TransFair USA guarantees a minimum purchase price for coffee farmers, acting as insurance against a falling market price. But during periods when the market price is rising, it is challenging to ensure that farmers deliver their coffee.

During winter and spring of the 2005 harvest, a dilemma surfaced in rural areas of Central America and Mexico. Fairtrade cooperative managers found it increasingly difficult to get members to deliver coffee to their own organization at fair-trade prices. The co-op managers were holding contracts that were set months before at fixed fair-trade prices of $1.26 per pound, but now the world coffee price was higher. Growers were seeing some of the highest prices paid in five years, and the temptation was great to sell their coffee to the highest local bidder, instead of delivering it as promised to their own co-ops.

In most cases, the co-ops’ leaders were able to convince farmers to deliver coffee, but often based on arguments of loyalty, as the fair-trade fixed price was now lower than the premium prices being offered by the local middleman. It was not the model that the founders of fair-trade coffee pricing had envisioned when they created the program.

“It’s worth noting that we were pleased to see prices rise in late 2004,” says Christopher Himes, TransFair USA’s Director of Certification and Finance. “This price rise, in conjunction with the impact fair trade was already having, increased the income and living standards of coffee farmers around the world. The most challenging thing during this time for TransFair USA was the speed with which the local differentials [between the fair-trade price and the world price] rose in Indonesia. They quickly skyrocketed to 80 cents [per pound] or higher, making the market value of farmers’ coffee higher than that of some of the … fair-trade contracts.”

Source: David Griswold, http://www.FreshCup.com, June 2005.

Questions to Consider

After reading Rise in Coffee Prices—Great for Farmers, Tough on Co-ops, consider the question(s) below. Then “submit” your response.

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