I was sent an interesting thesis analyzing Fairtrade (i.e., FLO) in coffee in Laos.
The chapter titled Economic Sustainability contains the following information:
In addition to the overload of work the farmers must invest to gain 34 cents per pound extra, they also have to pay the Fairtrade Certification fee of US$3,460 per co-op (Euro2,378) per year and the administration fee and other fees of around US$5,000 per co-op which is not paid for by buyers (Wilson, 2006; Fridell, 2007B). Moreover, to gain the 15 cents per pound extra for organic coffee, they have to pay the Organic Certification fee of US$3,000 plus other administration fees of US$6,000. There are only 500 farmers in the co-op (JCFC, 2008), hence, it costs each farmer about US$35 to keep the certifications up to date.
This indicates that regardless of the higher gross incomes that result from higher Fairtrade prices, there is no guarantee of a positive net household income for these farmers who are charged the high costs of foreign inspectors and certification.
If these figures are correct, it costs this co-op (JCFC) over US$17,000/year to maintain both Fairtrade and organic certification. At a combined premium of US$0.20/lb it means the co-op must sell about 42 tons of coffee just to recoup the cost of certification out of the premiums paid.
The thesis also reports that the per-capita annual income in the region is US$580. This means that co-op members spend the equivalent of about 7% of their annual income to pay for certification. Many farmers report that they won't join, or have dropped out of, the co-op because the amount of work involved to meet Fairtrade standards for quality is not worth the extra effort involved.
Can anyone tell me how this is "Fair" trade?
I am not sure what you mean by your response. The first part I get (and I don't really know the answer to it) ... the other two parts I don't know what you're saying.
it was a quick, let say irrational question. As chocolatiers/chocolate maker we all try to change a bit this situation with the farmers kept poor and the others making the big bucks.
My understanding is that if high fees payment are requested from the farmer, most of them will not be able to benefit from the organic/fairtrade market that is growing around the world.
So, who set those certification prices? does have something to do that (maybe) BIG corp. don't want the farmer to uplift their life standard to keep buying power-low cost/high profit system?
We have started an action plan (in our little) that i will be able to talk about when the first lines are finally drawn.
But thanks to bring such hidden issue up, so that we are all aware on what happen around the cocoa tree.
Ps: Although i try to write in english as best i can, when i get upset my italian grammar kicks in...So if it sounds a bit confusing, with some mistakes you know why...
Also from this thesis:
In addition, organic and Fairtrade certifiers also need to examine how to make certification more affordable and more culturally appropriate to small producer organisations [emphasis added], as well as to non co-op members
Who is providing the organic and fair trade certifications? Are the actual costs cited being picked up by the co-op directly or is it being picked up by some NGO?
The Fairtrade certifications in Laos are likely handled by FLO-CERT (www.flo-cert.net). According to their web site, "FLO-CERT GmbH is an independent International Certification company offering Fairtrade Certification services to clients in more than 70 countries." They may be independent but they are located at the same address as FLO. (GmbH stands for "Gesellschaft mit beschränkter Haftung" which is similar to an LLC (limited liability company) here in the US - they are not a non-profit company.)
There is a list of fees FLO-CERT charges to producers in PDF documents linked to from this page. There is a Scope of Certification page, but it is missing a link to the scope for cocoa. It should be noted that Transfair USA (the FLO licensee that handles Fairtrade business in the the Americas) is far less transparent when it comes to making it's fee structure available to the general public.
When it comes to organic certification, the are many different organizations that offer the service. Organic certification is something of a racket in that not all countries recognize all certifications equally. In the US, companies really want the USDA organic certification so they can use the USDA organic symbol on their packaging. If you have a different certifier, you cannot use the USDA logo even though some other organic certifier certifies your product as being organic. You have to pay separately for USDA organic certification.
This can have some serious unintended consequences on producer organizations as I outlined in a post about some implications for the TCGA in Belize about Kraft buying Cadbury and shifting some production from Italy to Canada, requiring a shift in organic certifiers. The new organic certifier had much stricter standards for handling "transitional" cocoa and the TCGA lost their buyer for cocoa from farms in the process of attaining their organic certification.
You ask a very interesting question about who is picking up the costs of certification. In a small number of cases, someone other than the co-op is paying for the certifications. Even then, often the companies are picking up the costs in the short run with the intent of turning over responsibility for picking up the ongoing fees ASAP. (This is common with NGOs who tend to have very short time spans - two years is typical - for their programs.) In the case of the thesis cited, the members of the co-op in Laos are picking up all the costs of certification.
Certainly in my limited experience it's often NGO's / Aid agencies who set up these co-ops and certification systems, but it looks like someone has stuffed up big time. IMO those charges on farmers are probititive to useful outcomes.
