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Globalizations

ISSN: 1474-7731 (Print) 1474-774X (Online) Journal homepage: http://www.tandfonline.com/loi/rglo20Who Really Benefits from Fairtrade? An Analysis ofValue Distribution in Fairtrade Coffee

Silje Johannessen & Harold Wilhite

To cite this article: Silje Johannessen & Harold Wilhite (2010) Who Really Benefits from

Fairtrade? An Analysis of Value Distribution in Fairtrade Coffee, Globalizations, 7:4, 525-544,DOI: 10.1080/14747731.2010.505018

To link to this article: http://dx.doi.org/10.1080/14747731.2010.505018

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Date: 29 July 2016, At: 04:28

  • Globalizations

  • December 2010, Vol. 7, No. 4, pp. 525 – 544

  • Who Really Benefits from Fairtrade? An Analysis of Value

  • Distribution in Fairtrade Coffee

  • SILJE JOHANNESSEN

  • Norwegian University of Life Sciences (UMB), Aas, Norway

  • ∗∗

  • University of Oslo, Norway

& HAROLD WILHITE

∗∗

  • ABSTRACT Fairtrade is a market-based approach to social and environmental development

  • for producers through the use of standards and a price floor. This article analyzes the

  • benefits and costs of Fairtrade coffee through an economic value chain approach. The study

  • determines the economic income from Fairtrade coffee throughout the chain as well as

  • exploring the benefits and consequences of Fairtrade for local producers in Nicaragua and

  • Guatemala. Our analysis shows that consumer countries acquire the larger share of

  • economic income, mainly because Fairtrade is positioned within the conventional market

  • where large multinationals control the supply chain. The participation of large multinationals

  • has led to increasing pressure and tough competition for the certified producer cooperatives

  • in the Fairtrade market. On the consumer side, while consumer marketing narratives

  • emphasize producer benefits of Fairtrade, our results demonstrate that its total benefits for

  • primary producers is modest.

  • El comercio equitativo es un enfoque con base en el mercado del desarrollo social y ambiental

  • de los productores estableciendo esta´ndares y un precio base. En este artı´culo se analizan los

  • costos y los beneficios del comercio equitativo del cafe´ utilizando el enfoque de la cadena de

  • valor econo´mico. El estudio determina el ingreso econo´mico del comercio equitativo del cafe´

  • de los diferentes eslabones de la cadena y explora las consecuencias y los beneficios que

  • afectan los productores locales en Nicaragua y Guatemala. El ana´lisis que realizamos

  • muestra que los paı´ses consumidores obtienen una mayor proporcio´n del ingreso econo´mico

  • obtenido, principalmente debido a que el comercio equitativo se encuentra ubicado dentro

  • del mercado convencional que es controlado por las grandes multinacionales quienes

  • controlan la cadena de la oferta. La participacio´n de las grandes multinacionales genera una

  • mayor presio´n y una dura competencia entre las cooperativas de productores certificados.

  • Correspondence Address: Silje Johannessen, Department of International Environment and Development Studies –

  • Noragric, University of Life Sciences, PO Box 5003, 1432 Aas, Norway. Email: s.f.johannessen@gmail.com;

  • Harold Wilhite, Postboks 1116 Blindern, 0315 Oslo, Norway. Email: h.l.wilhite@sum.uio.no

  • ISSN 1474-7731 Print/ISSN 1474-774X Online/10/040525– 20 # 2010 Taylor & Francis

  • DOI: 10.1080/14747731.2010.505018

  • 526 S. Johannessen & H. Wilhite

  • Aunque a los consumidores de cafe´ de comercio equitativo se les presenta el argumento de

  • mercadeo de que los pequen˜os productores obtienen un beneficio mayor, en realidad el

  • resultado del ana´lisis demuestra lo contrario, los productores obtienen un beneficio mo´dico

  • con respecto al beneficio total obtenido.

  • Keywords: subject area economic development, globalization, Latin America

  • Introduction

  • The Fairtrade network is growing, claiming a large share of the market for a number of different

  • products. There has also been a rapid growth in the numbers of Fairtrade towns, schools, univer-

  • sities, and churches (Fairtrade Foundation, n.d.; Krier, 2005). However, an important question is

  • whether this expansion of Fairtrade in consumer countries has actually led to fairer prices and

  • production practices. Does Fairtrade have the ability to challenge the exploitative structure of

  • the international market, with particular reference to the coffee trade?

  • The study on which this article is based examined these questions using the case of Fairtrade

  • coffee production and trade in Nicaragua and Guatemala. Coffee is the product that has received

  • the most attention and has the largest market share within the network of Fairtrade products. We

  • followed a global value chain (GVC) approach to analyze the distribution in value of Fairtrade

  • coffee that is sold and consumed in Norway. The benefits of Fairtrade are analyzed according to

  • the income generated in the chain from production to consumption, as well as accounting for

  • the consequences of Fairtrade for local producers. The research involved a comparative case

  • study of two coffee cooperatives that have been certified Fairtrade. An important contribution

  • to the analysis is an exploration of the varieties of meaning invested in the global value

  • chain and how markets and semiotics work together in relation to power structures and

  • hierarchies.

  • We begin with important background information on the Fairtrade network and the inter-

  • national coffee market, as well as providing an overview of the value chain and some back-

  • ground on the semiotic analysis. We then synthesize results from the global value chain

  • analysis with a comparative narrative analysis of the two producer cooperatives. Finally, we

  • reflect on why the value distribution in the Fairtrade coffee network is skewed and give some

  • suggestions for a fairer Fairtrade regime. We argue that in the post International Coffee Agree-

  • ment (ICA) world, power within coffee value chains is being consolidated among actors in con-

  • suming countries to the detriment of producers, and that this is the case for both conventional and

  • Fairtrade coffees. This power consolidation is contributing to an increasing preference within

  • Fairtrade coffee chains for coffee produced by large, second order cooperatives, to the detriment

  • of smaller cooperatives and a reduction in Fairtrade benefits in the local areas where the coffee is

  • produced.

Who Really Benefits from Fairtrade?

  • Background on Fairtrade and the International Coffee Market

  • The earliest traces of Fairtrade in Europe date from the late 1950s, but the first Fairtrade organ-

  • ization was not created until 1964 (Fridell, 2004). In the 1980s, a Dutch church-based NGO,

  • Solidaridad, conceived the idea of a Fairtrade label as a new way of visualizing and communi-

  • cating the idea of fair practices to the broader public. In 1988, the Max Havelaar label was estab-

  • lished in the Netherlands, the name being taken from the 1860 novel by Multatuli (Eduard

  • Douwes Dekker), Max Havelaar: Or the Coffee Auctions of the Dutch Trading Company,

  • which was written in protest against the abuse of Dutch colonial power in java and Sumatra

  • (Multatuli, 1901). Conventional importers that met Max Havelaar standards were permitted to

  • use the label on their products in exchange for a certification fee. This arrangement was lucrative

  • for traders because ‘conventional importers would be encouraged to participate in Fairtrade

  • because of the “added value” the Fairtrade label—injected with symbolic meaning—would

  • give them on the market’ (Renard, 1999, cited by Fridell, 2004, p. 419). The Fairtrade

  • network was significantly influenced by the broader Fairtrade movement, but the intention to

  • use conventional market actors is an important distinguishing characteristic of the Fairtrade

  • network (Fridell, 2004; Jaffee, 2007).

