By Nicholas Reid, Equal Exchange Sales Account Representative
Due to a multitude of factors, most beyond our control, coffee prices are going up. Again. Starting April 1, 2011, Equal Exchange is increasing the cost of all coffees sold to retail stores by $.50 a pound. Please trust that this has been a very difficult decision on our part; and that we are doing everything we can to offer you the highest quality coffee at the best prices possible.
Why Are Prices Going Up?
At the heart of the matter is decreasing supply, increasing demand and commodity speculation. On the supply side, climate change is wreaking havoc on weather patterns across the world (we’ve had quite an interesting winter ourselves). Coffee plants rely on periods of rain followed by sunny dry spells in order to flower, produce cherries and ripen. Without these regular “seasons”, harvests around the globe are down. At the same time, demand for specialty coffee continues to rise, not only in the traditional consuming countries like the United States, but increasingly in producer countries as well.
The situation is further complicated by speculation in the commodity market. Traders are buying up supply and coffee contracts, assuming that prices will continue to increase. This becomes a self-fulfilling prophesy, as less supply and contracts are available. Like many other commodities (oil, sugar, cacao, for example), coffee is at a 14-year high.
Why is Fair Trade more important than ever?
It’s true that coffee farmers are benefiting from higher prices. While we spend much of our time- likely too much- talking about the benefits of higher prices, much of the success and value of the Fair Trade movement is in the “infrastructure” we have built: primarily farmer co-operatives. These organizations serve to protect the farmers when prices are down; and grant farmers direct access to markets when they would otherwise be forced to rely on brokers and middlemen who have historically exploited farmers’ isolation and lack of access to markets.
When the commodity market is high, small farmers can be tempted to sell to middlemen for immediate cash, rather than wait to receive a higher price through their co-op at a later date. The cumulative effect of many individual farmers making this decision is that coffee starts to “leak” outside the co-operative fair trade system. Farmer co-operatives lose members and supply, and have a hard time meeting their obligations to partners like Equal Exchange. In the past, middlemen have offered artificially high prices to farmers in order to “break” the co-ops (like busting a union) leaving the farmers in a much weaker position in the future- a “divide and conquer” approach.
What are we doing about it?
We see our role, in this tumultuous period, to do everything we can to support producer co-ops and maintain the cooperative supply chains that are the heart of Fair Trade and real economic change for small-scale farmers. We are scrambling to get co-ops and farmers the best prices we can; so they can compete with local coyotes today and continue to develop and expand sustainable coffee production in the long-term.
In order to do this, Equal Exchange is taking every opportunity to be more frugal and efficient and cut back our own expenses. We are asking retailers and consumers to share some of these costs as well. Through this price increase, we can continue investing in the movement we have all built together, reinforcing the structures of empowerment and change, and continue to offer you the highest-quality coffee available.
Small Farmers. Big Change. 
Nice!
Interesting post – I have also heard alot about farmers selling to middelmen now that prices are high, and alot about fairtrade certified coffee being sold as normal coffee because the payment is higher. Any further insight here?
Hi Karsten,
Those are great questions and they go directly to the heart of the matter… the system that fair trade has tried to build.
Ultimately, Fair Trade is not about price, but about organization and economic and political control.
When the price of coffee (or any commodity) increases as it is now doing, it is very tempting for an individual farmer to sell to a middleman. The truck arrives at your farm and there is someone with cash in hand offering you money to literally take your coffee “off your hands”. Who wouldn’t be tempted?
It is not that the price is necessarily higher; it is that someone is offering you cash today and they are buying your production without regard to quality. In contrast, when farmers work through their co-op, they must ensure the highest level of quality (which takes a lot of hard work) and if it’s organic a level of assurance (more hard work). The co-op pays the farmer an initial price and then at the end of the season after the co-op has been paid by all its buyers in the “exterior”, they settle their books and hand out the remaining money to each farmer member.
So at the end of the season, farmers working through the fair trade system, and their co-ops, will generally make more money, but it is not in one fell swoop, and it requires tremendous work and discipline.
So now you may ask, well if its so much easier to sell your unprocessed coffee today, what’s wrong with that and why would anyone want to choose the more arduous path only to potentially receive a bit more money many months later?
And the only way to answer that question is to say that the entire history of farmers is that they are typically at the mercy of these large companies and the middlemen. Today, it may seem like a good deal because the price of coffee is high. But the price of commodities fluctuates, so tomorrow the price could drop again. Once a farmer sells out of his/her co-op, they cannot continue to be a member of the co-op. If enough farmers sell outside the co-op, the organization will not be able to meet its contracts and the co-op will break.
I’m currently in Peru visiting banana farmers and we asked why folks are sticking with their co-op even though they can actually make a few pennies more per box of bananas if they sell to middlemen. We were told repeatedly because a) these farmers remember when the prices were low, fair trade paid them three times higher, and b) their co-op gives them all sorts of other benefits – health insurance, christmas bonuses, scholarships for their kids, job training programs, and perhaps most importantly… the co-op belongs to them. They make the decisions; they invest in new infrastructure; they buy trucks to move the product more easily; they build warehouses and washing stations…
Perhaps most importantly, an individual farmer will never be more than that. An organized co-operative sits at the table, has economic clout, and can achieve political power to effect real change in all sorts of policies that have long-lasting effect over the lives and well-beings of entire communities.
I hope that clarifies a bit. Thanks for asking the question!
phyllis