Report luis aguiar

Are Ethically-Traded Coffees Sustainable?

LuĂ­s Kluwe Aguiar1

The Farmers Club Charitable Trust Cirencester, August 2006

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Senior Lecturer - Royal Agricultural College, Cirencester, England

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Abstract

Fair Trade, under the Sustainable Agriculture Initiative Platform, has allowed for small coffee farmers in the Developing World to maintain their livelihoods whilst caring for the environment. Some have called fair trading ‘a new trading paradigm’ as it operates parallel to the existing trading system as an alternative route to markets. Conversely, many criticise such a system and use many arguments ranging from the economics to the fairness of the relationship between stakeholders.

A visit to fair trade coffee-producing regions in Brazil and Peru served as the basis for testing the argument for and against the fairness of the fair trade system. The two production conditions determine how small farmers relate to fair trade certification and the ideologies behind the initiative. Nevertheless, very little of what is produced under fair trade and organic coffees is consumed by the domestic Peruvian and Brazilian markets. In fact, there are many consumer and sociological dimensions that determine that fair trade coffees are exported for an ethical consumer-based in the most developed markets in the world. Nonetheless, an entire production and trading system based on ethical consumption eager to purchase tropical imageries moved by altruism and charitable ideas may not be sustainable. Thus, such a supply chain could be too fragile in the long term and, therefore, small farmers could be under threat should the ethical consumer decide to move on.

Sustainability indicators based on the production economics do not reflect the entire dimension of such an ethical supply chain. Suggestions are made for a better understanding of the relationships based on the proposal of sustainability indicators that focus on the consumption side of ethical coffee trading.

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Problem statement Coffee is one of the most important commodities in terms of value, traded globally with twenty-five million farmers in fifty developing countries depending on it for a living. Despite this, coffee producers have faced the effects of long-term declining coffee world prices that reflect political and administrative failures of the national and international markets (Ponte, 2002) and imbalances between supply and demand (May et al 2004).

Initiatives such as Sustainable Coffees have reverted the desperate situation coffee peasant farmers have been locked in. Sustainable Coffees initiative has been proposed by the Sustainable Agriculture Initiative Platform (SAI, 2003) and it encompasses of sustainable coffee production, postharvest processing and marketing should be sustainable along the three pillars of sustainability i.e. to allow for small farmers to maintain their livelihoods, their social needs and care for the environment. Moreover, it foresees that all actors in the coffee chain should be able to compete in the market place allowing them to achieve prices that would cover the cost of production and providing a decent livelihood.

According to Barrat-Brown

(1993), the Fair Trade Initiative is in essence a network established between producers and consumers with a strong element of mutual trust that binds everyone together.

Those engaged in fair-trading have to follow basic

principles, such as: •

Direct purchasing from farmers;

•

Transparent and long-term trading partnership;

•

Agreed minimum prices, and

•

Focus on development and technical assistance through the payment of an agreed social premium Lewin et al. (2004) have called fair trading ‘a new trading paradigm’ with

the industry playing an important role in recognising the need to obtain sustainability through realising the economic benefits that sustainability can bring to businesses. In fact, fair trade operates parallel to the existing trading system not dissimilar to large networks of multinational suppliers, but it uses this paradigm as an alternative route to markets for food products coming

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from smallholders located in developing countries. Thus, stakeholders in the food and drinks industry have understood the importance of achieving high levels of competitiveness and have responded by creating long-term relationships with every link in the supply chain.

Nevertheless, as sustainable coffee initiatives grow in public perception, those advocating neo-liberal free trade criticise this ‘new trading paradigm’ by challenging the system’s fairness. Critics say the fair trade system is not truly open for all.

Whilst the gains for producers in the

developing world are attributed to the removal or by-passing of intermediates, McMillan (2002) in Zhener (2002) argue that as fair trade coffee is typically of a fragmented supply base, the presence of middleman would actually be beneficial, otherwise farmers would be locked in a relatively small number of buyers. But the real gains derive from the idea of a more integral and responsible attitude between consumers in the developed countries, generalised here as the North, and producers in developing countries, or the South (Raynolds, 2002:411).

