Fair Landowner Coffee

Many people feel proud of buying "fair trade" coffee, because it is supposed to help the poor people who grow the coffee.   But it turns out that the benefits go to landowners, not laborers: 

In Costa Rica, less than 2% of the coffee produced is certified and sold as Fair Trade. In Guatemala, farmers report the meager benefits promised by Fair Trade, if they materialize, are not worth the costs which must be borne. … Certification, for the producer cooperative, costs between US$2,000 and US$4,000. …  A coffee farm is not eligible for Fair Trade certification if it employs even one person as a permanent full-time employee.  Most family farms, while not enormous, can be tended during the 7-8 months of the growing season quite easily by an average size family. However, during the harvest (November to March) large numbers of seasonal employees are needed . …  immigrants flood into Costa Rica from Nicaragua, Colombia, and to a lesser extent, Panama. These individuals are too poor to own land, but supply the much needed labor for the harvest period. While Fair Trade notes that any seasonal labor should be paid at least the country’s minimum wage, no records are required of the individual landowner-farmers. The wages paid are never verified as part of the certification or annual inspection processes.

Now admittedly these landowners are a lot poor than the average American who drinks Fair Trade coffee.  But it is still curious that coffee landowners elicit more of our sympathy than coffee field workers.   Human altruism is a complex beast

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  • Tom B

    Not only that but as Tim Harford has pointed out, it’s used as a way for coffee sellers to price discriminate between customers. The cost to a cafe is a penny per cup, but they have typically charged much more for the privilege of getting a Fair Trade cup.

  • Paul Gowder

    Seems more like an incremental improvement thing than a funny altruism thing. Better to help a poor landowner but not a worker than to help neither.

  • http://yorkshire-ranter.blogspot.com/ Alex

    Or, more likely, it doesn’t represent a choice between sympathising with landowners or labourers at all. There is no “higher wages for day labourers coffee” option, hence the choice has no informational content with regard to this.

    Further, the people whose choices are the subject of this research were not aware of its conclusions by definition, and therefore their choices cannot reveal anything about their preferences wrt those conclusions. This is similar to arguing that someone who chose to smoke cigarettes before the Richard Doll study has a revealed preference for cancer, because they chose to smoke dangerous cigarettes, despite not knowing this at the time of the choice.

    I grade this post about 3 from a possible 10, and note Hanson’s inability to resist a rightwing politics-of-ressentiment “take that, do-gooders!” just so story.

  • Hopefully Anonymous

    Good criticism in the comments, particularly from Alex. Having said that, sacred cows deserve such scrutiny and Robin is doing something noble, not small, by disseminating the scrutiny. But I think insightful scrutiny is better in this space than “rightwing politics-of-ressentiment” creep. In my personal opinion, that only has intrinsic value if it helps to sell good policy to audiences susceptible to a message that incorporates that aesthetic (like the post arguing good environmental policy should be sold to people in a way that conforms to their in-group/out-group biases). Of course, there may also be a lot of money to be made in performing “rightwing politics-of-ressentiment”. But I hope anyone here doing so at least takes a look at whether the externalities are worth if it’s part of the effort to accumulate sufficient resources to maximize your and my mutual persistence odds.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Paul and Alex, it doesn’t seem to me that obvious that one cannot help coffee day laborers, but I admit I haven’t tried.

    All, I’m happy to expose right-wing and left-wing sacred cows, do-gooder and otherwise. I’ll try to keep a balance, but it will be hard to keep it exactly even.

  • http://yorkshire-ranter.blogspot.com/ Alex

    it doesn’t seem to me that obvious that one cannot help coffee day laborers, but I admit I haven’t tried.

    Strawman. Nobody’s arguing that it’s impossible; merely that, standing at the café counter, you do not currently have a choice between unfairly traded coffee, Fairtrade coffee, and coffee workers’ union coffee. Therefore, your choice between unfairtrade and fairtrade coffee doesn’t say anything about your preferences between fairtrade(farmers) and fairtrade(workers).

    It would no doubt be possible to arrange such a thing – maybe someone will. It would probably be simpler, in the short term, to devise an experiment and ask the café customers to choose between uft, ft, and supposed ft(w) coffee.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Alex, I agree that it is easy to explain the behavior or the person at the coffee counter, given the options currently offered. The question is why “coffee workers’ union coffee” isn’t on the menu.