  • The Fairtrade network is currently defined by the informal umbrella network FINE,1 which

  • includes Fairtrade Labelling Organization International (FLO). FLO International, established

  • in 1997, is an umbrella group for national Fairtrade initiatives, such as Max Havelaar, Trans

  • Fair, and the Fairtrade Foundation (Fridell, 2004). FLO International, currently separated into

  • FLO-International and FLO-Cert GMBH, develop and review the Fairtrade standards and

  • provide support to Fairtrade certified producers (FLO-International) (Fridell, 2004). The core

  • principles of the FLO system for coffee are a price floor and a social premium. The Fairtrade

  • minimum price forms part of the product standard and is ‘intended to cover the average produ-

  • cer’s costs of sustainable production (COSP)’ (FLO International, 2006, p. 1). This Fairtrade

  • premium is intended for investment in social development in the producer community.

  • The Fairtrade price floor was US$1.21 per pound at the time of this research (2007),2 though it

  • rose to US$1.25 as of 1 June 2008 (FLO International, 2008), which was the first adjustment since

    1. The social premium was US$0.05 at the time of this study; it rose to US$0.10 on 31 January
  • 2008 (FLO International, 2008). The coffee futures market (New York for arabica and London for

  • robusta) is used as a reference point for the social premium. If the conventional (‘C’) price exceeds

  • the FLO price, buyers are required to pay the ‘C’ price plus the social premium. In other words,

  • under this condition, the Fairtrade price floor is inactive. The Fairtrade price floor is the ‘fob’ (free

  • on board) price for the exporting cooperative, indicating that the seller pays for transportation of

  • the goods to the port of shipment, as well as loading costs. The buyer pays freight, insurance,

  • unloading costs and transportation from arrival port to the final destination (Talbot, 2004).

  • The International Coffee Market

  • The international coffee market is usually described as a vulnerable and inherently cyclical

  • market, with shifting prices (Lewin et al., 2004). Vulnerability in the coffee market is a conse-

  • quence of a number of diverse factors, including structural global oversupply, natural disasters

  • in Brazil, a shift in the bargaining power of agents in the coffee chain, and the failure to renew

  • the International Coffee Agreement (ICA) (Talbot, 2004). The ICA was one of the independent

  • commodity agreements developed under the General Agreement on Tariffs and Trade (GATT), in

  • which governments in both producing and consuming nations sought to agree to predetermined

  • 528 S. Johannessen & H. Wilhite

  • supply levels through the use of export quotas. The quotas restricted coffee exports, raising world

  • market prices for green coffee (Bacon, 2005; Muradian and Pelupessy, 2005).

  • Under the ICA, more than half of the total income from coffee went to producing countries

  • (Talbot, 2004). The end of quotas and the price crash of 1989, referred to as the first coffee

  • crisis, resulted in a rise in income for consumer countries of about three quarters of the total

  • retail price, while the income of producer countries fell to about 15% compared to what it

  • had been under the ICA regulations. The Brazilian frost temporarily shifted the surplus back

  • to producer countries, but in the build up to the second coffee crisis, almost all surpluses

  • were retained by consuming countries. Between 2001 and 2004 many producers received far

  • less than it cost them to produce coffee (Talbot, 2004). The breakdown of the ICA, accelerated

  • by large TNCs with their powerful lobbying influence, led to a decrease in the influence of pro-

  • ducer countries. This, in addition to liberalization policies by the World Bank (Talbot, 2004),

  • resulted in an increase in coffee production, followed by rising inventories in consumer

  • countries, slow-moving demand, and market concentration in the trading and roasting industries

  • (Bacon, 2005; Ponte, 2002). Large multinational corporations took advantage of their position

  • by buying larger quantities of low quality robusta coffee from Vietnam and blending this

  • with higher quality arabica coffee. This lowered demand for arabica coffee, pressing prices

  • down. Additionally, the changed structure of the coffee chain, along with privatization policies,

  • has limited the control of producer governments over production and prices. Large TNCs cur-

  • rently now have control of the entire chain, from producer to consumer (Talbot, 2004).

  • Increasingly, the value added for all kinds of coffee ends up in consuming countries. In pro-

  • ducing countries, actors sell green coffee according to the quality evaluated at the export point,

  • with reference to the futures market. In consuming countries, coffee is increasingly sold with

  • symbolic and in-person service components; the coffee’s value is strongly influenced by roast-

  • ers, retailers, and coffee owners (Daviron & Ponte, 2005). This contributes to what Ponte (2002,

  • p. 19) refers to as the ‘latte-revolution’. Roasters and retailers capture increasingly more profit

  • downstream. Expensive non-coffee components, such as wages, packaging, and marketing con-

  • stitute an increasing share of the total retail price (Lewin et al., 2004). At the same time, produ-

  • cers at the farm gate have seen their total share of value decline from approximately 30% to

  • about 5 – 10% over the past two decades (Lewin et al., 2004; Talbot, 2004).

  • Norway provides an interesting focus for an analysis of coffee consumption and the fair trade

  • concept. Norwegians are among the highest consumers of coffee in the world, with an annual per

  • capita consumption of 9.3 kg in 2004 (Giovannucci & Koekoek, 2003). The national initiative of

  • Fairtrade, Max Havelaar Norway (MHN), was established in 1997. Fairtrade certified coffee has

  • a market share of about 1.5% (Hammer, 2008). The responsibility of MHN includes

  • quarterly control of importing contracts, payments, volume, and references in order to secure

  • the minimum price paid to producers by the licensees. In return, the licensees must pay a fee

  • to Max Havelaar (Hammer, 2007), which is Norwegian Krone (NOK) 1.8 per kilogram of

  • roasted coffee (Hammer, 2008). The license fee amounted to 29% of the total income of the

  • organization MHN in 2005. The additional funding is covered mainly by the Norwegian devel-

  • opment aid authority (Norad), and by relatively smaller contributions from other development-

  • oriented organizations (Anon., 2005).

  • The Global Value Chain (GVC)

  • The Global Value Chain (GVC) was developed along the lines of the concept of a global com-

  • modity chain (GCC) by Hopkins and Wallerstein (1986), who focused on international chains

Who Really Benefits from Fairtrade?

  • for agricultural products. Such an approach usually involves analysis of price formation at the

  • different stages of production and processing. The GVC approach seeks to break down the inter-

  • national structure of production, trade, and consumption of commodities into stages that are

  • embedded in a linear network of activities (Daviron & Ponte, 2005; Donovan, 2006; Kaplinsky

  • & Morris, 2000). The approach is explicit in its investigation of power structures and chain

  • governance in global agro-food networks. However, the approach is limited by its unidirectional

  • linearity (Hughes, 2000) and by its over-focus on global structure as opposed to place and

  • locality (Cooke et al., 2008). Furthermore, the approach leaves limited opportunities for incor-

  • porating social, cultural, and symbolic relations, and it has remained silent on consumption

  • (Gibbon & Ponte, 2005).

