Fair Trade coffee is most equitable

This November, residents of Berkeley, Calif., will vote on a ballot initiative that would require all coffee sold in the city to be organic, Fair Trade or shade-grown coffee. Under Fair Trade practices, coffee farmers all over the world are guaranteed a minimum payment of $1.26 per pound of coffee. Many farmers who participate in the Fair Trade program produce shade-grown coffee, an agricultural practice that is less harmful to the environment than traditional coffee growing processes. Proponents of Fair Trade argue that Fair Trade practices are necessary to combat the 60 percent drop in coffee prices that has occurred over the last 4 years; currently a pound of coffee beans sells for approximately 50 cents per pound on the world market. For most coffee farmers throughout the world, this price does not provide for a livable wage.

Not surprisingly, many people in Berkeley feel the regulation would be too oppressive. City managers are skeptical that the law could be effectively enforced. Business owners who sell coffee complain that the regulation would restrict free trade.

Behind crude oil, coffee is the second-largest trade commodity in the world: in 1997 worldwide coffee sales reached the $43 billion level and 15 billion pounds of coffee were produced. Many less-developed countries rely on coffee exports for a significant portion of their wealth even as prices continue to fall. Therefore, the widespread adoption of Fair Trade practices could have a pronounced positive effect on the wealth of many developing countries. More significantly, much of this wealth would be captured by the poor farmers and workers of developing countries, not the governments and banks.

For example, the widespread adoption of Fair Trade coffee would have a significant impact on a country such as Nicaragua. Under current prices a small-farm coffee grower receives roughly $650 in sales per year. Further, given current prices, the country recorded $90 million in coffee export revenues in 2000. If Fair Trade prices prevailed, the typical Nicaraguan farmer could receive an additional $1,000 per year, and the country could have received an additional $130 million in 2000. Compare this revenue potential to the loans Nicaragua has received recently from the International Monetary Fund and World Bank. If coffee growers in Nicaragua had been paid a fair price over the last decade, the need for Nicaragua to take out $200 million in restrictive loans from the IMF and World Bank may have not been as pressing.

The widespread adoption of Free Trade practices could engender some unwelcome economic trends. For example, it would lead to higher retail prices in the United States. However, recent growth in the domestic organic food market has shown that Americans are willing to pay a premium for wholesome food that provides fair wages to farmers and mitigates environmental degradation. Also, at one point in the 1980s, coffee farmers were receiving nearly $3 per pound of coffee, yet retail prices did not explode. Higher commodity prices could depress global demand. Historical evidence, however, indicates that demand for coffee is fairly inelastic; Despite escalating retail prices in the developed world, world demand for coffee has skyrocketed over the last two decades. Finally, widespread adoption of a Fair Trade protocol would exacerbate the excess supply problem that currently plagues the global coffee market. In fact, it is this current excess supply in production that has contributed greatly to the drop in coffee prices over the last decade. Therefore, in order to help solve a crisis partly of their own making, exporting countries would need to establish production limits that would not threaten viability of a Fair Trade protocol.

The spirit of the Berkeley initiative is laudatory and honorable, not oppressive and silly. Proponents of the law are expressing the noble notion that world wealth could be more equitably distributed. Finally, the argument that a Fair Trade protocol would restrict free trade is unfounded. A Fair Trade protocol would establish a price floor, not restrict import choice. American farmers enjoy effective price floors on all major commodities after ruinous agricultural seasons, yet it is doubtful that non-supportive Berkeley coffee sellers would call the American major commodity market restrictive.

Now, back to our cup of Minnesota-brewed coffee. Currently, 0.2 percent of the world’s coffee is exchanged under Fair Trade practices. Without resorting to a city or statewide regulation, we as consumers can increase the exchange of Fair Trade coffee by demanding our favorite coffee shops and grocery stores stock Fair Trade. Many stores already offer Fair Trade, such as Hard Times Cafe and the Java City store fronts at the University. Starbucks has begun to buy Fair Trade, but these recent purchases only represent a few percentage points of their total coffee bean purchases. While specialty grocery stores in the Twin Cities sell Fair Trade, Fair Trade selections at Rainbow and Cub are limited. While it may feel corny to ask coffee proprietors for Fair Trade coffee, it is a practical and easy way we can express our desire for a more equitable world.