  • mitchell porter

    Four papers apparently arguing the opposite (I haven’t attempted to read them) can be found here.

  • mitchell porter

    And some emailed comments from a local Oxfam organizer:

    “I’m dismayed reading the article as it repeats so many of the flawed arguments I’ve read before – especially regarding certification being so ‘costly’ with ‘minimal’ benefits, involving many ‘hidden costs’, and claims regarding the quality of FT beans, and especially calling the fair trade price a ‘subsidy’ that prevents the ‘signal’ of overproduction from reaching producers, and so perpetuates the oversupply problem. If anything, Fair Trade is often the only way that poor producers can access the financial and technical capacity to diversify, and often end up reducing their production and reliance on income from coffee. They claim that fair trade heightens overproduction and so depresses the price for non-fair trade farmers even further. This is rubbish.

    “Only in a truly messed up world would paying a fair price that incorporates decent working conditions and environmental measures be viewed as a distortional subsidy.

    “Fair trade is far from being just a ‘cheap hedge’ and the author’s denigrating statements to this effect ignore not only the value of FT agreements being one of the few forms of security or credit available to many coffee farmers, but also completely ignore the other benefits of fair trade systems.

    “Most of the benefits arise not from the price itself but from the consequences for community development from technical training, advance credit, local organisation, democratic decision making, and collective negotiation of longer term contracts (e.g. avoiding the common practices of middle men deliberately timing their purchasing during ‘hungry seasons’ when any price is better than none.)

    “So the author says she ‘went into the field’ to find out. This confers an unwarranted credibility to her work, considering she only spoke to a few people, and gives only a few quotes from individuals to back up more general statements.

    “AARGH and the complaints about excessive requirements for documentation. I agree that there is a huge need to build capacity for cooperatives to form and to run and to meet certification requirements, but this is part of the development of these systems and not a reason why they shouldn’t exist. The fact that many of the small producers ‘can barely write their names’ just highlights the problems of access to education and yet this is one of the key things that FT tries to address. […]

    “I just wish I had time to thoroughly refute this article since it is so deeply flawed that I can’t believe anyone could write it without setting out with the intent to discredit fairtrade systems, since only a pre-existing motivation could blind you to so many of the aspects the author ignores.

    “If it were a valuable exposé of corruption or of mis-directed actions by the fair trade movement, then I would find it interesting and challenging.

    “But as it is, I can’t see it doing anything more than damaging a developing system (in contrast to constructive criticism), tainting it in the eyes of the public and giving everyone an all too convenient excuse to think no further about the ethics of their consumption.

    “I can only hope that people can look past the appearance of the article as a scholarly and well-referenced account, to look at the many many sources of analysis of Fair Trade systems and principles by economists, social scientists and agronomists, and direct accounts from people who are actually INVOLVED as producers in the fair trade system.”

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Mitchell, I’ve invited the author of the paper I cited to respond here; we’ll see if that happens. But the comments you forward don’t seem to question the point I focused on, that the benefits are primarily to landowners, not migrant laborers.

  • http://profile.typekey.com/cberndt/ Colleen Berndt

    Thank you, Robin, for your post…it has generated some very interesting comments! I went to Central America hoping to find that Fair Trade was a resounding success. The people I spoke with at Transfair USA were dedicated, caring people who are trying to do the right thing. (I would expect that most fans of FT share these traits.) Unfortunately, what I found was that in spite of sterling intentions, FT just was not making the difference any of us had hoped. I explain the reasons for this in my paper.

    I would like to address a couple of the comments above, if I may. The first has to do with the notion that coffee workers are underpaid. By coffee workers, I will assume here that migrant labor is at issue. FT regs request that such labor be paid at least the minimum wage. There are no inspections, or follow up, to see that the FT certified cooperatives are monitoring this requirement to see that it is fulfilled. In Costa Rica, there is a labor shortage. The migrant farm workers on the non-FT farms are paid well above the country’s minimum wage. Are they ‘underpaid’? Not according to the FT regs for certified farms.

    Secondly, FT proponents claim the social premium allows farmers to diversify, thus reducing their dependence on the volatile coffee crop. But think this through a bit. If you can do two types of work, and the wage of one type raises relative to the wage of the other type, are you likely to do less or more of the type with the raising wage? To the contrary, FT’s premium encourages farmers in unprofitable regions to continue devoting more of their resources to coffee farming when their talents and land might be better devoted to other endeavors.