  • We have employed a complementary narrative analysis3 to investigate the semiotics, or the

  • meanings of Fairtrade coffee at nodes along the GVC. This is inspired by the commodity cultures

  • approach4 (Appadurai, 1986; Jackson, 1999, 2002; Kopytoff, 1986), which aims at interpreting

  • the changing meaning of the commodity within different cultures. The term ‘culture’ is under-

  • stood here in the widest sense as a collection of cognitive meanings and social practices at nodes

  • along the GVC. According to Appadurai (1986, p. 17), ‘a commodity is not one kind of thing

  • rather than another, but one phase in the life of some things’. This conceptualization of commod-

  • ity opens the way for exploring local conditions and incorporating both production and

  • consumption-centered approaches in the understanding of Fairtrade.

  • Many scholars have analyzed Fairtrade commodities in relation to Marxian production cen-

  • tered theory, in which the Fairtrade certified product is argued to represent many of the attributes

  • of a ‘fetishized’ product (Bryant & Goodman, 2004; Fridell, 2007; Goodman, 2004; Goodman &

  • Cohen, 2004; Hudson & Hudson, 2003; Moberg, 2005).5 The label, and its supporting

  • narratives, visualizes certain social relations between production and trade on the one hand,

  • and the consumer on the other (Raynolds, 2000; Whatmore & Thorne, 1997). This perspective

  • is important, but ignores the importance of marketing and representation strategies. According to

  • Bryant and Goodman (2004, p. 348), ‘commodities contain a double fetish that both obscures

  • realities at the site of production and creates cultural and economic surpluses for the consumers’.

  • Including consumption in the analysis of Fairtrade opens for the perspective that demand and

  • advertising contributes to the social construction of a new fetish (Baudrillard, 1981).6

  • We pursue the argument of Goodman and Dupuis (2002), going beyond the production –

  • consumption dichotomy and following ‘the things themselves’ (Appadurai, 1986, p. 5). By

  • deconstructing (Derrida, 1966) the idea and practice of the Fairtrade commodity, it is possible

  • to interpret the economic income and the semiotic value of Fairtrade coffee for the different

  • commodity cultures involved in the network. Our research seeks to analyze the power structure

  • within the Fairtrade global network and discuss how signs and images have the power to create

  • particular representations of people and objects. We examine the patterns of income generated

  • in the Fairtrade coffee chain from producer to consumer, as well as the subjective meaning

  • of Fairtrade. During fieldwork we have given special attention to narratives in two producer

  • cooperatives in Central America.

  • Research Methods

  • The research activities consisted of reviewing the literature and reports on Fair Trade and coffee

  • production, attending conferences (Ramacafe 2007 in Managua and the Second International

  • Symposium on multi-strata agro forestry systems with perennial crops: making ecosystem

  • 530 S. Johannessen & H. Wilhite

  • services count for farmers, consumers and the environment in Turrialba, Costa Rica, 2007) and

  • conducting semi-structured interviews with key actors in the Fairtrade coffee network, including

  • producers and the management boards of producer cooperatives. The fieldwork took place from

  • July 2007 through February 2008 in Costa Rica, Nicaragua, and Guatemala. Empirical data was

  • collected at the local cooperative El Polo in Nicaragua and in six local cooperatives under the

  • national consortium of cooperatives Fedecocagua in Guatemala. Interviews were conducted at

  • the managerial level in Fedecocagua. The choice of these two producers provided the opportu-

  • nity to make a comparative analysis between a small cooperative and a large consortium of coop-

  • eratives (certified by Fairtrade as a secondary cooperative).

  • The main questions put to producers and producer cooperative board members concerned

  • their income from coffee, how they perceived their situation as coffee producers,

their

  • general knowledge of the available certifications, and whether these created some direct or

  • indirect benefits for them. Sample selection was based on convenience sampling and snowball

  • sampling, using CATIE (Centro Agrono´mico Tropical de Investigacio´n y Ensen˜anza) in Costa

  • Rica and the above-mentioned conferences as a starting point for building a network

  • of informants. Semi-structured interviews conducted in Nicaragua included primary producers

  • (n ¼ 25), technical advisors, secretary, staff, and managers (n ¼ 5). Field work in Guatemala

  • included semi-structured interviews with managers in Guatemala City (n ¼ 3), focus groups

  • conducted with six different local cooperatives including cooperative managers and primary

  • producers (n ¼ 6), with the number of participants ranging from three to seven. In Norway,

  • interviews were conducted with traders and managers of Max Havelaar (n ¼ 4).

  • Background on the Producer Cooperatives

  • The local cooperative El Polo is located in San Sebastian de Yali, Jinotega department in the

  • central-north region of Nicaragua. The cooperative was founded in 1996 and currently has

  • 275 members. El Polo initiated the Fairtrade certification with assistance from FondeAgro.7

  • The cooperation with FondeAgro assisted the cooperative in receiving an export license and

  • establishing direct contact with an importer in Sweden. The possession of an export license

  • and an agreement with an importer are prerequisites for Fairtrade certification. The cooperation

  • with FondeAgro proved to be very important for the local cooperative, since it had only one

  • buyer in the period from 1997 to 2003, Atlantic-ECOM, an exporting company operating

  • throughout Latin America. Consequently, Atlantic-ECOM had a significant amount of negotiat-

  • ing power over the cooperative during that period. The cooperation with FondeAgro was essen-

  • tial to El Polo’s efforts to export its coffee to a differentiated market, including the Fairtrade

  • market (Solorzano, 2007). Currently, about 20% of the cooperative’s exports are to the Fairtrade

  • market and about 40% to Starbucks C.A.F.E. practices. In addition, the cooperative exports

  • about 10% of its production to the specialty or gourmet market, which yields prices far above

  • the Fairtrade minimum price.

  • The national consortium of cooperatives Fedecocagua (Federacion de Cooperativas Agricolas

  • de Productores de Cafe´ de Guatemala R.L.) was founded in 1969 by 19 local cooperatives. Their

  • intention was to improve the position of small-scale coffee growers in Guatemala. Currently,

  • Fedecocagua consists of more than 148 cooperatives and is the umbrella organization of

  • 20,000 farmers. About 70% of its producers are indigenous people, the majority Mayan, and

  • more than 100,000 people that are involved with Fedecocagua. In 1973 Fedecocagua started

  • selling to the alternative market, which evolved into FLO in 1997. Fedecocagua is certified as

  • a second level cooperative, indicating that it is certified on behalf of all the local cooperatives

Who Really Benefits from Fairtrade?

Table 1. Comparative analysis of production and organization

  • Cooperative

El Polo

Fedecocagua

  • Nationality

  • Location

  • Founded

  • Initiated Fairtrade

  • Type

  • Members

  • Certified Fairtrade

  • Export Fairtrade,

  • percentage of total

Nicaragua

San Sebastian de

Yali, Jinotega

Local 1st level

100%

20%

Guatemala

National basis with 148 local cooperatives

Alternative market: 1973 (FLO: 1997)

National 2nd level

Almost 20,000

100%

30 – 40%

  • Export Fairtrade,

7 containers

630 containers

  • volumes

  • Other certifications

Starbucks C.A.F.E.

practices

Utz Certify, Rainforest Alliance, Starbucks C.A.F.E. practices,

Nescafe´ from Nestle´, program AAA from Nespresso and 4C

  • Percentage certified

40%

70 – 75%

  • other initiatives

  • supplying coffee to the national consortium of cooperatives. According to a capacity study from

  • CecoEco and CATIE in Costa Rica in cooperation with the World Bank, Fedecocagua performs

  • the function of an external commercial entity, or exporting firm, for its member cooperatives.

