Will Fair Trade USA’s minimum price freeze hurt coffee producers?

  • Fairtrade International will increase its minimum coffee prices in August, with washed arabica minimums increasing by $0.40/lb
  • However, Fair Trade USA recently announced a minimum price freeze until at least next year
  • This could expose some producers to volatile and low market prices

IN MARCH, Fairtrade International announced an increase in its minimum coffee price. The new minimum for washed arabica coffee will be $1.80 per pound, a $0.40 increase, while the price for natural robusta will rise by $0.19 to $1.20 per pound. The new prices will take effect in August this year.

However, Fair Trade USA announced last week that it will impose a minimum price freeze until at least next year. In 2011, the organisation separated from Fairtrade International to expand the impact of the fair trade movement to new products, geographies, and producers.

The organisation has confirmed that they “have not made any decision as to whether or not to raise coffee minimum pricing or keep it the same. Rather, this will be determined with our multi-stakeholder Coffee Impact Advisory Board,” says Billy Linstead Goldsmith, senior director of communications & Fair Trade campaigns at Fair Trade USA. “We anticipate that the board will deliver a final determination by early 2024.”

Fairtrade International’s price increase had been long in the works and is backed by years of research. 

“Fairtrade International started its initial data collection and validation of costs of production in three continents in 2017,” says Marika de Peña, chair of CLAC-Fairtrade and representative of three producer networks. “Due to the high number of producer organisations (over 600), countries, continents and traders, the process takes time.”

The process involved organising workshops with producers, field visits and validating data with local and regional coffee experts. This was followed by stakeholder consultations with producers, traders, roasters and market organisations. 

“The decision on standards and prices in Fairtrade International is based on the outcomes of these consultations and taken by a standard committee, with representatives of the three continental producer networks (Africa, Asia, Latin America), market organisations, traders and worker representatives.

“These decisions balance producers as well as market interests,” says Marike.

After years of crises and widespread losses caused by climate change, coffee leaf rust, low market prices, and rising production costs, farmers provided data to prove why the Fairtrade minimum needed to be increased.

“The relief farmers felt after Fairtrade’s International price announcement was enormous, a new start and a brighter future for farming coffee communities,” says Marike.

“​​With this in mind, it is difficult to understand how Fair Trade USA has been able to conduct a consultation in such a short time frame (three months) and take a unilateral decision on freezing completely outdated prices,” says Marike.

The price freeze could leave some producers exposed

A question of demand?

A primary justification for the price freeze was the concern that a price increase in the current inflationary environment would significantly reduce demand and volume over the next 12 to 24 months, reducing the overall impact for producers.

“Arriving at the decision to maintain current prices was informed by an extensive stakeholder consultation process,” says Billy. “Stakeholders expressed concern that while extensive engagement was made by FLO (Fairtrade Labelling Organisation) to producers, very little was done within the industry and the timeline of August 1st would threaten volumes and therefore impact.”

Freezing prices might also be more of a necessity for Fair Trade USA than people suspect. The organisation may need to meet a certain revenue threshold to sustain its operations, for instance.

In addition, prices have already been high due to adverse weather conditions affecting coffee production, currency fluctuations, increased global demand, and a raft of other geopolitical factors. It could be argued that the decision to freeze prices is motivated by the aim to avoid exacerbating this situation.

But this still doesn’t change the fact that a price freeze will hurt some of the most vulnerable stakeholders in the coffee supply chain the most.

“If there’s a failure to raise prices, it’s a failure on buyers who are refusing to pay more,” says Kosta Kallivrousis, US sales manager at Algrano.

Meanwhile, Marike adds: “This announcement from Fair Trade USA puts the interest of markets above the very basic needs of farmers.”

She adds that freezing the minimum price is unlikely to spur market participation, and increasing the price should not hinder market growth. Marike points out that coffee prices in the past year have often exceeded the Fairtrade price as a result of these increases.

“The fact that recently coffee prices have been relatively high with no negative market impact makes a clear case that price increases and related risks can be managed if the goodwill is there,” she says.

The impact of the freeze varies

The freeze on minimum prices will arguably vary in impact for producers of differing sizes. While it is difficult to generalise, it will likely be something larger producers can absorb, as a result of their economies of scale. This is the same mechanism that allows them to attract more buyers and roasters with lower prices.

Marike adds that these larger-scale coffee producers have less need for fair trade agreements as they work by leveraging scale. Fair trade is instead more important as a safety net for smallholders – who often rely on price minimums to ensure they can cover their production costs.

“Coffee producers first of all claim fair prices, simply because this is a right in itself,” says Marike. “Nobody should sell anything below the costs of production, this would kill any business and affect short and long-term sustainability.”

“​​It’s asinine,” adds Tony Dreyfuss, the co-founder of Metropolis Coffee Company. “Do you know who else is experiencing inflation? Coffee farmers! 

“Yes, I’m sure they’d sell more coffee if the minimum price was lowered, but that logic and reasoning is ridiculous and dangerous.”

Fair Trade USA's minimum price freeze could hurt coffee producers

The claim of a substitute for a higher price minimum

Rather than raise its minimum price, Fair Trade USA says it will launch its “Innovation for Impact” initiative. The advisory board will make an assessment of the Fair Trade model — including minimum coffee prices and premiums — with the goal of ensuring that the model has the best outcomes for all of the organisation’s stakeholders.

The decision to maintain current prices and launch the initiative is a result of feedback from 500 US roasters, importers, and retailers, plus over 400 producer organisations. “It is incumbent on us to leave no stone unturned as we seek to determine how to innovate Fair Trade coffee into the most impactful program possible,” says Billy.

The initiative will also focus more broadly on scalability, producer impact, and sustainability issues like climate change. This shift in focus has been met with criticism, with some arguing that this approach indicates a failure in the market.

“Impact projects and other CSR initiatives arise out of issues that unregulated markets foster,” says Kosta. “And the companies responsible for chronically low prices then get to become the heroes who get to share ‘success’ stories to their investors and consumers.”

Marike adds: “We would have expected at least an inclusive consultation with producers and suppliers to the Fair Trade USA market before going public with an initiative that is presented as an alternative for price increases. 

“This decision will negatively affect all goals set by the coffee industry regarding sustainable production – climate change, deforestation, human rights, gender and youth. None of these can be achieved if the basic costs of production are not covered.”

Trade, not aid

While Fair Trade USA’s decision to launch its Innovation for Impact initiative is grounded in support, this is arguably not as tangible as an increase to the price minimum.

“Producers welcome projects and programmes, but farmers’ realities have clearly proven that charity and donations are no guarantee for sustainability and end up creating dependencies, with devastating consequences when support disappears,” says Marike. “They should earn a decent living with what they do best – farming.

“It is also not one or another – social impact projects are no substitution for paying a fair price.”

The primary goal of Fairtrade was to transform market dynamics, empower producers in trade negotiations, and establish fair prices that cover production costs. It emphasised the importance of “Trade and not Aid” to build sustainable livelihoods.

Kosta suggests that Fair Trade USA’s decision to freeze minimum prices deviates away from this founding principle, and that it indicates the organisation believes it “knows best”.

“This decision is paternalism,” he says. “It says producers shouldn’t determine their reality and don’t know what’s best. They’re not co-creators but a liability to be managed by white-collar professionals.”

We know that many smallholder coffee producers are vulnerable to price volatility. Fairtrade minimums are one layer of protection against this. They do not outright address rural poverty among smallholders, but they do serve as a safety net.

Fair Trade USA may need to do so to maintain its operations, but by freezing its minimum price for coffee, it’s clear to see that some producers will be more vulnerable.