Characterising the Ethical Consumer The author used Harrison et al (2005) to characterise and discern ‘Ethics of Consumption’ from ‘Ethical Consumption’. Ethics of consumption implies the morality within a capitalist supply chain and relates to sustainable consumption as reflected in ’voluntary consumption’ and the ‘slow food’ movements. What is at stake here is the reduction of the aggregate levels of consumption. Conversely, ethical consumption does reflect consuming commodities as a way of social reproduction. Ethical consumption has a notion of political engagement of consumers. This is understood by the means consumers vote for or against commercial and agricultural practices and patterns. Hence, as fair trade differentiates from the mainstream market by generating a sustainable market-oriented approach, consumers become aware of the ethical implications behind these initiatives. As a result, consumer choice is expected to create economic channels between the North and the South (CEC, 1999). However, the fruit of the crops do not reach consumers in the producing countries. Consumers in the South do not benefit from drinking an organic and better quality product.

In Brazil and Peru

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evidence shows that the gains of ‘green consumerism’ and ‘sustainable consumption’ are accrued by the developed world only.

Goodman and Goodman (2001) may provide an explanation for this phenomenon when referring to the notion that green consumerism is about altruism i.e. ‘helping poor farmers’, ‘joining conservation efforts’ and ‘making a difference’. Since, purchasing fair trade products is a privilege of developed world consumers, green consumers also end up sipping high quality coffee.

Nevertheless, the authors also mention that the premium attached to fair trade products excludes low-income consumers in the North. This is due to the fact that fairness in the fair trade network in fact does not extend to the site of consumption in the North and does not realistically take place in the regional, local Southern context of coffee production. Thus, Goodman and Goodman (2001) propose that eco-labelling and fair trade networks convey the notion of consumption from a geography of developing world production and developed world consumption. Since the value adding activities such as roasting and blending take place in the North, it also maps out a cartography of network power which reinforces the old colonial pact. Hence, the network power exercised by top coffee roasters, originally from the North, also controls the marketing messages that emulate these production and consumption geographies for a Northern consumer audience.

Breaking the colonial pact and dependency is the root behind fair trade initiatives. Nevertheless, paradoxically as it may seem, such a pact is in earnest reinforced and perpetuated by fair trade certification bodies, which on their turn, are also located in the North.

TransFair, Max Havelaar, Fair Trade Labelling Organisation international (FLO) and other Alternative Trading Organisations (ATO) such as Traidcraft, Oxfam and Bird Friendly, among others, have established certification standards based on a Northern agenda (Freidberg, 2003). These culturally charged Eurocentric standards are then imposed to Southern small, poor and in many occasions illiterate producers who have to comply with practices in order to be eligible to belong to a fair trade network. In Brazil, where the size of the farmsteads are generally bigger than in Peru, farmers who do well under fair trade, consequently improving their livelihoods, are being forced to pull out of the scheme because they no longer qualify under 5

the fair trade principles. Many respondents voiced that for the fair trade system to work it would be always needed to exist a small poor farmer. This would perpetuate the relationship producer-certifying body- importer/buyer to satisfy the Northern consumer. In this sense, those in the North controlling the fair trade system would hinder the full improvement of the human condition.

Another hurdle faced by farmers is the certification literature, that can become an issue for the majority, who are illiterate. In Brazil, the president of the Poço Fundo co-operative mentioned that he would like to read more and know more about fair trade experiences in other countries. Nevertheless, the literature produced by the certifying bodies is usually in German or English. It is taken for granted that literature produced in Spanish will be understood by the Portuguese speaking Brazilians, but this, sometimes, may not be the case. Moreover, many of the inspectors who visit the farmers’ associations checking whether the standards are being complied with or not can hardly speak the country’s language correctly to be fully understood. Often the inspectors are more concerned with the fitting to a standard than attempting to understand the local social and family dynamics. Small farmers face a dilemma when some crop practices need to involve the labour of the whole family. Since one of the fair trade principles is to ban the use of child labour, peasant farmers struggle to have the sufficient number of hands at coffee harvest time.

The balance of genders in decision-making at a farmers’ association level can also become an issue for inspectors when the women quite often stay behind at home and do not participate in the farmers’ association assemblies. But again, following the standards set thousands of miles away it is more important for inspectors then to understand the difficulties for the womenfolk to either leave their children behind or to make the journey on foot for miles with all the family. In some occasions fair trade inspectors can act as ruthless as they can in order to collect their certification payment. To some extent, to belong to an assurance scheme such as fair trade is not dissimilar to comply with those schemes used by ‘conventional’ food retailers. Peasant farmers in the South are subject to the same pressures and threats by a fair trade certification bodies as if he/she was supplying to Tesco, for example.

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Objectives: The aim of this paper is to discuss the issues around fair-trading. The main objective is to explore the criteria that make a specialist supply chain such as fair trade coffees successful and sustainable. Moreover, to explore the reasons fair trade coffees is not consumed in the country of production.

