Asia. Increased supply equals lower prices given a static demand.

From 1995 to 2002, according to CoffeeResearch.org and the International Coffee Organization , Brazil increased coffee exports by more than 200 percent. Colombia has shown a slight decline in production over the same period, while Vietnam’s production has almost tripled. So the three largest exporters of coffee in the world had all either maintained or increased their production during the seven-year period. Worldwide coffee production peaked in 2002 and because of a long buildup of surplus, finally showed a 15 percent decline last year. There’s simply too much coffee on the market.

Even though the U.S. is one of the largest importers of coffee in the world, per capita consumption of coffee has declined steadily , dropping from 38.8 gallons in 1960 to 22 gallons in 2000, according to the USDA Foreign Agricultural Service. This is indicative of a downward trend in global demand, which, combined with increased supply, is a major cause of the plummet in coffee prices.

Most troubling is the fact that the fair trade movement effectively pits the poor against the poor. It’s a case of coffee farmers in the fair trade co-ops versus conventional farmers. Those who sell coffee in the traditional commercial manner are forced to compete with those who are artificially enabled by the fair trade movement to maintain production through such guilt-driven, market-based subsidies.

The Apostle calls us to live godly lives, to “keep these instructions without partiality, and to do nothing out of favoritism” (1 Ti. 5:21 NIV). This stems from our proper reflection of God’s holiness and justice, “For God does not show favoritism” (Ro. 2:11 NIV). While these words are spoken especially in regard to salvation history, they have application to our morally-informed economic lives. Religious groups especially should reevaluate their position with respect to fair trade in the interest of true justice. The fair trade movement needs to take into consideration the poor who are left out of their arbitrarily constructed system of privilege.

The fair trade movement’s only response to this disparity is to argue for a complete standardization of its price-fixing methods. Global Exchange calls for “a total transformation of the coffee industry, so that all coffee sold in this country should be Fair Trade Certified.” The success of this sort of endeavor will never be comprehensively effective, especially in a free economy like the United States. As Global Exchange admits , “despite the growing popularity of Fair Trade coffee, demand has not yet matched supply: Last year about 200 million lbs. of certified Fair Trade coffee was sold at normal market prices because of insufficient demand.”

Rather than attempting vainly to maintain the status quo, the fair trade movement should look for other, more innovative ways to provide resources for the world’s poor. For example, Ronald J. Sider in his book Rich Christians in an Age of Hunger (Dallas: Word Publishing, 1997, pp. 233-36) outlines ideas about micro-enterprise development that might offer a better solution. Those who care about small coffee growers, according to Sider’s view, might invest capital and enable farmers to grow crops that are in higher demand.

In this way, those who choose to stay in the coffee growing business would see less competition and, in theory, rising prices resulting from decreased supply. How much better than fair trade price fixing and guilt trips, which demand partiality for a select group of the poor.

Comments

Joseph Brenner: doom@kzsu.stanford.edu

I think that the author is jumping to conclusions in assuming that
the fair trade movement is arguing for "price fixing" exactly:
primarily what they do is rate growers on whether they comply with
certain standards (which at least at present, includes the price paid to labor, but also includes other issues such as the environmental impact of growing practices). If a coffee supplier meets their
standards, they then have the right to slap a "fair trade" sticker
on the product, and advertise it as "fair trade".
It is then up to consumers to decide whether they care about
that "fair trade" label... if they care enough, the practice will
continue, if they don't it will just go away.
All of which is to say that this sounds an awful lot like a "free
market" in action, except that it recognizes that people are
free to shop on any grounds that seems reasonable to them,
they're not constrained (legally or ethically) to just seek out the
lowest price.
I find it a little peculiar that any discussion of ethical decision-making tends to get shrugged off as "guilt tripping".
Morality and capitalism: two great things that go great together.

Steve Perkins: stevedperkins@yahoo.com

That is a very good point! However, we have to be careful not to use basic macroeconomics to paint with too large a brush. The key here is the term "commodity". We can all agree that steel and copper, etc are commodities. However, I would argue that with human nature being what it is, the idea of "commodity" can be pretty distorted (or meaningless) at the level of individual consumers.