I think the calculation is quite correct. It is even worse when multi certifications are involved. During the times of low commodity prices as we have seen during the period 1998-2008 Fair Trade purchasing conditions offered farmers a guaranteed minimum price of USD 1750,- /MT of beans and a fixed premium for organic. So, when markets were at USD 1000,- an additional 750,- was received by the coops. The last 3 years commodity prices (in coffee and cocoa) went up to far above the Fair Trade minimum price, so the benefit is the "premium",, which is small as can be seen in your example. So the "fairness" is designed around the minimum price and social and environmental premiums. But when markets go up, the price effect evaporates. In my opinion the minimum price has beenimportant for many small holder coops to remain in business, but with the current markets the premiums should be adapted and the costs of external verification and internal control be reduced to the max.
I hope this clarifies a bit about the background of the Fair Trade principles.
You are right - one of the most-cited benefits of the Fairtrade system is the pricing floor. That was really helpful when commodity prices were below that level. Now that prices are far above the floor, that argument is not as valid as it does not currently apply.
It should be pointed out that, in most instances, the $750,-/MT differential still did not cover actual production costs, especially if you're looking to promote environmentally responsible, sustainable, methods.
I agree with you that different models of pricing need to be developed but I don't think that this can be done within the existing Fairtrade system as they would have to publicly acknowledge the flaws in the system to date which I have doubts can be sustained politically.
The only long term fix for the inequities inherent in the Fairtrade model are to implement a system that has, as one of its primary focuses, improving quality all the way around. This may be a part of the Fairtrade system for coffee, but it is not a part of the system for cocoa. To avoid dependence on world market pricing you have to get out of the trap of producing commodity product and move to specialty product.
Fairtrade (i.e., FLO Fairtrade, not "'Fair' Trade" - there is a very important difference) is A part of AN answer. It is not THE answer. One of the profound ironies of the Fairtrade system is that there are tens of thousands of people around the world who owe their own livelihoods to the system being broken and seeing Fairtrade as a fix. They don't want to "fix" Fairtrade because it might mean losing their jobs. It's kind of perverse, actually. Their jobs depend on perpetuating, to some extent, the existing inequitable system (making the "best of a bad situation").
I think you're right, Fair Trade will not adapt itself to the new reality of higher commodity prices, and indeed it is even questionable if the FT minimum price level covers the real cost of production. This level was set in the beginning of the 90s and has not been corrected for inflation f.e. In the coffee sector a interesting approach has emerged, partly caused by a need to compensate farmers for investments in quality improvements. Within cocoa the situation is even more critical, the criollo farms on average produce much less per Ha than the so called hybrids or improved varieties. In order to really protect this genetic resource the market must compensate for the lower output levels. Perhaps for Venezuela this is happening but many farmers with interesting bean varieties on their plots actually receive market rate or a little bit in addition. They than incline to shift to "improved varieties".
In coffee the system implemented is the "Cup of Excellence", whereby per country the best coffees are selected by the industry (internal process). In addition, an international expert panel will rate the samples and the lots will become available for an international auction. The consequence is that this triggers a quality focus from the ground up. The prices paid are upto ten times the world market price. The beans are not treated as a simple commodity but as a crucial material to develop a superior product.
For fine flavour cocoa beans this could be a very, very interesting path. Buyer can compete for specific lots and the one willing to pay the highest price will get it. Does this sound as a fair practice for both sides? I won't solve the bulk cocoa market issues in terms of cost and benefit, but at least it can start a process to valuate cocoa differently. The commodity market make a small cocoa farmer in Ghana compete with one in f.e. Papua New Guinea, which in my opinion will never result in a fair price level, but into a race to the bottom.
Actually in coffee Fair Trade has not done much to improve quality, although the fat premiums were partly invested in small infrastructure to improve product quality (the same actually has happened in cocoa small holder coops in Peru, they have been able to develop themselves into a new origin of interetsing cocoa beans, partly because of the gains from their participation in the Fair Trade market. An interesting example of this is Cepicafe, a coffee organisation that started to develop the cocoa sector in Piura some years back.
In former days Fair Trade certification was free for producers, the costs were covered by fees higher up the chain. Some six years ago this system was changed because of pressure from outside, that wanted FT to comply with ISO 65 criteria (standard for certifying bodies). This introduced additional costs for external validation for certification holders.
Clay have you tried directing your question / concerns to FLO-CERT to find if it's them and what's going on? If you can provide a copy of the paper I'll be happy to contact them if your not interested. I expect there is some simple explanation or that there is a problem that needs it's public profile raising.