The Green Café
Awareness Equals Opportunity at Fair Trade Co-ops

by Karen Cerbreros, Elan Organic Coffees

It’s winter 2005, and coffee is being harvested in the Guatemalan highlands. Prices for containers of certified organic, fair-trade beans have been fixed at $1.41 per pound since the previous fall and for the past five years. Farmers have been grateful for that price, which sustained them while the conventional market plunged to a 100-year-low and their noncertified neighbors went broke.

Then the market shifts. Prices begin to creep up in December 2004, but in January they go crazy. The C breaks $1 and keeps climbing, reaching a season-high of $1.395 in March. Prices in local markets meet or surpass what co-ops had contracted. Farmers decide they’d rather get their money up front from coyotes than wait three months for their co-ops to pay. The flow of certified organic, fair-trade coffee slows to a trickle.

No one saw it coming. Not even the main importers were prepared for the price increases, defaults and dramatic demands.

Conversations I had with producers went like this: “We are three-quarters of the way through the harvest and have collected only three out of 22 containers.”

“The coyotes are paying more at the farm gate for hard bean conventional coffees than we are paying for organic, fair-trade, strictly hard bean.”

“The multinationals are taking everything.”

“Our co-op members do not want to wait three months for payment.”

“We want 17 cents more a pound or we’re not shipping anything.”

Bill Harris, president of Cooperative Coffees in Georgia, buys from farmer cooperatives. He was in San Marcos, Guatemala, when the prices spiked. “It was heartbreaking to see that many of the farmers could not convert quetzales (the Guatemalan currency) to dollars,” he says. “They were not seeing that the prices coyotes are offering at the farm gate were less than the fair-trade price.”

As co-op after co-op broke its contracts with longtime partners in North America, traders and roasters scrambled to save what they could. TransFair USA, the licensed U.S. agent for the Fairtrade Labeling Organization (FLO), tried to encourage co-ops to meet their commitments.
Guatemala wasn’t the only country struggling. This scenario repeated itself in Costa Rica, Mexico and Columbia. Now, defaults are happening in South America.

We have seen fair trade work for producers when prices are low. This winter, the model had its first test in a volatile, upward market. We found areas that must be addressed if this model is to continue to work.

Now, all the partners in the model have the opportunity to find solutions. Together. This is good.

Fair Trade Makes an Impact
Since the first fair-trade coffee was shipped to Holland’s Max Havelaar in the late 1980’s, the movement has made people think about the link between what we pay for our food and the welfare of the people who produce it. As a result, demand for fair trade coffee continues to soar in the United States. Many major conventional coffee distributors now offer lines with FLO and other labeling that indicates social responsibility.

For producers, fair trade’s strength lies in its requirement that they form organizations and manage them democratically, and in offering them a floor price when conventional markets are low.

“Small, powerless people join together to pool their resources. It’s an incredibly powerful tool for advancement, when done well,” says Andrew Sargent, a California coffee trader who studied coffee cooperatives in Honduras in 2003.

But this winter’s supply crisis showed that producer commitment hinges on price.

Co-ops Face a Crisis
Until this winter, co-ops had been paying much more than local markets. Farmers delivered well above their minimum commitments year after year. Co-op managers signed contracts based on members’ actual deliveries for the past five years. They grew complacent about member loyalty.

This year, when local markets offered more than the co-ops, farmers cut back their co-op deliveries.

A similar experience happened in Honduras in 2001, Sargent says. He and others say co-ops everywhere can improve member loyalty with:

> Better management
> Better education
> Better communication
> Plans for responding to market volatility
> Transparency regarding payments

Co-ops vary widely in the level of management skills among their administrators and leaders. They need help with business and financial management, quality control, cultivation practices, building market relationships, income diversification, risk management and how to serve their membership, Sargent suggests.

Some groups that can help farmers improve basic business skills include Germany’s green importer Neumann Kaffee Gruppe Gmbh. Neumann and several European roasters formed International Coffee Partners to help farmers improve both management and cultivation practices.