  • The consortium of cooperatives is experienced in dealing with international markets due to its

  • professional structure and its technical and production capacity (Junkins & Yaniris, 2005). Fede-

  • cocagua sells 30 – 40% of its coffee under Fairtrade, and has the capacity to deliver more depend-

  • ing on consumer demand (Personal

interview, Marketing Manager, Fedecocagua, 2007,

  • Guatemala City).

  • The Economic Value Chain from Central America to Norway

  • The coffee commodity chain is relatively straightforward in that few other inputs are used in the

  • process from growing and processing green coffee, to its manufacture and final consumption

  • (Talbot, 1997). The chain has very few side branches, which makes it feasible to estimate dis-

  • tribution of income along the chain.

  • The analysis of income generated along the chain is divided into four main stages, with sub-

  • stages. The first stage is the income generated by the producer, which is the income at farm gate.

  • The second stage is the income generated in the producer cooperative. In Guatemala this stage is

  • divided into a sub-stage by level of cooperative (first or second level). The third stage is the

  • income generated by the importer/roaster; in Norway the majority of large importers are also

  • roasters. The fourth stage is the income of wholesalers, retail trade, cafe´s, and the state

  • through taxation. The total income along the chain is calculated according to retail prices, or

  • the amount a Norwegian consumer pays for the product. The economic value chain is calculated

  • from the agricultural cycle 2006/2007, a year when higher coffee prices prevailed.

  • First, we estimated the difference between gross income of producers and producer organiz-

  • ations in Nicaragua and Guatemala (Table 2).

  • 532 S. Johannessen & H. Wilhite

  • Table 2. Estimated income from coffee in Roasted Coffee Equivalents. Agricultural cycle 2006/

  • Actors

Average price roasted coffee NOK/kg Percentage of total price

  • Producers Nicaragua, farm gate

  • Producers Guatemala, farm gate

  • Total value producer cooperative; Nicaragua

  • Total value producer cooperative; Guatemala

11.7

9.7

18.0

18.9

  • Notes:

  • a Method of calculating income from coffee in Guatemala (a 1 – 17).

16%

13%

24%

26%

    1. Price given by producer per quintal pergamino.
    1. Multiplied by 1.25 to obtain the price per quintal green coffee (where 1 qq green coffee is 1.25 qq pergamino)

(excludes price of processing and transportation).

    1. Price is converted to US dollars per pound of green coffee, based on an exchange rate of 7.6 Guatemalan Quetzal to

the dollar (average for the period Nov to Feb 2006/2007 from el Banco de Guatemala); and where 1 qq green

coffee is 100 pounds of green coffee or 45 kg) (Ex: (842.81/7.6)/100 ¼ 1.11).

    1. Price US/lb green coffee is converted to Toasted Coffee Equivalents (TCE) by multiplying by 1.19, where 1.19 kg

of green coffee corresponds to 1 kg of toasted coffee (International Coffee Organization).

    1. This is then converted to NOK per lb TCE based on the exchange rate of 5.39 to the US dollar.
    1. This is then converted to NOK per kg by multiplying by 2.2 (1 kg ¼ 2.2 pounds).
    1. Calculation of interest of pre-finance paid by the producers: 25% (focus group, Guatemala).
    1. Calculation of transportation and processing fee to Fedecocagua from 1st level cooperative liquidated price: 15%

(focus group, Guatemala).

    1. Subtract step 7 and 8 from price in step 5 to obtain the direct income to producers.
    1. The price received by the producer cooperative is the producer price adding the 25% pre-finance and transportation

and processing fee to Fedecocagua.

    1. The calculated value to Fedecocagua.
    1. Fairtrade price floor in US/lb green beans.
    1. Multiply by 1.19 to obtain the value to Fedecocagua in TCE, where 1.19 kg green coffee corresponds to 1 kg of
    1. Converted to NOK per kg TCE based on the exchange rate of 5.39 to the US dollar and by multiplying by 2.2 (1 kg

toasted coffee (International Coffee Organization).

¼ 2.2 pounds).

    1. The assumed income of Fedecocagua is calculated by subtracting the income for producers and the producer 1st

level cooperative.

    1. The assumed income of the 1st level cooperative is calculated by subtracting producer income and the income of

Fedecocagua.

    1. Total income producer country equals the assumed price paid to Fedecocagua.
  • b Method of calculating income from coffee in Nicaragua (b 1 – 11).

    1. Price given by producer per quintal pergamino coffee.
    1. Multiplied by 1.25 to obtain the price per quintal green coffee (where 1 qq green coffee is 1.25 qq pergamino)

(excludes price of processing and transportation).

    1. Price is converted to US$ per quintal green coffee, based on an exchange rate of 18 Nicaraguan Co´rdoba to the

dollar (average for the period Nov to Feb 2006/2007 from el Banco Nacional de Nicaragua).

    1. Converted to US$/lb by dividing by 100 (where 1 qq green coffee is 100 pounds of green coffee).
    1. Price US/lb green coffee is converted to Toasted Coffee Equivalents (TCE) by multiplying by 1.19 (where 1.19kg

green coffee corresponds to 1kg of toasted coffee, International Coffee Organization).

    1. This is then converted to NOK per lb TCE based on the exchange rate of 5.39 to the US dollar.
    1. This is then converted to NOK per kg by multiplying by 2.2 (1 14;kg ¼ 2.2 pounds).
    1. Calculation of interest of pre-finance paid by the producers: 25% (interview, Nicaragua).
    1. The price paid to producers is calculated by subtracting interest of pre-finance.
    1. The total price received by the cooperative is calculated according to price liquidation as shown below (Solorzano,

2007) from the agricultural cycle 2006/2007, subtracting the price paid to producers.

    1. Total income for producer country is calculated by adding the income of producers and the income of the producer

cooperative.

Who Really Benefits from Fairtrade?

  • The first thing to note is that the second level producer cooperative in Guatemala receives a

  • larger share as percentage of total retail value than the producer cooperative in Nicaragua. On the

  • other hand, at the farm gate, the producers in Guatemala receive a smaller share of total retail

  • value than the producers in Nicaragua. The implication is that more benefits reach the producers

  • in cases in which first level cooperatives are certified. This may be assumed due to the additional

  • link in the value chain for the second level cooperative due to transportation and security fees.

  • However, it is also important to note that the Guatemalan consortium of cooperatives has a stron-

  • ger bargaining power over the trader and the potential to arrive at a better price. In both cases the

  • social premium from Fairtrade consists mainly of income at the producer cooperative level,

  • where both certified cooperatives indicated that the social premium was spent on increasing

  • the technical competence of the cooperative (see next section).

  • All the producers interviewed in both Nicaragua and Guatemala use a system of liquidation of

  • price; thus the price given is the average of the liquidated price for the agricultural cycle 2006/

    1. The system of liquidation of price is based on the futures market where prices fluctuate on
  • a daily basis. The producer at farm gate level and the cooperative sell at certain points during the

  • agricultural cycle and at certain prices, which is also the basis of contract bargaining with inter-

  • national traders.

