The effects of the Fair Trade system and the choice of new alternatives

You have probably heard or at least guess that coffee is one of the world`s most popular beverages as well as the second most traded commodity after petroleum. But did you know that on average according to the International Coffee Organization around 2.25 billion cups of coffee are consumed everyday by people all over the world? And when we spare a minute to think about all the hard work, efforts, time and resources that farmers put into growing and harvesting their production, we tend to neglect on major thing. This billion-dollar business that involves and connects people across continents, cultures and social classes unfortunately shows one huge downfall – the unfair treatment of small coffee producers.

What does the Fairtrade system mean and why it gradually proves to be non - beneficial for coffee farmers?

The Fairtrade movement was established in order to help famers in the developing world live a more decent life and receive the proportional reward for all their hard work. The Fair-trade certification actually sets the standards for the way coffee is produced and the amount of money the coffee farmer should receive per pound of coffee sold. It also aims to cover the average costs of production and in this way provide a financial stability to the farmers and their families.

In fact coffee is the most common Fair Trade certified product but academic evidence indicates that there is a huge problem rooted in the design of the fair-trade system. Here are listed some of the reasons that call into question the “fairness” of the Fair Trade system.

1) One common practice associated with Fair Trade is the mandatory premium price that consumers pay for receiving a better quality product. In the world of coffee this price is around $.30 per pound - $.10 of which go back to the Fair Trade organizations while the other $.20 are intended to go back to farmers indirectly for “social and economic investments at the community and organizational level”. However, studies have shown that extremely small amount of these funds go back to the farmers and how this money is actually spend remains a mystery.

2) The Fair Trade system unfortunately leads to lower quality coffee being offered and perceived as specialty one. The reason for this is that fair-trade coffee is not required to come only from the Specialty Grade category, it can come even from the category with the lowest quality. And because the incentive to sell lower quality coffee as fair trade certified is so great (eliminating all the tiresome procedures associated with the production of specialty coffee)–farmers tend to take advantage of this situation. The result is disastrous not only for the image of fair trade coffee – consumers begin to associate it with a poor flavor experience, but also for the market of the coffee – potential customers will deliberately avoid buying it.

3) The largest amount of Fair Trade certified coffee does not, surprisingly, comes from the poorest exporters – the developing countries such as those in Africa or Southeast Asia. In fact only a small fraction (around 10%) of the world`s fair trade exports comes from these countries, while the remaining significantly larger part, originates from more developed countries such as Mexico, Brazil and Columbia. This means that the ones who need the benefits from the fair-trade system, do not have access to it. One logical reason for this may be the certification fees, which coffee farmers have to pay in order to participate in the process – small coffee owners in the developing countries may be unable to afford these fees.

4) In addition to the initial capital (that farmers need to apply for certification), another requirement that Fair Trade entails (and poor farmers fail to meet) is the record keeping, or in other words – a good farm financial management. This is an important aspect of farming and it`s understandable why – it gives the farmer`s opportunity to learn, predict future outcomes, make sure that his inputs are not exceeding the outputs and on the whole make better business decisions. However, data collecting is not something that can easily be implemented by people who are struggling to keep up with the labor intensive activity of growing and harvesting coffee. Working long hours to provide for their families and make the ends meet, farmers in developing countries simply do not have the time to keep records. Most of them lack any education and their illiteracy is another obstacle that does not allow them to participate in the Fair Trade system. Again, those who need help the most, have hard time getting it.

The Fair Trade system was founded with the good and humane intentions to make a difference in the lives of producers in developing countries and to help them achieve better trading conditions. However, the reality is that the system affects many small coffee farmers that could eventually lose market share to the big plantations and become even poorer. Is there a way to obtain best quality coffee which is thoroughly researched and hopefully comes from cutting out the middleman cooperatives and uncouth labeling methods? For sure it is possible and time will offer more and more advanced socially responsible and environmentally sustainable fair trade practices! So, all you need is to be flexible and think “outside the box” which means searching for alternatives that could prove to be far more fair and beneficial than the established ones.

Almacena Platform

We create short-term investment opportunities for private individuals interested to make an impact by financing coffee and tea inventories in East Africa and thus helping the local growers and traders.

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