World coffee prices are notorious for being unstable. The "mood swings" of this market are part of the justification behind Fair Trade certification. Producers who are certified Fair Trade, comply with just labor and transparent accounting practices, among other requirements and are offered a base "fair" price for their coffee, no matter how low the conventional market sinks. But what happens when the price of coffee is high, higher than the Fair Trade price? This is precisely what occurred last year, and the destabilizing effects for cooperatives, Fair Trade buyers and small growers are still being felt and discussed.

In 2005, the price of coffee spiked for various reasons. Some blame the tsunami that effected Asian coffee producers. Brazil, the largest coffee producing country also experienced bad weather that ruined crops. On a larger scale, due to the rock bottom coffee prices for the last five years, many producers found it impossible to continue planting and maintaining their fields, leading to an overall drop in production. For whatever reason, last year in Chiapas the price of coffee jumped from 6 pesos a kilo to 22 pesos.

Rising prices would seem to be good news for the worlds predominately poor small coffee producers. However, higher prices are destabilizing fair trade cooperatives and the institutions that have been created to support them. Though Fair Trade certification guarantees a base price of 17 pesos a kilo, that price has not increased in 10 years, while cost of production, labor and transportation have all increased. Also producers sometimes must wait months to be paid for their coffee, because the cooperative must first sell the product to buyers. In Chiapas , small producers every year will sell some of their crop to coyotes to meet their family's immediate monetary needs. It is easy to see the temptation of a coyote, with cash in hand, offering a price greater than producers would receive from the cooperative. Many producers, weighing their financial needs, sold off the coffee previously destined for the cooperative. This lead to a shortage of inventory for the cooperative, reduced income, and in worst case scenarios caused defaults on contracts to Fair Trade roasters.

Many cooperatives and fair trade buyers are learning from this last year, critiquing the short comings of the current Fair Trade system, and strengthening relationships with growers. Fair Trade goes beyond economics and prices. In rhetoric, marketing and at times in reality, Fair Trade is creating just and sustainable development, that allows people to organize themselves, stay on their land and maintain their traditions and communities. Clearly, something is not quite right then, if growers abandon cooperatives as soon as conventional markets offer more money. Much of the problem lies in that small growers are a low priority for certifiers, and in the lack of information and communication between growers and roasters.

A large part of the work of Fair Trade certifiers (Transfair or FLO for example) is creating and promoting Fair Trade products in the mainstream market. This has lead to advances in terms of getting Fair Trade coffee into large restaurants and stores, however the big business focus has sacrificed some of the human-ness that is central to Fair Trade principles. For example, Transfair is now also certifying plantations, has added a registration cost for cooperatives, and is requiring producers to locate buyers before they are certified. Because small growers are also paying for their yearly Fair Trade inspections, and the fact that the Fair Trade coffee price has remained fixed for 10 years, it is becoming harder and harder for growers to survive even within the Fair Trade system. As an Equal Exchange newsletter describes, "For most small producers more has been lost than gained... farmers have diminished control over their crops and have been forced to sell them for less than they cost to grow, while the specialty coffee industry has accumulated huge profits. Industry leaders such as Seattles Best coffee and Sara Lee raised their prices to consumers, though their own costs had dramatically declined" (Java Jive #27, 2005).

Some Fair Traders such as Equal Exchange and Cooperative Coffees have raised the price they pay to cooperatives in response to the discussions that the price spike provoked. They also believe that for the Fair Trade system to work, it needs to be an informed partnership rather than a business model. They are now focusing on information and communication between roasters and growers. The impact of sharing information can be seen in cooperatives in Peru and Colombia. Because they have a later coffee harvest than Mexico and Central American they were not caught by surprise by the price spike and were able to prepare and inform growers so that they would not so readily sell to coyotes. Cooperative Coffees is working with cooperatives in Chiapas and Central America to inform growers of coffee prices peaks and valleys and the long term benefits of cooperative organization. They also are emphasizing opening communication channels between roasters and cooperatives so that if the price spikes again, buyers will potentially be able to raise their prices to compete with coyotes. Small cooperatives and small roasters realize the necessity of cooperation, because if the price stays high, they will both be pushed out of business.

Last year's coffee price spike proved that when small producers are given a choice between supporting the cooperative and feeding their families, they will chose feeding their families. For Fair Trade to be a viable and sustainable development solution for marginalized communities, it must go beyond the rhetoric of "ethical marketing" that large companies and certifiers use to increase sales. It must be responsive to the needs of small producers and look for ways of doing business that create equitable and informed relationships between growers, cooperatives, buyers and consumers.

More information:

www.transfairusa.org

www.cooperativecoffees.org

www.equalexchange.com