  • The second level cooperative in Guatemala is able to supply a large amount of coffee and

  • capture more value in the chain, but the creation of a second link in the supply chain seems to

  • decrease the direct economic benefits to producers at farm gate level. This is due to increased

  • transportation costs and a security fee of 15% (30% for certified coffee) to the national consortium

  • of cooperatives. Additionally, the marketing manager of Fedecocagua (Personal interview, Mar-

  • keting Manager, Fedecocagua, 2007, Guatemala City) claimed that farmers receive 88% of the

  • Fairtrade income, or the price floor for green beans, which at the time of the research corresponded

  • to US$1.21. Fedecocagua thus keeps 12% of total income.8 The average price received directly by

  • producers was actually US$1.15 per pound of green coffee. The average ‘C’ price for the corre-

  • sponding period was US$1.286 (International Coffee Organization, n.d.; indicator prices). It may

  • also be assumed that the second level cooperative receives a higher price for their coffee, as Gua-

  • temala is recognized for a price bonus according to the quality of its products (Personal interview,

  • Purchasing Manager, Coop Norway Kaffebrenneri, 2007). As a result, the income of the second

  • level cooperative is slightly higher than indicated in Table 2. Accordingly, it is possible to assume

  • a difference in income between the national consortium of cooperatives and the local coopera-

  • tives. As the indicator prices listed in Table 2 were calculated when higher prices prevailed,

  • the income to producers at farm gate will be lower when the fair trade price floor is active.

  • The income generated by one brand of Fairtrade coffee, from producers in Guatemala to retail

  • stores in Norway, is portrayed in Table 3. As the table shows, the income for the producer at the

  • farm gate of one package of Farmers coffee is 13.1% of the retail value, whereas the importer/

  • roaster has an income of almost 60% of the retail value.

  • From the distribution in Table 3, the income generated by Norway, representing a consumer

  • country, is about 74% of the total retail price. The income generated by retail is extremely low if

  • one takes the VAT into account. However, this is a general characteristic for products such as

  • coffee, which are sold at a low surplus value in order to attract customers (Ponte, 2001). Accord-

  • ing to Talbot (1997, 2004), the income to producers of conventional coffee decreased from

  • 22.7% to 11.3%9 over a five year period (1985 – 1990). Furthermore, the quota suspensions

  • destabilized the ordered market, and TNCs used their market power to increase their share of

  • income. Income to producers increased to 14.6% in the conventional coffee market in 1998/

  • 1999, and then decreased to 10% in 2000/2001 during the second coffee crisis (Talbot, 2004,

  • 534 S. Johannessen & H. Wilhite

Table 3. Distribution of value, Guatemalan producers. Agricultural cycle 2006/2007

  • Actors

Value added (% of total) Value added per package (NOK/250 gr.)

  • Retail

  • Max Havelaar Norway, certifier

  • Joh Johannson AS, importer and roaster

  • Agent (n.a.)

  • 2nd level cooperative, exporter

  • 1st level cooperative

  • Producer at farm gate

  • Total

13.8

2.4

58.2

VERDI!

7.0

5.5

13.1

2.75

0.48

11.87

1.38

1.09

2.61

19.90

  • p. 169). Currently, the prices of green coffee are back to 1999 levels, but the distribution of

  • benefits to producers is expected to be lower due to an additional shift in surplus to consumer

  • country (Talbot, 2004). Talbot (2004) estimates that in 1987, green coffee accounted for 80%

  • of material input costs in consumer countries, with only minor additional increased costs. The

  • substantial increase in the value of coffee suggests significant increases in the amount of

  • surplus in consumer countries. The figures given in Table 3 for the Fairtrade market correspond

  • to the income at producer level in the conventional market, which is predictable due to the inac-

  • tive price floor of the Fairtrade system. However, the amount of surplus to producers is currently

  • expected to be very low due to inflation and increased costs of fertilizer.

  • The distribution of income by sector for Fairtrade coffee from Guatemala, sold in the cafeteria

  • on the campus at the Norwegian University of Life Sciences (UMB) is shown in Table 4. The

  • estimation is made for Fairtrade coffee consumed by students, who are exempt from VAT

  • when using their student cards.10 Producers’ gross income in Guatemala from one cup of

  • coffee bought at the university campus of UMB is 2% of the total retail value (Table 4). The

  • figure reflects the value received by producers when the Fairtrade price floor was inactive

  • because the ‘C’ price was higher than the Fairtrade price floor. The total value for the producer

  • country, Guatemala, is 3.9%. Given that prices are higher than the price floor set by FLO, an

  • indicated fair price to the producer country is less than 3.9% of the total retail value.

  • Table 4. Distributed value of one cup of brewed Fairtrade coffee, UMB. Agricultural cycle

  • 2006/2007

  • Actors

Percentage of total price

Total price

  • Sia˚s cantine

  • Max Havelaar

  • Friele AS

  • 2nd level cooperative

  • 1st level cooperative

  • Producer

  • Total

  • Total consumer country

  • Total producer country

79.17

0.38

16.52

1.07

0.84

2.02

96.07

3.93

4.75

0.02

0.99

0.06

0.05

0.12

6.00

5.76

0.24

Who Really Benefits from Fairtrade?

  • The university cafeteria receives about 79% of the total retail value, whereas the importer and

  • roaster, Friele AS, receives about 16%. Thus, from the direct sale of a cup of Fairtrade coffee,

  • 96.07% of total retail value remains in the consumer country.

  • The direct benefits from Fairtrade to producers are at their lowest when the price floor is inac-

  • tive, which was the case in this analysis, since the conventional price was higher than the Fair-

  • trade price floor. The figures above are comparable to the conventional market because the main

  • difference in producer income between a conventional coffee chain and the one described above,

  • given that producers are organized in cooperatives, is the social premium. The social premium is

  • a required payment which augments the conventional price. It is earmarked for local develop-

  • ment activities. In both of the cooperatives studied, we found that the social premium was

  • used to increase the organizational capacity of the certified cooperative, in addition to providing

  • technical support at farm levels. Converting the social premium based on the same calculations

  • as above,11 the social premium of US$0.05 per pound of green coffee beans is equivalent to 0.70

  • NOK/kg Roasted Coffee Equivalents (RCE), or 0.01% of the total retail price per package of

  • Fairtrade coffee (250 grams). In comparison, the income from the license fee of Fairtrade

  • coffee in Norway of NOK 1.8 per kg (Hammer, 2008) is about 0.02% of the total retail price

  • of Fairtrade coffee. The social premium has currently increased to US$0.10 per pound Green

  • Bean (GB), thus equivalent to 1.4 NOK/kg RCE, or 0.02% of the total retail price per

  • package of Fairtrade coffee (250g). These calculations highlight the fact that the Fairtrade cer-

  • tification increased the income of the producer cooperative in Guatemala by 0.14%, from 3.79 to

  • 3.93%, in the distribution of value from brewed coffee.

