A Cup of Truth

Fair trade has allowed indigenous coffee producers to improve their lives, but some farmers' experiences show that this social movement must go beyond charity.

When consumers buy a cup of fair trade coffee, they feel comforted to know that they have helped a farmer in a far-off country earn a living. And they should—fair trade has helped thousands of farmers worldwide improve their incomes and livelihoods. But life is still hard for those farmers and their families, and the fair trade market is more complicated than putting a few extra cents in their pockets. In order for fair trade to achieve its goals, everyone involved—from the farmers to the consumers—must understand how it works.

In countries that have large indigenous populations, indigenous farmers are the primary producers of coffee crops, and constitute the majority of the members of fair trade coffee cooperatives. Thus, the fairness of fair trade is an indigenous rights issue.

The little published research about fair trade has featured candid conversations with the indigenous farmers who both keep the industry afloat and supposedly benefit from it. Reports and publications, mostly put out by fair trade companies themselves, laud the success stories. Marketing materials tend to feature smiling farmers who say that fair trade has changed their lives. But there are few, if any, accounts written by parties with the specific interests of indigenous farmers in mind. To find out whether fair trade has made a positive difference in the lives of indigenous coffee coop members in Guatemala, Cultural Survival interviewed 10 members of the Maya coffee cooperative La Voz Que Clama en el Desierto in San Juan La Laguna, including members of the junta directiva (similar to a board of directors); we also interviewed members of the administrative staff. Because Cultural Survival is not tied to any fair trade organization, farmers were able to speak freely and thanked us for giving them the opportunity to have their voices heard. In some instances, we became advocates or information-gatherers for them, so that they could better understand the trade process on which they depend.

In addition to our field interviews, we also spoke by telephone with the managers of other cooperatives and farmer-support organizations: MayaVINIC in Mexico, CEPICAFE in Peru, COSURCA in Colombia, and COOCAFE in Costa Rica. To further understand the intricacies of the supply chain, we spoke with representatives from U.S.-based 100-percent fair trade roasters Dean’s Beans and Equal Exchange; corporate roasters Starbucks and Green Mountain, which do some fair trade business; fair trade coffee brokers Élan Organics and Royal Coffee; and fair-trade certifier TransFair USA. We attempted to speak to representatives of the international Fairtrade Labelling Organization, but were told that inquiries were handled only through national TransFair offices.

Our decision to focus on La Voz was partly driven by budget and logistics, and we made the selection with no clear idea of what we might learn. While the La Voz experience does not necessarily represent all indigenous fair trade producers, it does show that communication gaps exist along the fair trade chain that have negative consequences for indigenous coffee cooperative members.

Fair traders in the North consider La Voz a successful cooperative. During the summer it was featured on the home page of Green Mountain’s website. Dean Cycon of Dean’s Beans, who prefers to work with less-developed cooperatives, decided to stop buying his coffee from La Voz last year in part because it had become successful and no longer needed his support. But members of the cooperative reported that the organization has had difficulty growing: its membership is stalled at 180 people. Lack of communication has left many of the cooperative’s leaders in the dark on many aspects of the fair trade industry, and in some cases has left them unable to defend themselves when the world coffee market, already dangerously unstable for farmers, becomes even more unpredictable.

La Voz is different from most fair trade cooperatives because it has an exclusive five-year contract to sell its entire crop to one broker—San Diego, California-based Élan Organics. Most cooperatives prefer not to be beholden to a single buyer. In fact, Equal Exchange, the largest 100-percent fair trade coffee roaster in the United States, encourages its producers to diversify their markets, and has even introduced some cooperatives to new buyers, said Rodney North, the company’s press officer. But for La Voz, the prospect of having a steady buyer, while appealing, seems to have been at least partly driven by fear.

“ We are very afraid that people won’t buy our coffee,” said La Voz President Antonio Chavajai Igreiraixtamer. “We want a secure market.”

All of the fair trade coffee producers we interviewed at La Voz and other cooperatives said fair trade had made their lives better, but they also said they still struggled to support their families and survive. The confusion and complaints we heard at La Voz show that some farmers and cooperative leaders understand little about the system that is meant to help them. Lack of understanding leaves them at risk of continued marginalization, at only a slightly higher income.

The Principles of Fair Trade

The foundational principles of fair trade coffee are set by the Fairtrade Labelling Organization (FLO), which certifies fair trade cooperatives (see page 23 for a summary of the principles), and TransFair, the organization that monitors the trade transactions of FLO-certified cooperatives. A third organization, the Fair Trade Federation (FTF), also has set guidelines for its members, all of which are 100-percent fair trade companies (see page 37). FLO-certified cooperatives undergo annual inspections, while importers and roasters must submit annual reports to TransFair with copies of shipping receipts and other documents to prove their transactions adhere to the organization’s guidelines. FTF members do not undergo any type of audit, but must sign a pledge to follow the FTF guidelines.

