There’s an article over at the Telegraph critiquing the Fairtrade movement in coffee as relying on smoke and mirrors in the form of government subsidies for its business model:
“Fairtrade purports to work within the market economy but its rise has been largely based on marketing subsidies and public-sector procurement,” says Tom Clougherty, policy director of the Adam Smith Institute. Despite huge pressures on the public purse, local councils are squandering large sums becoming Fairtrade towns and cities, distributing posters and leaflets to nanny people into only buying Fairtrade. Meanwhile, the Fairtrade Foundation has received over £1.5m from the Department for International Development. It wants more. In December, reminiscent of 1970s-style industrial policy, it called for £50m of development aid to be spent as “strategic investment” on Fairtrade.
The article goes on to tout the methods used in Brazil—technological innovation—and the value-added approach used by the coffee roaster Café Britt, most of whose suppliers are self-employed small business people to improve productivity and grower incomes:
Brazil, conversely, pursued free-market reforms and the farmers have mechanised. This has enabled five people and a machine to enjoy the same output as 500 unaided farmers. Yet the Fairtrade Foundation, the lobby group behind the scheme in the UK, seems oblivious to this and admits it has no programmes to encourage the use of technology. Even worse, it is giving counterproductive advice to farmers, encouraging them mix different crops in the same field, thereby cutting productivity and making future mechanisation more difficult.
Despite Fairtrade’s moral halo, there are other, more ethical forms of coffee available. Most Fairtrade coffee on sale in UK supermarkets and on the high street is roasted and packaged in Europe, principally in Belgium and Germany. This is unnecessary and retards development. Farmers working for Costa Rica’s Café Britt have been climbing the economic ladder by not just growing beans but by also doing all of the processing, roasting and packaging and branding themselves. Shipping unroasted green beans to Europe causes them to deteriorate, so not only is Café Britt doing far more to promote economic development than Fairtrade rivals, it is also creating better tasting coffee.
But Café Britt is not welcome on the Fairtrade scheme. Most of Café Britt’s farmers are self-employed small businesspeople who own the land they farm. This is wholly unacceptable to the rigid ideologues at FLO International, Fairtrade’s international certifiers, who will only accredit the farmers if they give up their small business status and join together into a co-operative. “It’s like outlawing private enterprise,” says Dan Cox, former head of the Speciality Coffee Association of America. Many African farmers, organised along tribal lines, are similarly excluded from the scheme. Other producers complain that accreditation is needlessly bureaucratic and costs five times as much as organic certifications.
I don’t know what the solution for coffee-growers is although I suspect that it will be some combination of technological innovation, organization, and attrition as growers leave the business due to low world prices. But I found the failure to make certain distinctions puzzling.
First, there are two types of coffee being cultivated: arabica, the good and more expensive stuff, and robusta, the rougher and cheaper stuff. Robusta is commonly blended with arabica to lower the price. The second distinction that I found odd is that there wasn’t much mention of the way the world production of coffee has grown over the years as the following graph demonstrates:
Note that there are two important trends represented in this graph. First, production of arabica assumed a new level in the 1970’s. I think that this reflects the growth of boutique-style coffee shops in the 1970’s (Starbuck’s was founded in 1971). I was first exposed to such establishments with their dizzying array of varieties and additions in the 1970’s when I was working in Germany. Was Europe quicker to adopt them than was the United States?
Second, note the sharp increase in the production of robusta in the 1990’s. I think that can be explained by the following graph
As the graph makes clear practically all of the increase can be attributed to dramatically increased coffee production in Vietnam. Some increase in Vietnam’s coffee production is understandable, a return to the coffee production which had been disrupted by the Vietnam War but much of it is due to a specific policy by the Vietnamese government in a command economy as rice farmers are required to start growing coffee.. That can’t remotely be attributed to the workings of the market.
Finally, there’s no mention in the piece of the effects of rising prices of oil and the implications for that in the expenses of coffee producers in the form of higher transportation costs for product, fertilizer, etc.
Failure to make important distinctions like this, increases in the supply of coffee while producer costs have grown, suggests to me that this advocacy piece isn’t telling the whole story.