  • In summary, the distribution of value in the coffee chain from Central America to Norway is

  • skewed dramatically in favor of the consumer country. During the period of this study, the

  • increased value to producer cooperatives from the Fairtrade certification was 0.01% of the

  • total retail price per package (250g) of Fairtrade coffee. In the distribution of value from

  • brewed coffee, the Fairtrade certification increased the income of producer cooperatives from

  • 3.79% to 3.93%. The fair price to producers was about 16% and 13%, respectively, of the

  • total retail price calculated when the price floor was inactive. Consequently, an even lower

  • income than that calculated above is indicated as a fair price to producer cooperatives. The

  • large consortium of cooperatives, Fedecocagua, captures a higher percentage of value in the

  • chain and a larger market share compared to the local cooperative El Polo. However, the produ-

  • cers organized under Fedecocagua receive a smaller percentage of retail value at farm gate, most

  • likely due to the higher operational costs of Fedecocagua and to the contributions El Polo has

  • received from FondeAgro in the certification process.

  • Producer Experiences of Fairtrade

  • The label of Max Havelaar signifies a relationship between producers and consumers, whereby

  • consumers are made aware of beneficial conditions for the producer. The following section gives

  • attention to the meaning of Fairtrade for producers and compares perceptions and benefits of

  • Fairtrade between the two selected cooperatives.

  • A representative response of Guatemalan members of local cooperative boards is given below,

  • when they were asked for their opinions about Fairtrade:

  • We have Utz (Certify) and Starbucks (C.A.F.E. practices), they are the certifications. We sell to

  • Fedecocagua which sells to a fair market.12 (Focus group participant, local cooperative board,

  • Guatemala)

  • 536 S. Johannessen & H. Wilhite

  • The local cooperatives in Guatemala have a very limited knowledge of Fairtrade. The produ-

  • cers have been told by Anacafe, the National Coffee Association in Guatemala that in the future

  • all coffee will have to be certified if producers are to find a buyer. Fairtrade, however, is viewed

  • as a market operationalized through Fedecocagua and none of the respondents in local coopera-

  • tive boards had initiated Fairtrade. During focus group discussions with local cooperatives

  • under Fedecocagua, 16% of the participants replied that they do not sell to the fair market

  • and about 33% replied they have been told, but were unsure whether Fedecocagua sells to the

  • fair market.

  • Members of the local cooperative board in Nicaragua were more knowledgeable about

  • Fairtrade, as this quote indicates:

  • I am in agreement with the fair market, it is a good market. The difference to the conventional market

  • is that we sell a bit more. But the problem we have here is perhaps the country we have. Our govern-

  • ment, there are no incentives for the producers like in Costa Rica . . . 13 (Personal interview, local

  • cooperative board member, Nicaragua)

  • In Nicaragua, all the members of the local cooperative board demonstrated knowledge of

  • Fairtrade. They also expressed a greater sense of ownership of the certification, which they

  • themselves had initiated with the assistance of FondeAgro. However, at the primary producer

  • level in Nicaragua, only 39% of participants (n ¼ 26) replied that they participate in Fairtrade.

  • When inquiring about the benefits of the certifications and the social premium from Fairtrade,

  • the respondents in Guatemala highlighted that they are still waiting for the benefits from the

  • certifications.

  • We sent a letter as well, where we demanded explanations of why we they did not give us a

  • surcharge. They did not respond. This was for CAFE´ practices and Utz. We did not demand to

  • FLO because this started many years ago. . . . I think that FLO works well, it is good what they

  • do, but here—in theory—well, in practice it is nothing.14 (Focus group, Fairtrade producers,

  • Guatemala)

  • Their responses indicate that the members of the local cooperative boards in Guatemala have

  • not seen any direct economic benefits from Fairtrade. More importantly, in many cases they do

  • not claim economic benefits of Fairtrade because they do not understand the system and their

  • rights to claim. The members of the local cooperative boards highlighted how they could

  • achieve some local benefits from Fairtrade. ‘Put in your papers that the cooperatives would

  • like to receive the social premium directly’15 (Focus group, local cooperative board members,

  • Guatemala).

  • The social premium derived from Fairtrade in Guatemala is spent on increasing the technical

  • and organizational efficiency of Fedecocagua at a centralized level, in addition to improving

  • quality and increasing competitiveness with coyotes.16 The social premium has also been

  • used to construct a new processing mill for the separation of certified coffee from conventional

  • coffee. Thus, the Fairtrade certification has in many ways subsidized new and additional certi-

  • fications and increased the capacity of the cooperative.

  • In Nicaragua, producers responded that the social premium is used for improving the tech-

  • nical efficiency of production and the quality of their coffee, and that in the future they plan to

  • build latrines on farms without latrine facilities. The manager of the local cooperative in

  • Nicaragua is very satisfied with Fairtrade but he pointed to problems with Fairtrade such

  • as the lack of robust demand; the lack of economic incentives for quality; the inflexible

  • nature of the system regarding price; the evolution of stricter obligations in production;

  • and the low minimum price. He also mentioned the enormous amount of paperwork required

Who Really Benefits from Fairtrade?

  • of producers, including the filling out of many forms and registers. This task is difficult for

  • people with low levels of education and impossible for those who are illiterate unless they

  • seek assistance.

  • The producers in both Nicaragua and Guatemala were preoccupied with the current high cost

  • of living and inflation, and compared this to the very low ‘fair price’ from FLO. A Guatemalan

  • producer told us that ‘FLO is really low, . . . here we are waiting for a price more fair, right.

  • Against what are they setting the price?’17 A Nicaraguan producer put it this way: ‘. . . we are

  • hoping that maybe the politics of fair market will increase the price. In our country now, every-

  • thing is very expensive’18 (Personal interview, coffee producer, Nicaragua).

  • The main difference in the experience of Fairtrade between the two cooperatives is in the dis-

  • tribution of local benefits and information. The local cooperative in Nicaragua regards the Fair-

  • trade certification as providing clear benefits, whereas the local cooperatives in Guatemala do

  • not. The national consortium of cooperatives in Guatemala, on the other hand, believes that Fair-

  • trade is the only certification in which the benefits are greater than the costs. However, the local

  • cooperatives in Guatemala express a lack of sense of ownership of the Fairtrade certification

  • compared to their Nicaraguan counterparts. The lack of ownership is due to six main factors.

  • First, all local producer cooperatives are ‘certified’ Fairtrade, which is not the case for the

  • other certifications. Second, there has not been any specified difference in income from Fairtrade

  • coffee compared to conventional coffee. Third, there are no clear obligations in production.

  • Fourth, a fee of 15% on income received is paid by the local cooperative to Fedecocagua for

  • transportation and security for all conventional coffee and Fairtrade coffee. However, the fee

  • is 30% for certified coffee (Utz Certify, Rainforest Alliance, and Starbucks CAFE´ practices).

  • Fifth, the certified coffee is sold in sacks with different colors, in order for easy separation at

  • the processing station. Fairtrade coffee on the other hand is not put into colored sacks or separ-

  • ated at the processing mill. Sixth, the local producer cooperatives have a right to claim economic

  • benefits from the other certifications, but not from Fairtrade.

