Fair trade: Farmers begin to fight back

In the second part of a series on Fairtrade Bloomberg investigates how the system could be made more equitable

An academic says there is an alternative to Fairtrade International's aim of ensuring farmers get more of a product's final price by giving them a social premium.

"There is another way," Harvard University Professor Michael Porter said in a debate at the World Economic Forum in Davos, Switzerland in January. "Why are farmers poor? Because they have lousy yields. Because the quality isn't good enough, and therefore the prices are very low."

Nestle announced a plan last year to double purchases of coffee from growers for its Nescafe brand to help guarantee supply and boost quality.

"We are trying to buy more coffee directly from farmers because then we can track where it comes from and give technical assistance," said Nestle spokeswoman Melanie Kohli. "We want to build long-term trust."

Ecom is expanding programmes to help farmers improve their harvests because it has seen its supply base dwindle when growers do not make enough money.

"What do you do to keep them on the land? You train them," said Ramon Esteve, a sixth-generation commodities trader and chairman of Pully, Switzerland-based Ecom Agroindustrial, one of the largest coffee traders.

He is a Spanish national who was born in Dallas and lives in Switzerland. "These people could easily, easily double their yields by enrolling in these programmes and following the best practices we are trying to promote."

Esteve said he understood the concerns of Mexican farmers. In the 1990s, fewer growers were selling beans to Ecom's buyers because they were not paid enough money by middlemen, known as coyotes, who were "probably a usurer in some cases," he said.

To establish trust, Esteve said, he hired some of the coyotes and trained them as agronomists, who teach the science and economics of better crop production. Agronomists now outnumber traders at Ecom, whose Mexican unit, Agroindustrias Unidas de Mexico, is certified to buy and sell Fairtrade coffee.

The move to work directly with farmers is a historic change for Ecom. The founder of the family business, Jose Esteve Tomas, got out of textile production to become a cotton trader in Barcelona partly because employing people directly was too risky. The family started trading cotton in Barcelona in 1849 and still owns 92 per cent of Ecom.

"Why mess with labour issues?" Esteve said of his ancestor's thinking. "The riots in Spain in the 19th century were terrible."

Esteve would not disclose a financial statement for the closely held company, though it has average annual sales of US$2.7 billion ($3.5 billion), said a document on the website of the World Bank's International Finance, which is considering lending Ecom US$50 million to develop its services to farmers.

Like Nestle, which is based in Vevey a few kilometres from Ecom, Esteve said his company's programmes were too new to provide evidence they were helping farmers. Ecom is starting to compile information on its farmers and how they work.

Surrounded by more than 100 coffee grinders dating to the 1600s, Esteve and Rosenberg sit in the conference room in Pully and describe the difficulty in proving their approach will help small-plot growers.

"It's not a gimmick," said Esteve. "But we can't prove it," said Rosenberg.

The disagreement over how best to boost fair trade recently led to the departure of Fairtrade International's US affiliate. Paul Rice, an American who helped farmers during the Nicaraguan Sandinista revolution in the 1980s, wants his Fair Trade USA group to work much closer with large companies. He proposes certifying coffee grown on estates, rather than just on co-operatives.

"Many executives are realising that old-school globalisation, by which I mean going around the world looking for the cheapest labour and the lowest environmental standards, doesn't work," Rice said. "Their long-term financial success depends on sustainable supply chains, so there is no longer a trade-off between social responsibility and profitability."

Certifying larger coffee producers would cut small farmers off from international markets, said Merling Preza, president of the Latin American and Caribbean Co-ordinator of Small Fair Trade Producers, an association of co-operatives selling coffee, fruit and cocoa. Buyers will switch to larger, lower-cost farms able to invest in higher yields and deliver larger volumes than farmers who in some cases live on $2 a day, she said.

"When someone big competes against someone very small, what we say in Nicaragua is that it's a competition between a tethered donkey and a loose tiger," Preza said. "It's a threat for everyone. It would distort the fair trade system."

The future of fair trade boils down to the rival visions of Frans van der Hoff and Nico Roozen. The pair, who developed a system where coffee farmers were guaranteed a minimum price and a social premium to be used for projects such as health clinics and schools, are at odds over how best to help producers amid the surge in demand for fair-trade goods.

Van der Hoff criticises fair trade because it is making compromises with big companies like Nestle. Roozen has said farmers must be trained to partner with major corporations so they can boost volume. A test of their arguments can be measured in southern Mexico, birthplace of the Fairtrade labelling movement and the centre of its burgeoning organic coffee production.

It is here that Juan Carlos Lopez, 24, an adviser to the Cafe Guerrero Maya co-operative in Chiapas, said he could quantify the cost to farmers if big companies win the day. The difference between the market price for coffee and prices paid for Arabica beans by intermediaries buying for Ecom's Mexico unit, known as Amsa, amount to at least 30 per cent of a farming family's revenue, he said.

"All they do is buy it cheap and sell it at a high price," said Lopez, now an economics student at a university in Mexico City.

Lopez got his start in the coffee business on his father's farm, wielding by age 8 a worn machete as long as his arm to clear weeds in the mountains of Chiapas. Sixteen years later, Lopez is on a mission to cut out the middlemen coyotes by linking his father's co-operative to the fair-trade movement.

Cafe Guerrero Maya farmers are also beginning to eliminate the use of insecticides and weedkiller, taking steps to avoid soil erosion and protect native plants and animals with the aim of becoming certified as organic growers, he said.

The co-operative found buyers this year in Mexico City who paid 72 pesos ($6.70) per kilogram after transport and processing costs, compared with about 50 pesos per kilogram in Chiapas. Lopez is skeptical that Amsa will aid producers in Chiapas, where for decades poor wages meant indigenous families lacked access to enough healthcare, food and schooling.

"They are looking for earnings, not to provide for people's needs," he said.

In an emailed response, Ecom officials said they would not have market share if they did not pay competitive coffee prices, which they publish daily at their Mexico mills. Greater productivity is key to helping coffee farmers in a country where three decades of fair trade has "apparently not lifted" many of them out of poverty, the statement said.

Some of the poorest towns in Mexico are located in the coffee-growing states of Veracruz, Oaxaca and Chiapas.

Farmers in white cowboy hats and baseball caps protested against traders earlier this month in the state of Veracruz. They said companies are inflating the costs that are subtracted from payments to growers.

For Lopez, whose family depends on coffee for its only cash income, cutting out middlemen like Esteve is key to improving living conditions in Chiapas.

His family and the more than 200 other indigenous producers who make up the Cafe Guerrero Maya co-operative aim to sell fair trade coffee overseas at higher prices - and, one day, challenge the Esteves with a producer-owned supply system featuring a chain of shops modelled after fair trade that would sell coffee beans purchased directly from farmers.

Such moves could transform lives otherwise spent toiling in the fields, said Lopez.

"It might mean not having kids work, and sending them to school instead," he said. "They could have breakfast, shoes, whatever they need."

- Bloomberg