    Third, FT claims one of the biggest benefits may not be the price paid to the farmer, but the community development aspects of FT. On the various web sites you can see smiling children as evidence. However, the manager of the largest FT coop in Guatemala told me these pictures are for the benefit of the web sites only, and in reality, very little of this type of development happens. He told me the extra FT money in his cooperative is used to remodel the cooperative’s offices, which members and migrant farmworkers rarely, if ever, see! The amount which could be passed on to the farmer is so small as to be meaningless. And this was from a FT coop, not a competitor!

    Fourth, the notion that farmers do not have access to credit is not necessarily accurate. Landowners (FT farmers) normally do have access to traditional credit markets as they have collateral. For those farmers who are unable to access those markets, or for the workers who are not landowners (and who remain unserved by FT), microlending institutions are available to fill the gap. One such institution is Ecologic Finance http://www.ecologicfinance.org/, but they are not alone.

    I wish to point out that my work was only on coffee and only in Central America. Karol Boudreaux at the Mercatus Center is examining FT in coffee in Africa. She has found some slightly different results, soon to be released. The impact of FT is vulnerable to the institutional environment in which it operates. Also, FT regulations are specific to the product. The regulations for coffee are different from those for other products, and so my findings for coffee may not apply to bananas or cocoa. Hopefully, FT works better there.

  • mitchell porter

    Hello Colleen Berndt! Here is a reply:

    “I regret the negative perspective on the author’s intentions expressed in my earlier comments, but remain disappointed with the author’s analysis and with the tendency of others to accept and generalise far beyond the article’s scope.

    “It is sad but believable that the co-operative the author visited in Guatemala really is using the FT premium to the advantage of a few of the members rather than for their communities, and I, and many others who support FT principles would agree that questions surrounding paid or temporary labour on coffee farms really does need to be addressed. However, other parts of the FT system are specifically focused on the labour rights and bargaining power of paid employees (for example on tea plantations, organic fruit plantations in Uganda, soccer balls (FLO certified) cotton plantations, mills, looms and sewing centres – see http://www.fta.org)

    “I’m still dismayed that an expose of one co-operative can taint the work of so many others and of the FLO system – I realise this is a danger for any scientist or economist reporting findings that others may generalise, even if they do not express these generalisations, but the author of this piece DID generalise far past her limited field contacts and does not reference the many other research articles that document the transparency and social benefits of FT.

    “She simultaneously criticises the burden of documentation/inspection, AND the possibility for some co-operative members to benefit unequally – which could lead to an argument for more efficient forms of accountability, but contrast this with a situation of none at all ? (i.e. the majority of the world’s coffee trade? )

    “I am also dismayed by the purely economic rationalist assessment of what people do when offered different income streams – I wish she could speak to Guillermo Vargas of the Coope Santa Elena in Monte Verde to ask him what fair trade means for the lives of people in his co-operative, their children and their environment. His co-operative has demonstrated how the fair trade price and premium has enabled them to develop community infrastructure and environmental conservation projects, to improve and diversify their sources of income, to give their children education and widen their choices for their lives, at the same time as making it possible to sustain their connections to the land and the skills of growing food for their own needs. This is not merely a comparison of income streams, and the argument that FT encourages over production in marginal areas is exasperating in the absence of any documentation.”

  • TGGP

    mitchell porter, could you ask your e-mailer why he/she does not post his/her comments themselves? I suppose that’s not really important, but it does make me curious.

  • mitchell porter

    TGGP – The first comment was just a private email, it was my idea to post it here (with permission). If the discussion continues, I may yet be disintermediated.

  • Melissa Vogt

    Hi Colleen,

    I am interested in the study that you have done in Central America and which countries you went to to look at the effects of fairtrade on the ground?

    Melissa

  • http://www.rootcapital.org Root Capital

    Ecologic Finance (mentioned by Colleen in her post) changed its name to Root Capital.Our website’s URL has changed to http://www.rootcapital.org.

    Root Capital is a nonprofit social investment fund that is pioneering finance for grassroots businesses in rural areas of developing countries. Root Capital provides capital, market connections, and financial education to artisan and farmer associations that build sustainable livelihoods and transform rural economies in poor, environmentally vulnerable places.