  • The main perception of Fairtrade is that it does not make much of an impact. However, it is

  • evident that the producers in Nicaragua have a more positive view of the Fairtrade system in

  • those cases in which the social premium was spent on real social improvements, such as

  • improvements to the local office building and the promise to use benefits to improve latrines

  • on selected farms. Both cooperatives offered technical assistance to producers, but all of the

  • informants from first level cooperatives in Guatemala underlined the need to receive more

  • direct economic benefits from certifications and Fairtrade.

  • Why Value Distribution is Skewed

  • The Workings of the Market

  • The most obvious reason for the skewed distribution of value is the position of the Fairtrade

  • market in the conventional market after the label was mainstreamed in 1989. The idea of the

  • Fairtrade label was to reach a broad public by piggybacking on existing brands. The use of

  • existing market actors avoided the development of a new infrastructure and reduced the costs

  • associated with penetrating the market (Renard, 1999, p. 496).

  • According to the coffee multinational Starbucks, Starbucks and Fairtrade share the common

  • goal ‘. . . to help ensure that farmers receive an equitable price for their coffee and strengthen

  • their farms for the future’ (Starbucks homepage, n.d.). This is enabled since ‘. . . Starbucks

  • works with several organizations to make credit available to coffee growers, which enables

  • 538 S. Johannessen & H. Wilhite

  • them to postpone selling their crops until the price is favorable’ (Starbucks homepage, n.d.).

  • Starbucks does not indicate for which particular partner the price is favorable. According to

  • the manager of El Polo, the favorable partner becomes very clear: ‘I believe, for what concerns

  • Starbucks, Starbucks always sends contracts when the New York “C” price is at the ground,

  • when the prices have fallen. When the New York “C” price is high, Starbucks never sends con-

  • tracts. . . . It is the tricks of the market. They (Starbucks) are specialists on the market’ (Personal

  • interview, manager of El Polo, 2007, Nicaragua).

  • The specialists in the coffee market are powerful and receive the major share of the income,

  • both in the conventional market as well as in the Fairtrade market. The gaming of the Fairtrade

  • price became evident when the large transnational discount store Lidl (the Schwarz Group)

  • started selling Fairtrade products in 2006 (Network on European Worldshops, 2006). This

  • was a highly controversial issue, partly because Lidl started selling Fairtrade products shortly

  • after criticism that it was violating basic labor and trade union rights (Harmann & Giese,

  • 2005; Union Network Commerce, Global Union, 2007). However, since Lidl is a transnational

  • company with a large demand for its products, the price differential for the consumers between

  • Fairtrade and conventional coffee was negligible. Consequently, Fairtrade in Germany had to

  • negotiate a price differential between Fairtrade and conventional products in order to justify

  • fair trade for the consumer19 (Hammer, personal interview, 2008).

  • One of the primary reasons for the growth of Fairtrade is its mainstreaming in the market.

  • Large importers who control the majority of the conventional coffee supply chain respond to

  • consumer demand by distributing Fairtrade certified coffee. On the other hand, large distributors

  • are interested in buying large quantities of coffee. For this reason, it is the second level coopera-

  • tives, with their record of achieving good quality which tend to supply the majority of the Fair-

  • trade market. Smaller first level cooperatives find it difficult to compete with these large actors

  • and to capture market share. Other empirical studies (Fridell, 2007; Smith, 2007) have confirmed

  • that the more experienced and larger producer cooperatives dominate the Fairtrade market.

  • Another important factor is that the position of large second level cooperatives is strengthened

  • because they use the Fairtrade social premium to increase competitiveness both in the conven-

  • tional market and in the Fairtrade market. This was evident in our case study. The social

  • premium was used to subsidize new certifications through the construction of a new processing

  • plant for certified coffee. Fairtrade subsidization of other certifications has been detected in other

  • empirical analyses (Calo & Wise, 2005).

  • However, Fairtrade will not likely take a significant market share from conventional trade due

  • to the increasing power gap between producers in the South and Northern filiere actors (impor-

  • ters, roasters, and retailers). Fairtrade will only lead to short-term financial gains during periods

  • of really low conventional coffee prices due to the mechanism of the price floor. This is also

  • confirmed by a number of other empirical studies (Giovannuci & Ponte, 2005; Killian et al.,

  • 2006; Raynolds et al., 2004; Zehner, 2002). Moreover, this and other empirical studies show

  • that given the low volumes of coffee sold through Fairtrade channels, these short-term financial

  • gains are not significant enough to encourage further development (Bacon, 2005; Fisher, 2007;

  • Ponte, 2002; Slob, 2006; Smith, 2007). Our findings on market share are supported by other

  • empirical studies (Fisher, 2007; Hira & Ferrie, 2006; Lyon, 2006; Ponte, 2002; Smith, 2007;

  • Zehner, 2002).

  • Our analysis highlights a number of difficulties with the system of Fairtrade and its position

  • within the market. First, the Fairtrade criteria are intended to guarantee a minimum price and

  • social bonus to certified producers; the criteria are not aimed at ensuring a fair supply chain.

  • Second, the interest in buying large quantities of coffee leads to gambling with the Fairtrade

Who Really Benefits from Fairtrade?

  • price, with resultant downward pressure on prices. The Fairtrade price floor acts as a starting

  • point for bargaining in terms of price; however, with the ‘C’ price higher than the Fairtrade

  • price floor, this becomes a bargaining issue related to volume. This leads to the third difficulty,

  • the preference for large quantities of Fairtrade coffee with good quality and trace records inhibits

  • small cooperatives from reaping the benefits of Fairtrade. Fourth, the price of Fairtrade coffee

  • needs to be higher than that of conventional coffee, in order for the consumer to believe the

  • extra amount paid for the coffee reaches the producer. However, other empirical studies have

  • pointed out that the price must remain close enough to conventional prices, so as not to discou-

  • rage ethical consumers; thus the price floor may also indicate consumer willingness to pay

  • (Fridell, 2007, p. 192; Renard, 1999, p. 497). If the Fairtrade price is higher than the convention-

  • al price then demand will fall. This is an inherent contradiction (fairness versus profit) of the

  • Fairtrade system. A final point is that the producer and the consumer are in the foreground of

  • the Fairtrade chain, with the intermediate actors in the background. Thus a company such as

  • Lidl can distribute Fairtrade products regardless of its unfair trade relations.

  • Consumers and consumption narratives

  • The symbolic value of Fairtrade can be important for importers and roasters. Selling Fairtrade

  • coffee gives large companies, such as Lidl and Starbucks, the image of more socially concerned

  • companies. However, consumers need to feel assured that the Fairtrade price difference actually

  • does lead to benefits for producers. The Fairtrade network has played to this belief through mar-

  • keting producer ‘success stories’. According to Lamb, the Director of the Fairtrade Foundation:

  • In all these differing activities and promotions, the Foundation has sought to emphasize the

  • individual stories of farmers and workers . . . The message has focused on the most tangible benefits

  • of Fairtrade. (Lamb, 2007, p. 73)

  • He also says that it is the:

  • . . . marketing methods which are unique to Fairtrade and which seek to realize the core objective of

  • bringing the organized consumer closer together with disadvantaged, organized producers. . . . these

  • techniques have helped make Fairtrade fashionable.20 (2007, p. 55)

  • Based on our analysis of producer cooperatives in Central America, these success stories do

  • not reflect the concerns and misunderstandings we observed. Fairtrade has repressed problems

  • in production and obscured the power differential within the chain from production to consump-

  • tion, and Fairtrade marketing has exaggerated its benefits. The disconnection between the expec-

  • tations raised by the label and the realities for producers is also highlighted in other case studies

  • (Getz & Shreck, 2006; Jaffee, 2007; Lyon, 2006, 2007). Transparency will be necessary in order

  • to eliminate ‘fairwashing’ by multinationals and other traders who are not living up to their social

  • responsibilities. Consumers and producer organizations must engaged in pressing Fairtrade

  • producers and distributors into making their policies conform to the promise of Fairtrade.

