Fair trade a fair shake for farmers

| Agriculture, Business |

The
fair trade certified coffee market is not only fairer to farmers than
the conventional coffee market, it is a uniquely remarkable way to
stimulate economic growth in some of the poorest communities on the
Earth.

My perspective is in direct contrast to an opinion column by Gene Callahan that appeared on this page Aug. 14.

Callahan’s
writing comes to us through the very conservative Foundation for
Economic Education, whose perspective is akin to the Heritage
Foundation, the Cato Institute, Britain’s Adam Smith Institute and
Canada’s Fraser Institute.

The Foundation for Economic Education
is funded by businesses and individuals who receive tax deductions for
donations. Callahan is in no way exposed to the vagaries of the market,
unlike most of the world’s small-scale farmers.

He begins his critique of fair trade with a classic economic discussion of the "law" of supply and demand.

According to free-marketistas, demand will dictate supply and the market will develop a "natural" equilibrium between the two.

Maybe,
but it never has. Pesky "lawbreakers" like the World Bank and the World
Trade Organization are always messing with "nature" and creating the
conditions for shocking market volatility.

For example, in the
late 1980s, arabica coffee prices soared as a result of frost, which
damaged a significant part of the harvest in Latin America, limiting
supply. This brought in the speculators, more of those "lawbreakers"
who further drove up the price.

Subsequently, in one of those
uncanny light bulb moments at the World Bank, the bank’s economists
noticed that the price of coffee was going up so they decided it would
be a good idea for the farmers of Vietnam to stop growing food and get
into coffee.

They set up attractive financing mechanisms to encourage farmers to switch over.

Coffee
takes several years to bear fruit, so by the time the Vietnamese
brought their coffee to market, the price had started to recover from
the frost. Suddenly there was a massive oversupply, which drove the
price into the ground. Coffee farmers around the world were devastated
in what has become known in the industry as the "coffee crisis."

This
spring, the prices of agricultural commodities like coffee began to
rise as capital from the turmoil of the U.S. credit crisis flowed to
commodities. This resulted in coffee speculators making billions of
dollars, not a penny of which has gone to the farmers.

It is
important to note that the market price of coffee is determined at the
New York Commodities Exchange not at the farm gate. The price of coffee
can go up, down or sideways, but the market price never reflects what
the farmer gets.

The farmer always gets a lower price, in some
cases a fraction of the commodities exchange price, especially when the
market price is down.

Callahan may be shocked to discover that
most of the world’s small-scale coffee farmers live in earthen huts,
have limited or no access to clean water, cook over open fires with
wood they have gathered themselves, do not have electricity, and
certainly do no have a high-speed Internet connection to the New York
Commodities Exchange so they can monitor the price of coffee to get the
best price at their farm gate.

Market interventions and
speculation are the reality of global trade. One Guatemalan farmer told
me that at the time of the coffee crisis, they were getting 35 cents a
pound for their raw coffee. Seventy-five cents is the internationally
agreed upon cost of production per pound.

The fair trade
certified minimum price starts at more than $1.30. Guelph’s Planet Bean
pays farmers between $1.55 to $2.75 per pound.

Callahan suggests
farmers faced with difficulty making a living should migrate to
someplace else. In fact this is exactly what happened following the
"coffee crisis."

Many coffee farmers are now a part of the global
migration of people from rural to urban areas. Research has shown that
very few of these migrants find work in the city and instead find
themselves living on the streets or worse. Research has also shown that
fair trade certified coffee farmers have a low level of migration and
stay on their farms.

Migration is a brutal way to solve a trade problem, and the existence of borders makes it more so.

Interestingly,
Adam Smith identified borders as an impediment to free trade. He
reasoned that people without the freedom of mobility would never have
the ability to freely move in the market.

I wonder if the elimination of the U.S. border is part of Callahan’s free trade prescription.

In the midst of this nightmare market scenario, allow me make a small proposal.

What
if we, as agents in the marketplace, were to develop a system that
would allow us to avoid the New York Commodities Exchange and all the
speculators and middlemen in the market?

What if we could have a
direct trade with coffee farmers and participate in negotiating a price
that reflects our notion of value and that is reasonable to the farmer?
Would that not be approaching the kind of trade system that would
enable us the freedom to collectively benefit from a global free
exchange of goods and services?

Fair trade certified products
provide us with this unique way of interacting with the market. The
process is globally organized by the Fair Trade Labelling Organization
and various national initiatives like Transfair Canada.

These
third-party entities ensure the authenticity of the fair trade
relationship communicated through the Transfair label and are run not
by stock traders or government officials but by citizens.

Callahan
expresses the need for coffee farmers to learn new and more viable
trades. There is no doubt that coffee-growing regions need to diversify
their economies, but how should they go about it?

These regions
are very isolated, and rarely have anything resembling a community
infrastructure. Even roads, which our friend Adam Smith described from
a market development perspective as "the greatest of all improvements,"
barely exist.

What is most amazing about fair trade, from my
perspective, is its ability to create social and economic
infrastructure in a vacuum.

The market brings people together and
the face-to-face nature of fair trade causes people to create community
organizations, co-operatives, credit unions, crop improvement groups,
schools and even roads.

With a fair price for farmers’ products,
there is enough wealth in the local economy to create the diversity and
new enterprise development that Callahan advocates.

At one point
in Callahan’s text he makes a sudden U-turn from his free market
fundamentalism and advocates that people should buy shade-grown coffee
to help the environment. For folks interested in this coffee you should
know that virtually all of the fair trade certified arabica coffee sold
in North America is shade grown, but beware, it also helps farmers.

From
Ethiopia to Peru, we have measurable examples of positive changes that
have resulted from people in Guelph buying Planet Bean’s fair trade
certified coffee.

I am not suggesting that fair trade is perfect.
It is, however, a far more equitable exchange of goods and services
than is the conventional market. It is, in fact, another kind of market
driven by people making informed, ethical and ecological choices.

And it actually exists, unlike the "free market" fantasy world of Mr. Callahan.

Bill
Barrett has been involved in experiments in economic democracy like
fair trade and co-operatives in Guelph for two decades. He is a founder
of one of Canada’s first fair trade certified coffee companies, Planet
Bean Coffee.