Wednesday, February 25, 2009

Fair Trade Coffee

So while I was trekking the Twin Cities looking for the best coffee houses I kept running into signs advertising for "Fair Trade Coffee." Time to de-mystify that term.

Lets start with a definition of fair trade. Fair trade is an organizational process undertaken by many in the agricultural industry to promote a fair price for raw goods. The general philosophy is to help protect the interests of smaller producers that tend to be marginalized by global companies. Fair trade has grown to become a booming multi-billion dollar industry that grew by 47% year after year (once it caught on that is). Most would argue that success is indicative of the poor times that were experienced by produces prior to organization. While its difficult to surmise what a "fair" price really is in a mostly free market economy, one must admit that fair trade has become something of a marketing phenomenon.

Now lets turn to coffee. Coffee is an agricultural product. As with most ag products, it is raised largely by independent owners and purchased by (in coffee's case) roaster co-ops, speculators, and investors as a commodity. Growing up as a dairy farmer, I can tell you that the economics of supply and demand don't work out very well on a farmer-by-farmer basis. Typically the middle man makes the most money. That could be anyone from a speculator on the New York Mercantile Exchange to Starbucks.

Then, lets combine the two. Fair trade coffee originated with a Dutch company by the name of Max Havelaar Foundation. It was a labeling campaign, meant to enlighten coffee drinkers to the plight of the small time coffee farmer. Well its introduction was of tremendous success, so much so that today, major coffee lines are beginning to carry Fair Trade coffee. Even independent research has shown that fair trade coffee, which seeks to give farmers a negotiated pre-harvest price, has improved the lives of many farm families.

In essence Fair Trade coffee doesn't taste better (necessarily), it isn't better for you, but it may be better for the farmers producing it and that may be a humanitarian effort worth backing.

Ironically, in these hard times one of the first pieces of financial advice is to cut down on consumption (which further depresses markets, leading to a tail spin effect...roughly speaking). One of those items on the cutting board is the $6 Turtle Mocha each morning before work. How do you reconcile that price with poor farmers? The answer is obvious once you know it. The farmers don't get the bulk of that money. In fact, most of that cash is made off of greedy speculation - essentially paper trade. Little if nothing has to do with the actual coffee, the roaster or the Batista that serves it. A lot has to do with selling short and buying long in the commodities trade.

What then is the compromise? How can I look out for my fellow global citizen without breaking the bank? You can certainly look for the fair trade label on products and begin brewing a cup or two of coffee each morning. That will save a ton off the "half-caf, no whip, mocha latte with soy" that essentially is coffee with soy milk and a little cocoa powder. Try it out, you may be surprised how easy it is to get your own self-brewed cup of fantastic coffee.

Now you can ask the question "Is this fair trade?" not for the sake of sounding vogue, but for the sake of helping out a small coffee farmer somewhere in the world.

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