Education for co-op members also is crucial. In Honduras, the co-ops that survived the 2001 crisis responded with a campaign to teach “cooperativism” – the principles of the community commitment that hold the co-op together. Co-op directors worked hard to explain the co-ops’ mission, to show farmers the advantage of co-op membership and the importance of fulfilling their obligations. They also got strict about enforcing those commitments by suspending or expelling members who didn’t perform, Sargent says.

Co-ops have to back that up with services to members that make membership worthwhile. Technical support, processing and community development all need attention. And communication with co-op members must be improved.

“The market was moving so fast that systems were not in place to communicate on a daily basis with co-op members,” Harris says. Farmers were taking their coffee elsewhere, while managers with poor information took too long to make decisions.

Co-ops are responding in various ways. One co-op in Peru bought three motorcycles so they could pass messages to remote areas. Another bought a low-frequency radio transmitter system, Harris says. Armed with better communications, they can be more alert to changing prices and let members know how they are responding.

With price such an important factor, co-op managers must be completely open with members about costs for administration, processing, shipping and community development.

What’s Next?
Despite its clear benefits, the fair-trade system has areas that need improvement. To rebuild at origin, TransFair and FLO are already taking steps to:

> Create electronic communications among producers regarding best practices.
> Hold risk-management workshops at origin.
> Make regular contact with producers throughout Latin America.
> Develop a producer training task force.
> Build producer capacity and infrastructure for quality control.
And we can go further. The model for socially sustainable coffee has to continue to grow. It has to get bigger, better and faster. To do that, TransFair and FLO also could think about:
> How to enforce contracts on the producer side.
> Offering transparency to buyers regarding producer payments.
> Opening FLO offices at origin as cash flow expands.
> Instituting guarantees for product integrity.
> Partnering with organic agencies to expedite inspections and training.
> Going to independent audits.
> Expanding the model to allow estates to join the program.

TransFair and FLO must make their producers understand that fulfilling their contracts contributes to the larger goal of building long-term relationships among producers, importers and roasters. Co-operatives need to understand there will be consequences for failing to fulfill contracts, such as being fined, being placed on provisional certification and having certification revoked.

Payments to farmers also may need to be re-evaluated. “We need to make every step more transparent,” says Thomas Harding Jr., a sustainability pioneer now heading Agrisystems International in Pennsylvania. “If there’s no responsibility for reporting or no transparency in the payments, how do you know the money’s hitting its target?”

As fair-trade cash flow expands, every country could have a FLO charged with teaching sustainable business practices covering management, budgeting, building the organization, educating members and quality control.

Combining organic and fair-trade inspections would provide an open and verifiable audit trail, guaranteeing both that the farmers are receiving what they should and that the fair trade coffee is what is claims to be.

The time has come for FLO to transition estates into its program to increase supply. Such estates could network with smaller farms and co-ops in their area and become a resource for building business and management expertise.

Every Bean Counts
The good news is social responsibility is growing in a world of corporate irresponsibility. Coffee is leading the charge. TransFair and FLO are pioneers, but they are not alone. Businesses also can think about strengthening their relationships with producers.

“The industry needs to not think in terms of ‘those cooperatives’ and lump everything together,” Harris says. “This year, more than ever, speaks to the need for deepening relationships with the cooperatives.”

One way is to work on business planning with co-op leaders.

“Cooperative Coffees has moved our annual meeting to Guatemala,” Harris says. “We’re bringing in 17 roasters and eight producer groups. We’ll be together for a week in Quetzaltenango to build the plan for next year.”

Integrity is the root of sustainability, and many organizations are shifting the way they do business. They are implementing their own versions of social and environmental responsibility.
As awareness grows, each one of us will realize the opportunities for making a difference in our own segment of the coffee industry.

As Paul Dolan of Fetzer Vineyards states: “Sustainable businesses must accomplish a transformation from mere accountability- doing what’s expected- to broader responsibility for maximizing profits in a way that heals the earth and supports human rights.”

The possibilities are limitless. We are all interconnected. We can make every bean count.