Peru has pinned its hopes on Fairtrade coffee – will it be rewarded?

peru fairtrade
  • A series of price crises in the 1990s hit Peru’s coffee farmers
  • Today, around 15-25% of the country’s 110,000 farmers are associated with Fairtrade-certified cooperatives
  • Some believe they would be better served by a certification that understood their personal needs

IN THE coffee industry a lot of noise follows Fairtrade, not all of it positive.

In theory, the certification system aims to alleviate poverty by giving certified farmers the opportunity to earn a stable income above the market price.

The C price, a global benchmark for the price of coffee, is dictated by market forces rather than the best interests of the farmers. The idea, then, is that Fairtrade removes some of the uncertainty through its Minimum Price.

In 2019, for example, farmer cooperatives received at least $1.40 per pound (or $1.70 for organic), plus the additional Fairtrade Premium of 20 cents per pound. At the time, the C price was less than $1 per pound.

However, its critics highlight several problems.

Some suggest it encourages production, which, in turn, drives down the price of coffee by flooding the market. There are also implications around quality: the Fairtrade system tends to incentivise growers to dump their bad beans into its channels and to save the higher quality beans for selling at a better price.

Despite this, many of Peru’s coffee cooperatives have thrown their full support behind the Fairtrade model. Of the country’s 110,000 coffee growers, between 15% and 25% are thought to belong to cooperatives linked with international Fairtrade networks.

For an origin that doesn’t usually enjoy the same pull as the likes of Colombia or Ethiopia, the decision to adopt Fairtrade seems, on the face of it, like an astute move.

The rise of ethical consumerism means many now specifically search for certifications like Faitrade when shopping. And protecting farmers from the volatility of the C market tends to reduce the emergence of a disillusioned labour force, among other things.

But some worry that the long term impact could have implications.

peru fairtrade coffee trees

Collapse of the ICA

Many of Peru’s cooperatives took up Fairtrade in the context of low coffee prices that characterised the market around the turn of the century.

Up until the early 1990s, most farmers had relied on local brokers to facilitate sales, who would pay the cooperatives a price that suited them, rather than what was considered “fair value”.

But following the demise of the International Coffee Agreement (ICA), prices became vulnerable to volatile markets and, between 1992 and 2001, suffered from a series of crises which saw the price of coffee fall below $0.5 per pound.

Looking for a return to stability and a safety net for the country’s coffee producers, Peru’s cooperatives realised they needed to take action.

“The certification process was in response to low prices and as part of an effort to obtain better incomes for their coffees,” says Luis Navarro, the president of the Peruvian Chamber of Coffee and Cacao.

As word spread about the benefits of a Fairtrade certification, more and more cooperatives applied. In addition to receiving an above-market price for their beans, they realised that it offered the opportunity to sell more.

“Farmers see opportunities outside of Fairtrade, such as direct trade with roasters,” says Kenny Cruzado Bautista, a Lima-based coffee consultant. “But it is usually just for a small amount of coffee.

“At the end of the trade, they end up with a lot of coffee left over. So Fairtrade allows them to sell more and benefit from the extra money to improve their lives.”

Fairtrade often guides the way in which this additional income is spent to ensure it reaped the maximum long-term benefits both in terms of the farmers’ livelihoods and the future production of coffee.

For example, a recent study found that, in Peru, coffee farmers who are not part of a Fairtrade-certified cooperative are three times more likely to use drinking water from an unprotected source than those who were.

Fairtrade participation is also linked to higher schooling attendance, with children between ten and eleven years old more likely to be in full-time education.

“It has helped a lot,” Kenny explains. “The coffee farmers themselves cannot reach the markets. Before, they would keep the coffee and could not sell it all. Fairtrade allows them to associate in groups and gain a bigger audience to trade to other countries, which in turn, allows them to reinvest in their land.”

peru fairtrade coffee producer

Generation oversupply

Since its widespread adoption by many of Peru’s coffee cooperatives, Fairtrade has brought a level of stability that’s been absent since the collapse of the ICA.

In particular, it has helped promote a global culture of ethical consumerism which has got people used to the idea of paying more if they know it will provide some form of financial sustainability for farmers.

However, it is far from a silver bullet. And Fairtrade, like other certifications, has given rise to its own set of problems. Luis states that one of the biggest is it has “cultivated a generation of oversupply”, which has kept prices relatively low.

“The intention to ‘de-commoditise’ coffee with certificates has not produced the expected results because, at the end of the day, prices are set according to the supply and demand relationship,” he says.

“In practice there is much more supply of certificates than the demand. This process has led to the generation of oversupply not only of Fairtrade coffees, but also of other certifications.”

In its first decade alone, the global supply of Fairtrade coffee grew from 76,000 pounds in 1998 to more than 109 million pounds in 2009.

As a substitute for the ICA then, whose purpose was to restrict output to maintain higher prices and stored surplus beans to sell later when output dropped, it has fallen short.

Yet in spite of this, Kenny says Fairtrade’s premiums have also managed to price out domestic markets. “It is a double-edged sword,” he says. “We know it is good, but we can’t pay that much in the local market.”

Similar to the debate around other certifications such as B Corp, it’s agreed that while it has brought benefits, Fairtrade falls down in that it is all-encompassing – and therefore misses certain nuances.

It is felt instead that coffee cooperatives, and in turn, producers, would be better served by local organisations that understand their needs, such as the Peruvian government-led Programa de Desarrollo Alternativo (PDA).

Fairtrade has done an enormous amount in laying the groundwork. But pinning a future on the certification may come back to bite Peru’s cooperatives.