Today Fairtrade International (FLO) announced changes to Fair Trade coffee minimum price, premiums and standards that will take effect on April 1, 2011. Fair Trade USA supports efforts to improve the standard of living for coffee farming communities around the world, the mission to which we, our many movement stakeholders and our industry partners are deeply committed. At the same time, because Fair Trade represents a partnership between producers and industry, we regret the two-week lead time and sincerely apologize for any business challenges this creates. The purpose of this message is to outline the changes and to reinforce our commitment to ensure that all current contracts are honored.
Fair Trade Premium
Since May 2010, international coffee prices have risen to a 14-year high. The effects have rippled throughout supply chains from coffee farmers to industry and on to consumers. Though high prices can benefit individual farmers who have coffee to sell, they can challenge producer organizations that signed contracts early in the year to qualify for pre-financing and then watched as prices rose to unexpected heights. In addition, because yields have been lower than expected, competition for high-quality coffee has increased and a small number of producer organizations have had a difficult time fulfilling contracts. Finally, while individual farmers may be somewhat better off in a high “C” market, farming communities still struggle with everything from food scarcity to inadequate access to education, healthcare, and other basic services that Fair Trade community development premiums fund.
To address these challenges, FLO is raising the community development premium for coffee from $.10 to $.20 per pound, effective April 1. Moreover, in an effort to support continuous improvement of coffee quality by Fair Trade farmers, five cents out of the 20 cent premium must be invested in quality improvement programs at the farm and/or cooperative level. These quality investments will be verified during each cooperative’s annual Fair Trade inspection.
Fair Trade Minimum Price
Another component of our model is the Fair Trade minimum price, which acts as a safety net when coffee prices fall below the cost of sustainable production. In light of increasing production costs and the depreciation of the current minimum’s value as a meaningful safety net, FLO is increasing the Fair Trade minimum by $.15, to $1.40 per pound for washed Arabica and to $1.35 for Arabica naturals. While this minimum is largely irrelevant in the current high”C” market, the adjustment is necessary to reflect the true costs of production should commodity prices suddenly plummet. And because the costs to convert and maintain certified organic production have risen as well, the organic differential will increase from $.20 to $.30 per pound.
Fair Trade Coffee Standards
In the coming weeks, we will share more regarding additional changes in the Fair Trade coffee standards. The updated standards aim to set clearer rules for contracting, negotiation and delivery in order to reduce defaults and to ensure the sustainable supply of Fair Trade coffee.
Cooperative Capacity Building
We believe that Fair Trade cooperatives have greater needs beyond price. As a global network, Fair Trade plays a key role in providing training that helps producers to improve their business operations so they can be competitive in complex, international markets. Based on our discussions with producer groups, it’s clear that they need technical assistance to continuously improve quality, better access to pre-harvest and long-term credit, and training to improve their overall business operations. To that end, Fair Trade USA , in partnership with other NGO’s and industry partners, has invested more than $2 million over the last five years in several coffee quality, market access, business capacity and bio-diversity initiatives in Africa and Latin America. We have also started negotiations with various global banking organizations to increase the amount of pre-harvest financing available to cooperatives. Based on both the success of these initial programs, as well as on feedback from producer and industry partners, Fair Trade USA is in the process of creating a Cooperative Capacity Building initiative that will enable more development projects, particularly in coffee regions of high importance to the U.S. market.
As always, we are committed to working with key stakeholders to empower farming communities in ways that are economically and environmentally sustainable. We believe that the additional investments in quality will help secure the U.S. supply and varieties of Fair Trade coffee. We will work to ensure all certified cooperatives honor all contracts signed before April 1, 2011. And we will continue to encourage good faith negotiations between buyers and sellers, aimed at achieving a win-win result for both sides of the Fair Trade partnership