Methodology The method used is a case study, an adequate procedure for the exploratory character of the research (Tripodi et al., 1981) and popular in applied social sciences (Westgren and Zering, 1998; Sterns et al. 1998) especially those researching the business management of food. Key players in the coffee industry in Brazil and Peru were identified and contacted with a view to determining the issues and pressures on the coffee supply chain.

Semi-structured in-depth interviews technique was used to gain critical understanding of the practices. All interviews were recorded using a digital Dictaphone and transcribed afterwards. In Brazil, five interviews were carried out in the state of Sao Paulo and four in the region of Machado in Minas Gerais. In Peru, ten interviews were carried out in Lima, the localities of Pichanaki and La Merced in the Chanchamayo region and in Cuzco.

Results and Conclusions The author believes that green or sustainable ‘imageries’ are perhaps stronger for consumers in the North than in the South. In the North, consumers are dissociated from the coffee production areas, the tropical working conditions and those engaged in sustainability actions taking place in the South. These aspects of tropical production imageries would motivate the Northern consumers to a behaviour that is sometimes intertwined with a charitable notion of ‘doing good for the planet’. This charitable notion is in turn closely related to what Shaw and Newholm (2003), cited by Harrison et al (2005), mention about the Virtue theory. Virtue theory concerns the merging of self-interest and altruistic aspects of morality reflected in the virtuous element of ethical consumption.

The author also considers that in coffee-producing countries, local consumers might not establish the emotional link that is exploited by fair trade 7

marketing initiatives in the North. In the South, the producer-consumer closer proximity and their similarity (countryside links or recent migration to the urban areas and to a certain extent smaller income gap) would perhaps hinder the establishing of such an emotional link. Southern consumers may be more preoccupied with daily survival routines, less choice, less exposure to quality, and seeking for low prices. Therefore, to be concerned about virtuous ethics and to have a typical Northern altruistic consumer behaviour in the South could be a rather difficult task. Goodman and Goodman (2001) state that in the North, consumption and tropical conservation are joined in an imagery and ‘green agency’ made possible by consumer sovereignty and ‘choice for change’. Whilst in a developed world context, consumers are spoilt for choice, this is not the case in less developed countries. In addition, considering such a marginal consumer base in the South added to the small network power distanced from the site of production, the coffee-marketing campaigns simply would not have the same incentives to tackle sustainability issues. Coffees and Café chains, such as Starbucks, are still promoted based on copying Northern lifestyle campaigns.

An easy explanation for the alienation of the local populations from consuming fair trade quality coffee is attributed to price and low disposable income. In Peru, with one of the lowest coffee consumption in the world, some 600g per capita per year, the additional explanation was also ‘lack of drinking coffee habit’. However, the author visited Wong supermarkets, a large food retailing chain in Peru, where special coffees are displayed and a considerable mark-up price is charged. In Brazil, despite the existence of some specialist espresso coffee houses, the issue of fair trade consumption, or the lack of product offer is unclear. The common explanation in Brazil was that, as coffee is consumed in large quantities throughout the day, be it at home, in cafés or in offices, a more expensive coffee type would be restricted to a small niche market. Actually, the daily consumption of quality coffees is unusual in Brazil. It is quite remarkable for the Northern consumer to conceive that the average Brazilian person does not know what good quality coffee is.

Similarly to Peru, the coffees sold domestically are lower grade coffees rejected for export. In Peru, the consumers have also the habit to re-use the coffee powder in order to extract a second brew. When consumers are 8

exposed to high quality coffees they complain about the impossibility of producing a second brew ‘as if the coffee was weak’. Thus higher quality coffees become expensive in real and relative terms.

For the producers, the findings from the interviews demonstrate that the sustainability ideology implied in fair trading plays a secondary role.

Stakeholders in Peru and Brazil perceive Northern consumers as simply demanding a quality product. The issues of sustainability and fair-trading are in fact accessories when the price premium narrows. The author experienced this phenomenon in July 2005 when the world coffee prices went up and the fair trade premium narrowed. Particularly in Peru, as a result of the farmers opportunistic behaviour, their practices reinforce the notion the consumption of fair trade coffees is something aimed to the Northern markets. Peruvian farmers were considering pulling out or fair trade organic production because the commodity market demanded complying less to regulations imposed by the certifying bodies. Contrary to Brazil, in Peru, converting to organic production is both a market opportunity and access to fair trade channels.

Conversely, the author experienced little political or ideological engagement in that country when compared to the Brazilian situation.