These organizations’ standards call for producers to organize as cooperatives and for buyers to have direct relationships with producers and pay at least the minimum fair trade price. Buyers also are required to provide partial prefinancing when asked to do so by the cooperatives, and to provide financial and technical training. Environmental sustainability is another major theme of fair trade. In many places, fair trade is synonymous with organic production.

The world market price for coffee is called the commodity-price, or C price. For arabica coffee (the type that is produced in Guatemala), the C price is set daily at the New York Board of Trade. As Cycon explains in his article (see page 26), “The C price is not based on the cost of production, reasonable profit, or community need. It is based on the speculative behavior of commodity brokers in New York and London, who bet on whether there will be a frost in Brazil or a hurricane in Indonesia.” Each coffee-producing country has assigned to it a quality-adjustment premium that may add or subtract pennies per pound to the basic C price. (Guatemalan coffee is considered “on par” and receives no premium.) Organic coffee receives an extra 15-cent premium. The C price is unstable, and can rise and dip considerably within a single week. Even with the quality and organic premiums, the price farmers receive according to this system is almost never enough to sustain their families.

The fair trade pricing system was created as a safety net for farmers during times when the basic C price dips below $1.21 per pound. It guarantees that certified fair trade cooperatives receive at least $1.21 for a pound of conventional (non-organic) green coffee beans, and $1.36 for a pound of organic beans. Fair trade buyers also must pay a five-cent-per-pound social premium that the cooperative may use as it sees fit, often for development projects (though coop members may vote to have the premium divided among themselves). Thus, the minimum price a cooperative will receive for a pound of organic fair trade coffee according to the fair trade system is $1.41.

The Big Disconnect

To many small growers, “fair trade” means nothing more than that they receive a “fair price”—or more than the price they would get from the coyotes who buy the ceresa (the unprocessed fruit that contains the coffee beans) from them on the street at the world market price. Many do not recognize the term “fair trade” and they seldom understand the inner workings of fair trade certification, the processing and marketing that takes place once the coffee beans leave their hands, or even how a cup of their best coffee tastes (or should taste).

In La Voz’s case, the coop’s lack of understanding of the fair trade process became clear as Cultural Survival attempted to determine what shipping costs the cooperative incurred. Fair trade standards call for coffee buyers to take possession of green coffee beans at the port of the country where they were produced. Termed “freight on board,” or FOB, this rule means that Élan must cover the costs of shipping coffee from the port in Guatemala to San Diego. We were concerned, then, when Chavajai Igreiraixtamer and La Voz accountant Pedro Izmataclu insisted that the cooperative covered those costs. Élan representatives, meanwhile, assured us that they paid for the international shipment. It was only after several phone calls to Izmataclu, repeating the question, that we learned that La Voz paid an exporter called UNITRADE to move the coffee beans through the dry mill process and ship them to San Diego. A call to UNITRADE confirmed that Élan did, in fact, pay for shipment from Guatemala to the United States. It also led La Voz leaders to question why they were charged so much by UNITRADE.

La Voz’s members have never tasted any of the coffee they produce for the world market. When Cultural Survival researcher Sofia Flynn inquired into the possibility of buying a bag during her visit, Chavajai Igreiraixtamer gave her a bag of roasted beans as a gift. He had brought the bag back from his first trip to the annual meeting of the Specialty Coffee Association of America (SCAA) in Seattle, Washington—it was the first time he or any of La Voz’s members had seen their beans roasted and packaged, and they gave it away before they tasted it. The coffee that La Voz members make in their own homes comes from beans that are dried out or too low-quality to meet fair trade standards.

Some cooperatives have been able to taste their coffee at cupping camps held by Equal Exchange and other fair trade companies. At these camps, producers learn about various roasting techniques and learn how growing, harvesting, and processing techniques can affect the flavor of the coffee. They get to see their beans being roasted for the market, and taste the final product. But cupping camps are not yet standard features of the fair trade coffee business.

Cooperatives that have mastered the fair trade system have indeed benefited. But the disadvantages of not fully understanding the system hit home for La Voz this year when the world market price for Guatemalan coffee rose above the fair trade price and the cooperative, as well as many others, had to struggle to deliver the quantities they had promised to their buyers.

