Fair trade is based on producers and focuses on how to improve producers' living conditions through trade. The core of free trade is free competition, cost compression, and profit maximization, which rationalizes the exploitation of producers and ignores the current situation of unreasonable income of producers.
The following graph shows the comparison between the free market and the fair trade market for coffee farmers in New York City, USA, from 1989 to 2019:
Fair Trade Minimum Price is a Safety Net for Farmers Facing Plummeting Prices
In 2019, the global market price of Arabica coffee fell to a 12-year low of less than $1 per pound. This is far below the cost of production for many farmers, which means families are struggling to survive. Coffee farmers experience extreme food shortages for three to eight months from the time their income runs out until the start of the next harvest season. Unable to make a living, coffee growers are having a difficult time choosing to move to the cities or abroad.
The Fair Trade minimum price guarantees that farmers' cooperatives will earn at least $1.40 per pound (or $1.70 in organic income), plus an additional Fair Trade premium of 20 cents per pound that they decide to invest. That's 65 percent higher than the average market price of 0.97 cents per pound for the first six months of the year.
This is not the first time prices have plummeted. Coffee prices are highly volatile, making it impossible for farmers to plan. The Fair Trade minimum price is a source of safety, protecting farmers when market prices are too low and allowing them to earn more when market prices are higher. In fact, the chart below shows that the Fair Trade Minimum Price has been in place for about 20 of the last 30 years. It has been a critical safety net for 20 years, and with the rising costs of agriculture and other economic, social and environmental challenges, it is now more important than ever.
Prices are just one tool to support farmers in a volatile market. Companies and traders need to adopt policies such as shared purchasing programs, reasonable payment terms, and facilitating access to pre-harvest financing. Fair trade trader standards need only these things to build long-term mutually beneficial relationships between producers and buyers, enabling producers to plan for the future and make strategic investments.
Fair Trade wants to ensure that farmers can not only survive but thrive. Fair prices are key, but there is also productivity, quality and cost effective farming.
Fairtrade is driving change and bringing benefits to over 760,000 Fairtrade coffee farmers. As part of this, it will help small farmers get a fairer share of the $200 billion global market. At the same time, when you drink a cup of Fair Trade coffee yourself, you can feel that you are doing your part to support coffee farmers around the world.