I drive an 11-year old Honda Accord, and will do so until the wheels fall off, despite having the means to own a much "nicer" car. I'm just not a car guy... I view vehicles as a commodity, and think about mine as I do my microwave or blender. With many people I know, however, a vehicle is practically a living extension of their **identity**! Likewise, an average consumer may perceive little difference between Folgers, Maxwell House, etc. However, "coffee nut" aficionados do not see the product as a commodity at all, and base purchases on a variety of factors beyond utilitarian value alone.

The reason why this isn't a problem is that ultimately, we're talking about two SEPARATE (albeit interrelated) markets! If you are CEO of Hyundai, market demand for Kia vehicles provides useful signals to you. However, the signals provided by Mercedes and Jaguar sales are unavoidably distorted. You're not in the same "commodity" group.

I apologize for the Ayn Rand wisecracks... on second reading they seemed far more snotty than they did at the time.

Jordan: jballor@acton.org

Mr. Perkins,

Thanks for your response.
How "efficient" is it to effectively subsidize the production of a commodity that is already well over-supplied?
Perhaps I don't make the case very well here, but one of my major concerns is that fair-trade subverts the essential information that prices give us, not the least of which is related to the supply of a commodity vs. the demand for that commodity, i.e., low coffee prices should be a hint that we already have enough and/or too much coffee. Time for some people in the coffee business to get into something else or somehow increase demand.

Steve Perkins: stevedperkins@yahoo.com

I don't know if Mr Ballor has read much Ayn Rand, but he's picked up the "contrarian-thinking-for-its-own-sake" intellectual laziness of most young men reading "Atlas Shrugged" for the first time. The pattern of thought is consistent: 1) presuppose a position 180-degrees from conventional wisdom, 2) reverse-engineer some sloppy points to justify "arriving" at the position, 3) be smug and dismissive in the face of questioning.

An important component of Mr Ballor's argument is that inefficiencies in distribution are irrelevant, since "It's called a supply chain". Not exactly the kind of reasoning that would get one hired as VP of Operations at Wal-Mart! A basic function of the free market is continuous pressure to increase supply chain efficiency, creating greater value for all parties involved. By eliminating distributors, the fair traders have thus maximized efficiency just like modern big-box retailers.

The only difference between the fair trade model and Wal-Mart's is in negotiation; whether the producers or the retailers come away with a greater share of the created value. Mr Ballor senses a "guilt-trip" aspect to this negotiation which bothers him. However, he has yet to complain of any other examples that fly in the face of utilitarian-value alone. If a businessman buys a $300 designer dress shirt as opposed to a $30 department store version, because of emotional or psychological factors of value to him, is THAT a harmful slap at the free market? That Mr Ballor starts his crusade instead with third-world farmers is quite telling. Perhaps Patty McGrath's previous comment about "poor folks getting uppity" hit the nail on the head.

Rod Downing: rdowning@istar.ca

Having promoted fair trade coffee (FTC) for several years, I came to a few observations ( my 2 cents worth):

1. When I purchase FTC, I am freeing doing it for its "value-added" of the satisfaction that it is helping someene out of grinding poverty. That's basic market mechanism at work.

2. You rightly point out the over-supply issue. You don't mention that it was the World Bank that advised so many in Vietnam to get into coffee, largely creating the surplus. So much for smart economists, though I know many do really want to help. Nonethless some coffee farmers need to get out & maybe the WB can use its micro-credit program to advise them more suitably next time, so I agree with you on that point. More contoversial you should examine the Oxfam Report's solution.

3. What the FT movement eventually boils down to for me, is whether there should be a "global minimum wage" - some type of decent living wage for a locale. I believe a minimum wage here in Canada is seen as a good safeguard against unbridled exploitation. It is not perfect & hidden dynamics can result. But is seems by most people a reasonable balance. At the global level it can only be a vision to work toward, as the necessary structures aren't in place. But religion is also about vision - all as God's children. To me the "how" of bringing that about is a mix of market mechanisms and safeguards (globally we did abolish slavery, though not completely; why not set other decent standards?)

