Small Farmers. Big Change.

The following post was written by Daniel Fireside, Equal Exchange Capital Coordinator

What do interest rates have to do with the price of coffee? Why do we care and who decides these things anyway?

As many of you know, coffee is a commodity and as such, is traded on the stock market.  The Fair Trade system broke from the New York “C” market and set up its own, higher prices. Direct relationships allow producers to negotiate contract prices with their buyers.

When Equal Exchange bought our headquarters and roasting facility about a dozen years ago, we took out a mortgage with one of those big banks you’ve likely heard of, and they set our interest rate based on something called the London Interbank Offered Rate, or LIBOR.

At the ten year mark, however, we had a chance to refinance the loan and shop for a new lender. We found a social lender very much aligned with our cooperative and Fair Trade values, the nonprofit RSF Social Finance.  Several years ago, RSF broke with lending orthodoxy and decided that it wouldn’t use the LIBOR to set their interest rates. This was a prescient move, as there was a global scandal brewing which involved financial traders from major banks colluding to manipulate the interest rates for their own profits.

RSF began a more holistic process to determine interest rates that considers the needs and resources of all of its stakeholders. Rather than just plug in another abstract formula, RSF staff get input from actual stakeholders by holding meetings between groups of borrowers and lenders and then sets their interest rate accordingly.