Moreover, the consumption of imageries that fair trade coffee is about ‘selling poor farmers’ often ‘making a living from degraded environment’ is something that perhaps appeal more to the conscience of the Northern consumer. Producers in Brazil and Peru stated that ‘poverty sells in the North’, but hastened to add that they do not want to sell imageries of poverty, but ‘good quality products’.

Contrary to

Zhener (2001) and

other

neo-liberal

critics,

the

communities visited in both countries show clear signs of social development.

Farmers associations invest not only in post-harvest technology, that ensures higher quality product, but also in medical assistance, education and training.

It is well-known that more education allows for better access to information (Nichols et al, 2005) which is important for decision making. The Small Farmers Association of Poço Fundo in Brazil thrives in comparison with the traditional local (and larger) Farmers Association.

Members of the Poço

Fundo Association have now more access to official credit than before. In Chanchamayo, Peru, where local government has clearly failed to provide 9

some basic service to their rural communities, the so-called “fair trade subsidy” contributes to the maintenance of roads and the building of sport facilities. In Minas Gerais in Brazil, the Small Farmers Association of Poco Fundo provide private medical assistance to its members and their families, and their children have access to computer tuition after school.

Nevertheless, critics say that the fair trade system is not truly open for all. One of the largest Peruvian roasters and the representative of the Peruvian Coffee Association interviewed voiced their discontent about small farmers’ access to the membership of co-operatives that promote fair trade initiatives, and, thus, benefit from a specialist supply chain. Following the fair trade principle, these two entities, dealing with large farming units, have their access denied to small farmers’ co-operatives who base their membership on area size, total production (maximum of two-hundred bags) and the physical number of associates a co-operative can handle. Restrictive access to fair trade co-operatives is a reality in both Peru and Brazil specially now for those farmers who could not see the benefits of a fair trade system from its onset.

Small farmers’ co-operatives with membership at around one hundred and fifty associates are now closed to new members. The co-operative members interviewed say that the limitation is to do with the ability of handling increasing number of members, but also about the fair trade certification protocols that demand consistency of standards for all members. Hence, the author believes the criticism of large players that ‘some small holders end up alienated from the fruits of the fair trade system’ is true. However, it could also be understood as another evidence that, in fact, the fair trade system does work. It also substantiate that the ‘new trading paradigm’ has challenged and shifted the power balance of the production and marketing of coffee in Peru.

In that country traditional farmers and roasters are very negative about fair trade coffees and struggle to accept that they no longer have influence over, at least, a proportion of coffee small farmers, thus the paternalistic approach to criticise the fair trade system on behalf of peasant farmers left out. In Brazil, this situation is not dissimilar. Ipanema, the largest Brazilian private coffee producer has unsuccessfully attempted buying fair trade organic coffee from the Machado region to supply its customers until they have decided to start converting part of their production into special organic coffee.

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Stakeholders interviewed are embedded in the agronomics and production-oriented practices and more interested in the immediate gains accrued from opportunistic access to specialist marketing channels. Yet, the author is interested in how sustainable an ethically produced coffee system is.

Studies have analysed the sustainability of special coffees through the economic input-output paradigm. Although Lewin et al. (2004) propose fair trade as a ‘new trading paradigm’ this may not be sufficient to provide longterm sustainability for this agri-chain. Recent studies by Claro and Amancio (2005) and Claro and Claro (2005) in Brazil focus on sustainability indicators from the production perspective. However, is the current ethical consumption in the North sufficient for sustaining such a fair trade network?

What happens when the fair trade label that communicates stories of people and creates a message of trust, respect, and partnership between producers and consumers is no longer sufficient to shape the engagement of consumers in fair trade networks? As Levitt said ‘consumers owe no loyalty, it is likely they will move on’. For the time being, the British ethical consumer will benefit from this growing market. It is also true that as a result of fair trade and ethical consumption initiatives the food industry has experienced some spill over effect (Trienekens, 2004). The British farming and food industries have responded to consumers’ pressures with more socially responsible actions.

Both industry and consumers are more concerned about how food is produced and traded and its impact on health.

The ethically produced and traded coffee market is going through great expansion but also transformation. There is much good practice and positive results being achieved as a result of trading coffee through specialist fair trade market channels. However, the author believes that fair trade, as a part of and using the capitalist system is, therefore, prone to tensions and inherent crisis.

As the colonial pact is not broken, but in fact perpetuated under an altruistic ethical banner, the author agrees with many of the critics that the farmer within a fair trade certification network may not end better up off in the long run. For all the reasons above, more investigation on indicators of sustainability from the consumption perspective is required.

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