In September 2004, La Voz fixed the price it would receive from Élan for its 2005 harvest at the fair trade organic coffee safety net price of $1.41. But the world market price for Guatemalan organic arabica coffee started rising in January; by harvest time it was equal to the fair trade price. Many La Voz members sold their ceresa to coyotes instead of to the cooperative so they could receive their money right away, rather than waiting for La Voz’s management to receive payment from Élan and disburse the money among the members. La Voz’s leaders tried to renegotiate with Élan for higher prices to encourage farmers to sell their coffee through the cooperative, but the broker only agreed to pay a few cents-per-pound more on three containers. Élan itself was locked into several contracts with other brokers and some roasters, said Erika Hernandez, the company’s logistics coordinator. Only some of those buyers would renegotiate to pay a higher price to Élan. As a result, La Voz was barely able to collect enough quality coffee from its members to deliver its full contract to Élan. Both organizations agreed the process was painful. Hernandez said Élan’s business suffered because cooperative leaders lacked the management skills to encourage loyalty among their members—not only at La Voz, but also at other Guatemala cooperatives that were unable to deliver their full orders to the broker.

Michael Keeton, certification coordinator for TransFair USA, said that four percent of all fair trade contracts defaulted this year as a result of the high market price.

According to FLO guidelines, when the world market price for coffee rises above the fair trade minimums, fair trade buyers should pay the market price plus a five-cent fair trade premium in order to keep farmers invested in the fair trade system. But Keeton said that while FLO and TransFair advise cooperatives to avoid signing fixed-price contracts with importers and roasters until after they have received the harvest from its farmers and have had more time to monitor the world market, the organizations cannot force buyers to renegotiate contracts.

When the world market price rises above the fair trade price, Massachusetts-based fair trade roaster Deans Beans (through his suppliers, Royal Coffee and importer Cooperative Coffees), allows cooperatives to watch the world price for 30 days before the scheduled shipment date and fix the price on any day they wish.

“The rule of fair trade is you’re supposed to move with it,” said John Cossette, a sales associate for Royal. “If you bought forward [by signing contracts to resell the coffee at a set price to other companies] based on your contract [with a cooperative] and believed that’s how it was going to be sold, you were taking a great risk.”

The kind of deal coffee farmers get out of the fair trade system depends on how well they understand it, but their opportunities to learn about the business of fair trade are limited. FLO visits cooperatives once a year for certification inspections, representatives of TransFair USA have recently visited La Voz, and Élan and other fair trade buyers visit regularly as well. But all of these visits focus on improving the farmers’ organic production techniques, La Voz members said. The cooperative has never been offered education in negotiation, management, or other business skills. At La Voz, the junta directiva did not know the risk of fixing a price early in the season until it was too late. For the 2006 harvest, Chavajai Igreiraixtamer said, the cooperative will not agree to a price for its crops until closer to their ship dates.

“Coops really need to have an understanding of the business process and international process, so they have ways of defending themselves,” Hernandez said. “I’m not blaming them, because when you have the opportunity to make a lot of money and you need it, you’re going to take that opportunity. … Coop managers need to learn better how to communicate with farmers about what’s expected. At the end of the day, it comes back to business.”

Researcher Sarah Lyon of the Colorado State Fair Trade Research Group found similar needs when she spent eight months at La Voz in 2000 and 2001, when world market prices were still far below the fair trade safety net:

This lack of information and communication regarding the role of certifying agencies such as FLO, promotional agencies such as TransFair USA, and the concept of Fair Trade itself could be easily alleviated at least at the producer level. Time and again producers and cooperative managers ask me for information on the market: how they can enter into diverse niches, how they can make contact with roasters, how they can sell their coffee as something unique. A short-term education project that worked not only with managers, but also with cooperative members, and explained in detail the role of Fair Trade and provided information on lending institutions and market requirements would be an inexpensive solution to this problem.

Financial and Technical Support

One major tenet of fair trade is that farmers have the option to prefinance their crops. Organic farming is particularly expensive and organic coffee farmers often struggle to cover their costs at the beginning of each season.

In San Juan, the coffee harvest occurs from January though March, but La Voz farmers are paid only once a year in June or July, when the crop has been sold. Farmers use the money to pay for living necessities and to pay off loans to maintain their farming operations. Before the next harvest, families spend most of their income from the previous season and must again take out loans. Microcredit programs coordinated by the cooperative are sometimes their only options.

Rural indigenous peoples find it difficult to secure loans from financial institutions because they do not have a credit history and have difficulty with paperwork. In places like Tzutujil-speaking San Juan, they do not speak Spanish, the dominant business language. Access to credit is one of the greatest advantages of belonging to a fair trade cooperative. Cooperatives can secure lower-interest loans from international institutions and non-governmental organizations. Companies like Cambridge, Massachusetts-based EcoLogic were founded specifically to finance microcredit programs to help fair trade cooperatives grow. But sometimes even low-interest loans are burdensome to farmers.