  • Towards a Fairer Fairtrade Regime

  • The results of this study are consistent with other studies that conclude that Fairtrade does not

  • directly benefit the producer, but rather the producer cooperative, or in many cases the national

  • consortium of cooperatives (see Fisher, 2007; Giovannucci & Ponte, 2005; Lyon, 2007; Milford,

  • 2004; Murray et al., 2006; Slob, 2006; Smith, 2007).

  • 540 S. Johannessen & H. Wilhite

  • To improve the Fairtrade system it is important that the incentive system be organized such

  • that small cooperatives get a share of the social premium from Fairtrade coffee. In the case where

  • certified producer cooperatives are on a secondary or national level, the social premium should

  • go directly to the first level cooperative. Then it would be possible to achieve social and econ-

  • omic development objectives on a local and rural scale. It should be possible to ensure a larger

  • social premium without increasing the cost of the product, if traders are required to bear some

  • portion of the cost of a system in which they receive a large market advantage.

  • An important finding from our study is that increased market access is the key producer benefit

  • from Fairtrade. This is consistent with findings from other studies (Lyon, 2006; Raynolds, 2002;

  • Renard, 1999). However, in order for local cooperatives to reap significant benefits of Fairtrade it

  • will be necessary to reduce the entry barriers for small actors into the Fairtrade market, such as

  • the requirement that they have an export license. An emphasis on assisting local producer

  • cooperatives to enter Fairtrade markets and on increasing their institutional capacities may be

  • the most effective way to improve the Fairtrade distribution of benefits.

  • Conclusion

  • In the post ICA market, large multinationals control most of the supply chain in coffee. Both

  • value and surplus has increasingly been transferred to consumer countries. The Fairtrade

  • coffee chain is no exception, despite its symbolic message to consumers that it provides an

  • alternative to the conventional market. The main direct additional economic benefit from

  • Fairtrade during the period of this study resulted from the social premium, which provided

  • the producer cooperative with 0.01% of the retail price. The distribution of value to the consumer

  • country from the sale of brewed Fairtrade coffee was 96.3% of the retail value. Fairtrade

  • provides producers with market access, underlining how markets and semiotics work together

  • in the creation of niche markets. However, these ethically attractive products do not deliver

  • what they promise in terms of social and economic benefits for farmers. The bottom line is

  • that large multinationals are using the Fairtrade system to ‘fairwash’ their brands.

  • Notes

FINE consists of FLO (Fairtrade Labelling International), IFAT (International Federation of Alternative Trade),

NEWS! (Network of European World Shops), and EFTA (European Fairtrade Association).

Prices are given for washed arabica from Central America.

  • 3 We define ‘narrative analysis’ as an analysis of the general perception of the population of the workings and

meanings of Fairtrade coffee in each context.

This commodity cultures approach derives from Jackson (1999, 2002), is inspired by the work of Appadurai (1986)

and Kopytoff (1986), and involves rethinking the linear GCC approach to incorporate networks and variations in

narratives along the commodity chain (Bakker & Bridge, 2006; Cook & Crang, 1996; Hughes, 2000, 2006).

To Marx (1971), the economic value of exchange does not reflect the use value of a commodity; it is a direct

reflection of the demand for the product. His notion of commodity fetishism is based on the perspective that

through international trade, producers and consumers have no direct contact, therefore have no conscious

agreement to provide for one another. Thus, the value added by laborers and their social relations appear as

objective properties of the commodities. Marx (1971) typically referred to this objective property as a ‘fetish’

which masks the commodity’s true worth.

  • 6 Baudrillard (1996) further included two dimensions of value of the object. The symbolic value of an object is the

value that a subject assigns to an object in relation to another subject, thus the social construction of value relative to

other subjects. The sign value of an object is the value of the object within a system of objects, thus the personal

construction of value relative to other objects.

Who Really Benefits from Fairtrade?

FondeAgro is a part of MAGFOR (Ministerio Agropecuario y Forestal del Gobierno de Nicaragua), financed by the

Swedish aid agency (Asdi; Agencia Sueca de Cooperacion Internacional para el Desarollo).

This is correct according to the FLO system because the Fairtrade price is given as the FOB price.

  • 9 Calculated as the weighted average of prices paid to growers in International Coffee Organization (ICO) member

countries.

It is important to note that if one buys regular coffee including VAT, 33% has been added to the total product costs,

whereas the rates in Norway are 25% of the ‘added value’ of the product, excluding the value of the raw product.

  • 11 Given US$1 is equal to NOK 5.39; 1 pound is 2.2 kg; 1 kg green coffee is 1.19 kg toasted.

‘Tenemos utz y Starbucks, son las certificaciones. Nosotros vendemos por Fedecocagua que venden por una

Mercado Justo [We have Utz (Certify) and Starbucks (CAFE practices), they are the certifications. We sell to

Fedecocagua which sells to a fair market]’ (Focus group participant, local cooperative board, Guatemala).

‘Yo estoy en de acuerdo con mercado justo, es un buen Mercado. Porque la diferencia de mercado convencional es

que andamos un poco ma´s. El problema de nosotros es tal vez el paı´s que nos tenemos. El gobierno de nosotros, no

hay incentivos por los productores como en Costa Rica.’

Enviamos una carta tambie´n, una carta donde exigı´amos explicar, de que porque no damos un sobreprecio. Y no han

respuesta. Eso es lo que es CAFE´ practices y Utz. Ya lo que es FLO no reclamado de nada porque eso ha venido

desde muchos an˜os. . . . Lo que parece yo es que FLO trabaja bien, es bien lo que hacen, pero aquı´,—Pues en la

teorı´a pues—En pra´ctica no es nada.

‘Ponga ahı´ que las cooperativas les gustarı´a que el premio social venga directamente.’

Independent buyers of coffee.

‘FLO se queda abajo. . . . Pero ahı´ nos esperamos un precio ma´s justo, verdad. ¿Sobre que´ se marquen el precio?’

‘ . . . esperamos que tal vez las polı´ticas de comercio justo se suba. Porque aquı´ en nuestro paı´s ahora, todos los cosas

son carı´simo.’

  • 19 Hammer expressed that she does not know how Fairtrade Germany and Lidl resolved this particular case. However,

such an increase in price leads to increased profit somewhere in the supply chain and is a thought to be considered

when discussing the impasse between large actors and Fairtrade certifications.

In September 2005, the Fairtrade Foundation’s achievements in building consumer awareness of the Fairtrade Mark

were recognized by the Superbrands panel of brand experts. The Fairtrade Mark was named the winner of the

Superbrands Special Recognition Prize in the Media and Service Category (Lamb, 2007, pp. 64, 65).

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