Smallest farmers missing out on fair trade benefits, study says

• Jane Black

Fair trade products have exploded in popularity over the last two decades. In 2014 more than 40 percent of all coffee was produced under one of four initiatives: Fair Trade, Rainforest Alliance, UTZ Certified, and 4C.

But how much do these certifications, which pay farmers a premium above the market price, actually help poor coffee farmers? A review of dozens of studies conducted by the Center for Global Development, a think tank dedicated to reducing global poverty, found evidence of modest benefits overall, but not for the most vulnerable producers.

“Consumers pay higher prices for fair trade coffee, thinking it benefits farmers and the environment. But too often the poorest farmers are missing out on the benefits because they lack the capacity to participate,” said Kimberly Elliott, the author of the study and a visiting fellow at the Center for Global Development.

Overall, the study concluded that the four certifications do have modest, positive effects, though none distinguished itself as “better” than the others. This was in part because they emphasize different priorities—Fair Trade, for example, focuses on price/income, while Rainforest Alliance, which last year merged with UTZ, addresses environmental issues—so success depends on consumers’ allegiances. (The exception is 4C, which positions itself as an entry-level standard.)

Among Elliot’s conclusions: 

• Sustainability standards, particularly Fair Trade, raised the prices paid to coffee farmers. But these increases do not always lead to higher incomes for producers. This is because the costs of certification and compliance with higher standards absorb much of any price premium.
• While some smallholder farmers do benefit, it is usually larger coffee producers that that are best able to take advantage of sustainability and labor-certifications. Many report that they are already in compliance with the higher standards (and have to make few changes as a result of joining.) Meanwhile, poorer farmers often don’t have enough land, labor, or credit to make certification worthwhile without external financial support.
• Supply of sustainable coffee already vastly outstrips demand: Only 25 percent of sustainably produced coffee is sold as sustainably certified (and therefore gets a price premium). This means that small producers who pay the costs of certification may not be able to sell enough of their crop at premium prices to recoup their investment.

In reaction to the study, Fair Trade USA said that it values feedback on its model, which it is constantly striving to improve.

“There’s no single solution to poverty alleviation, as shown by the four very different certification models evaluated in the article, but we believe that Fair Trade has great potential to change the way that commodities like coffee are sourced so that the entire supply chain benefits – farmers, workers, industry, consumers and the earth,” the organization said in a statement. It noted that producers had earned more than $500 million in community development premiums through its certification program in the last 20 years.

But, said Elliot, “the bottom line is that for fair trade coffee certification schemes to work, they have to increase prices or productivity enough to cover farmer’s costs. And without greater consumer demand, the benefits of sustainability standards will remain limited and tentative.”