Patty McGrath: patty.mcgrath@concert.com

It's interesting that in your criticism of the morality of a 'Fair Trade' promotion supporting only the few poor farmers who engage in the program - you only cite the alternative of the poor farmers who don't belong to the program. You don't mention the source of most of the coffee grown, at least in Latin America from my experience, and that's on huge fincas where there are only day laborers who are paid with subsistence wages. And the profits are all held by a small elite.

The Fair Trade effort is a way of supporting and promoting poor farmers. The fact that its system of pricing isn't perfect doesn't detract from its results. It gives a lifeline to poor farmers. This disturbs some people's ideas of how things should be, that is, poor folks shouldn't get uppity.

And if we are talking about the disadvantages of being made to feel guilty - well, then maybe there is some sense of entitlement we have, that makes that guilt very well placed. What about people who are happy to have a way, rather than writing a check to a charity, to systematically support a living wage through their purchases. That's the power in this 'Fair Trade' idea. It is quite surprising that Christian principles of fairness are used to discourage it - or justify impugning it.

Ray Smith: srsmith@king.edu

During Spring Break for the past three years, King College (where I teach in the Business and Economics dept) students travel to Honduras for a brief foray into a mission's trip. The mission related activities vary according to the mix of students, but on each occasion, we are accosted by various missionary groups, both in the cities and at the airport, to purchase their "non-profit" free or fair trade coffee to help subsidize their particular mission activities. We are encouraged to begin import businesses to sell, at grossly inflated prices, their coffee to churches, college and university cafeterias and coffee shops.

My students, as rationale consumers, always ask the question: "why should I pay $6.00 US for a pound of coffee when I can buy it for anywhere from $1.00 - 2.50 per pound in the local (Honduran)grocery store?" Usually, we buy a couple of pounds (the guilt-trip response) from those hawking it, and then we go to the local grocery and stock up on the coffee that is produced, packaged, and offered for sale at the market price.

These tactics will eventually backfire on producers and sellers as they will expect inflated prices from now on, and then it will extend to other areas. Unfortunately, the system may not be fair and just, but two wrongs have never equalled a right.

Garry Cobb: gcobb@cato.org

In response to Jordan Ballor's article, John Whitmore wrote: "Your argument about the sanctity of free-market pricing is largely undermined when you consider that the greatest exponents of free-marketing are also the greatest exponents of massive subsidies to farmers in their own country."

On the contrary, your evidence does nothing to undermine the sanctity of the free-market pricing espoused in Ballor's article. Your attack is on those whom you deemed "exponents" (proponents?) of massive subsidies. Subsidies are in direct contradiction with free-market pricing as you noted in your post. Therefore, your attack on "exponents" of subsidies is doing nothing but strengthening the argument for the "sanctity" of free-market prices by attacking the moral bankruptcy of the free market's enemies.

John Whitmore: jlwhit@rogers.com

Your argument about the sanctity of free-market pricing is largely undermined when you consider that the greatest exponents of free-marketing are also the greatest exponents of massive subsidies to farmers in their own country. these subsidies allow foods to be sold on the world market at prices that no unsubsidised farmer can hope to match. In other words, hypocrisy reigns. Get off your high moral hobby horse and attack the problem where it starts, in a "Christian" White House and legislative that never allows Christian principles to be heard.

Real farmers would then compete on an truly open market.

And you wonder why noone outside the US has any regard for your "moral" principles.

Thanks for sharing, Frank:

Thanks for a good and interesting piece, Mr. Ballor. Could not the argument be made that fair trader's position in the marketplace is legitimate even if their long-term economic policies are bunk? Innovation via political marketing = sales regardless of price. A coffee version of an expensive electric car, maybe?
Thanks for a good article.

Frank Avila: ponchofa@maplenet.net

I have been drinking Millstone coffee for a year or so but just last week I switched to another brand because of superior flavour at the same price. There is a small coffee roaster in this area with a better tasting than both but the price is about three dollars a lb. higher. Satisfying my taste buds at that price isn't in the cards for me. Besides I drink Decaf

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