Fair Trade Coffee Prices

Coffee cooperatives are organizations collectively owned by their members, mostly coffee producers and workers. Members share a common vested interest in the coop’s success for the benefit of present and future generations. Each coop has a board of directors and other governing members that perform administrative tasks, manage resources, and promote safety, health, and education for all members.

The Central Piurana de Cafetaleros or CEPICAFE coop, founded in 1995, is headquartered in Piura, Peru. CEPICAFE represents thousands of coffee, sugar and fruit producers from more than 90 separate organizations from regions in Northwestern Peru. CEPICAFE is basically an umbrella organization for other producing organizations. CEPICAFE enjoys a reputation as a strong cooperative with solid objectives for growth, social improvements and environmentally focused practices.

Recently, Santiago Paz, co-manager of CEPICAFE and manager of Norandino cooperative in Piura, Peru, commented about the pros and cons of Fair Trade Certified trade practices. His perspective as a producer and member of the coop provides interesting insights into how Fair Trade certification impacts producers’ lives on a personal level. It is also interesting to learn how international trade negotiations affect coffee producers’ lives.

Coffee prices have been rising fast for months. This is happening worldwide as a result of weak economic conditions and growing competition in local markets. Fair Trade systems seek to improve economic and living conditions for coffee workers and producers; to get a fair price for coffee; to help establish gender equity, and to promote accountability and transparency. These goals are very worthwhile but can be difficult to achieve in tough economic times.

Fair Trade coffee coops have grown in Peru about 66% over the past 5 years but the export volume has increase by only 4%. The result has been increased competition among coop members and a loss to producers in Fair Trade Certified benefits.

Why? Producers have not been able to sell qualifying coffee at the expected higher prices. Coops have been unable, for the most part, to renegotiate higher prices with foreign importers when world prices rise dramatically because of contractual Fair Trade System terms and practices. What happens is that coops buy from farmer members at high current prices but sell to foreign importers at low, set contract prices later.

The result: when coops lose money or receive less in social premiums set by the Fair Labeling Organization (FLO), coffee producers can default on contracts, face suspension proceedings that can be costly in penalties, or remove leaders from their positions.

The FLO system has contract pre-financing requirements for producer coops which can be a great benefit but can turn out to be a negative depending upon the price locked during negotiations prior to harvest.

Traditionally, within the FLO system, only the producers get to decide when to lock in prices. The problem is that when prices rise, members choose to sell their coffee elsewhere at a higher price than what the coop pays. Unfortunately, the conflict arises when the coop locks in contracts at a lower price, before the harvest, for coffee they do not possess. This timing is a normal transaction but can have negative consequences.

In current weak and competitive market conditions, locking in contracts based on pre-financing is not a good deal. Renegotiating coffee prices, after the fact, is entirely between the coffee buyers and the sellers. Generally, this is not an easy thing to do or something coffee buyers, with pre-negotiated prices, will welcome doing. Instead, it is more likely they will force contracts as signed. New standards for coffee pricing and negotiations in progress at many levels should prevent some of these challenging pricing situations in the future.

Coffee coops have been positive for millions of people around the world and offer many tangible benefits that individuals, alone, cannot achieve.

Coops working on behalf of their members need to do a very good job for their members, but particularly from a financial transaction standpoint.Fair Trade is advocacy on behalf of small producers. The FLO needs to show strong support for the small producers. This will lend strength and greater credibility to the cooperatives to which millions of small coffee producers belong.

Keeping the small producer viable is extremely important in the coffee trade. Production in most coffee producing countries comes from small farms yielding the best coffees available.Well run coops with farmers and workers who get a fair wage and fair benefits for their coffee production efforts will ensure availability of great gourmet specialty coffee at affordable prices to consumers for many years to come.

I say, let’s drink to that! What about drinking a cup of delicious shade grown, fairly trade Peruvian Organic Coffee?

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