Payments that La Voz families owe to the cooperative are deducted each year from their coffee sales. But while the cooperative’s 2005 financial report shows that only a few farmers held heavy debt this year, Izmataclu said that in the past some families have avoided paying off their loans by selling their coffee to coyotes. Because these families did not fulfill their obligations to La Voz, the coop had to struggle to pay off its loans and deliver on its full contract to coffee buyers.
Some cooperatives that are backed by wealthy development agencies have curbed this practice by paying members who need immediate cash the “street price” up-front during the coffee harvest. They later pay the remaining fair trade price during liquidation at the end of the season.

“If they give us more credit it is not going to benefit us, it will only put us more in debt,” one former president of La Voz told Lyon in 2002. “I think the real thing is better prices. If you give a better price to the producer, he’s going to think about how he can improve his production and his plots, whereas if you give him credit he’s simply going to invest that money in other things.”

While loans from the coop are meant to finance members’ crops and allow them to improve their plots and purchase organic fertilizer and other materials, they are sometimes the only financial assistance families can get and therefore are used for children’s school fees or other living necessities. Because so many farmers are in the same situation, this practice is generally accepted among fair trade cooperatives.

Benefits of Fair Trade

La Voz members said that, until this year, they were able to live better as participants in fair trade than they did under the world commodities market. With fluctuating market prices, fair trade provided a steady income to many coops. “Fair trade has permitted us to survive in the crisis of the market,” said Segundo Guerrero, president of CEPICAFE. “In 2002-2003 we received a good price in comparison to the regular market.” Fair trade has enabled farmers to improve their equipment and the quality of their coffee, send their children to school, increase their land holdings, and diversify their crops. With higher incomes, farmers also support local businesses and provide jobs by hiring laborers during the harvest season.

With the five-cent social premium built into the fair trade pricing system, many coffee cooperatives have helped to improve their communities. La Voz has facilitated the creation of a trash collection program in San Juan, and has trained non-members in organic farming techniques. The cooperative recently donated US$13,000-worth of desks to local schools. In Colombia, COSURCA has set up a scholarship fund for children. CEPICAFE has applied income from its social premium to education programs and workshops, and has also used it to diversify its production by launching a fair trade organic sugar cane operation.

“ This year we exported 40 containers of sugar,” Guerrero said. That’s 40 eighteen-wheeler semitrailers full of fair trade sugar.

Other cooperatives have used the social premium and income from their most lucrative years to introduce cardamom and honey production.

La Voz has also used social premiums to take more control of the production chain. Members built their own wet mill so they no longer had to pay for the ceresa fruit to be shipped to another company and processed to remove the green coffee bean. The cooperative is now organizing to build a dry mill, which will allow it to take over even more of the production chain and reduce transport and processing costs.

Making Fair Trade Fairer

TransFair USA certifies transactions of the 100 FLO-certified cooperatives that do business with the United States. But the organization only has direct regular in-person and telephone communication with 50 of these cooperatives, Keeton said. Partner organizations work closely with 25 additional organizations. One-quarter of the cooperatives whose products carry the TransFair certification label in the United States have their interaction with the organization limited to a quarterly newsletter that the organization sends out to the main officers of certified cooperatives. While some fair trade roasters and importers run their own exchange programs with cooperative farmers—either visiting cooperatives themselves or bringing farmers to their offices and international coffee conferences—many farmers are still left out. Meanwhile, TransFair USA spokeswoman Haven Borque says that the organization hopes to continue to bring even more farmers into the system and diversify its product portfolio in coming years to increase awareness about the fair trade label. Despite their best intentions, fair traders’ urgency to expand their operations by including more producers may be compromising their effectiveness.

Fair trade coffee farmers are not charity recipients. They are business partners who need to know as much about the production and supply chain as the brokers, roasters, and labelling organizations. TransFair and FLO are heading in this direction. These organizations held workshops this year at the SCAA conference and in Guatemala to help cooperative members better understand contracts, market fluctuation, and internal marketing so managers can better communicate with farmers. Future services, according to Keeton, could include risk-management traning.

The challenge of offering this training to producers while constantly increasing the number of producers in the system could be a daunting challenge for FLO and TransFair, but the education must occur in order to make the growth valuable. Otherwise, the educational and resource disparities that marginalize indigenous peoples and small coffee farmers will be reinforced by fair trade. Such an outcome would be a tragedy for a social movement that has so much potential to improve indigenous peoples’ lives.

Cultural Survival staff members Mark Camp, Sofia Flynn, and Agnes Portalewska visited La Voz Que Clama en el Desierto between February and June 2005 to conduct interviews for this article. In the 1990s, Camp operated a fair trade company that bought from several crafts cooperatives in the western highlands of Guatemala. Tara Tidwell Cullen is the managing editor of publications for Cultural Survival.

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