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[Coffee] Fairtrade: good intentions or numbers game.




Today we're going to play a little numbers game. Have you ever heard of Fairtrade? Do you really know about it? Let's play a fair trade numbers game with coffee.


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I ordered a cup of Fairtrade coffee at a trendy coffee chain in my neighbourhood. You pay $3 at the checkout, pick up your coffee and enjoy a freshly brewed cup of coffee while imagining that you are making a difference in the lives of farmers. Now, how much of the $3 I paid will go to the coffee farmer?


It's fair trade! How about half? That's still too much, so maybe a dollar or so goes to the coffee farmer?


In the café, there is a notice about Fairtrade coffee, which says "Our Fairtrade coffee pays farmers three times as much as ordinary coffee". Three times is a lot. Then I guess half of the money, about $1.50, is going to the farmer. And I enjoyed the rest of the coffee with a sense of excitement.

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In reality, the coffee farmer does not get a dime from Fairtrade. An ordinary coffee farmer gets about 1% of a cup of coffee as a return. If we assume that Fairtrade coffee pays three times as much as ordinary coffee, then 1% becomes 3%. That's 3% of $3.00, so the Fairtrade farmer gets 9 cents. I think that's a bit small, but without Fairtrade, the farmer would only get 3 cents, so 9 cents for getting 3 times as much is good.







So how much does this trendy coffee shop in the neighbourhood make? A few years ago, a Belgian student interned at su-re.co conducted a survey to find out how much extra money consumers would be willing to pay for a cup of coffee if it was named "sustainable". A survey of 100 consumers was conducted and modelled with the Van Westendorp Price Sensitivity Meter. We found that €2.04 for an ordinal coffee and €2.54 for a coffee with the name "sustainable coffee" was reasonable. In other words, consumers pay 20% more for a coffee with the name "sustainability" on it. This is also the case for Fairtrade coffee, where consumers will pay 20% to 25% more for Fairtrade coffee, depending on the country.


Let's go back to the example of the trendy coffee shop in my neighbourhood. If we assume that they could charge 20% more for Fairtrade coffee, then this Fairtrade coffee would cost 60 cents more per cup. Fairtrade should be exactly the same as ordinal coffee. The only difference is that you are paying the coffee farmers fairly, so the coffee itself should be exactly the same as the ordinal coffee.


By selling a cup of coffee, we have to pay the farmer an extra 6 cents for this scheme. However, since there is an extra 60 cents in revenue, the remaining 54 cents must be split between a trader who bought the coffee and the fashionable coffee shop as fair trade. Of course, there will be marketing and advertising costs for "Fairtrade", but unlike organic coffee, there is no need to change the coffee beans or their process, so there are no other compulsory costs.






Isn't the person who came up with this Fairtrade scheme genius? The scheme pays a farmer 6 cents for the exact same thing, and they pocket 54 cents. Even when there was no Fairtrade, some people might have paid the farmer an extra 6 cents. But because it wasn't called Fairtrade, they wouldn't have been able to earn the extra 54 cents. Maybe it started out with pure good intentions. But maybe, the whole Fairtrade craze came about when people realized that it was a pure numbers game and could be marketing.


I sell coffee too, so I know how difficult it is to make a profit. Besides, Fairtrade allows farmers to earn three times as much as ordinal coffee no matter what you call it. I'll leave it to you to decide whether this is fair or not. It's always a good idea to do a bit of research if you're curious.

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