Fair Trade: What Price for Good Coffee?

For most coffee growers, Fair Trade is still slightly more lucrative than the open market. Two years ago, the Germany-based Fairtrade Labelling Organizations International (FLO), which sets worldwide prices and standards, raised the minimum per-pound price of nonorganic coffee 9¢, to $1.35 (a dime of which goes to social programs like scholarships for growers' children). That's 15¢ higher than the current market rate. And yet, according to Fair Trade researcher Christopher Bacon of the University of California, Berkeley, the per-pound price that's needed for farmers to rise above subsistence is really more than $2. Farmer advocates are urging the FLO to consider raising the price that much. But because such a big jump would probably mean Fair Trade could help fewer farmers — even Starbucks is likely to buy less java at that cost — the FLO is balking. "What good is it to have $2-per-lb. coffee if you can only serve tens of thousands of farmers" instead of millions? asks Paul Rice, president and CEO of TransFair USA, the California-based nonprofit that oversees Fair Trade in the U.S. "You risk killing the goose." Instead, the FLO's main growth strategy is to keep recruiting retailers like Starbucks. "We are going more and more mainstream," says FLO chief operating officer Tuulia Syvanen. "We're doing it to increase the market for our farmers." (Watch TIME's video "The New Frugality: The Organic Gardener.")

Few foresaw this dilemma a decade ago, when coffee prices, which had been falling since the end of the Cold War, dropped to as low as 45¢ per lb. Fair Trade was the small farmer's savior during that crisis, paying twice the going rate. Starbucks joined the cause and this year has pledged to double the amount of Fair Trade coffee it buys, to 40 million lb., 40% of the Fair Trade beans the U.S. imports. The company declined to comment on whether Fair Trade's benefits fall short of its vision or how much it would need to raise prices if coffee were to climb to $2 per lb. Fair Trade "isn't the only reason I drink Starbucks, but it's a big one," says Connie Silver, a nurse, sipping a large, $4.15 Frappuccino outside a Miami store. Asked if she'd pay, say, $4.50 or even $5 to help absorb higher Fair Trade prices, Silver raises her eyebrows and says, "Wow, these days, that's a tough one."

In lieu of imposing a major price hike, the FLO is reviewing other ways it can help farmers. It's making cheaper loans more widely available, providing more technical assistance to help farmers grow better-quality beans and may begin automatically adjusting its minimum price for inflation.

With $1.75 billion in worldwide sales last year, Fair Trade is still a small player in the $70 billion global coffee industry, dominated by leviathans like Nestlé and Kraft. Because producer countries reap only $5 billion of that $70 billion, Fair Trade can help growers get more of their share. "Fair Trade is still, and will remain, a better deal for farmers," says Bacon. But it can help only so much. "This isn't a condemnation of the Fair Trade model," says Peyser. "It's a fact of life." One that all coffee drinkers may have to swallow.

With reporting by Tim Padgett / Miami

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