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.

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

“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.”

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.

“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.”