In a wide-ranging conversation with CRS staff last week, Fair Trade USA CEO Paul Rice defended the decision to break with FLO and open the U.S. market for Fair Trade Certified coffee to estates. He suggested there are two theories about what will happen to smallholder farmer cooperatives once estates enter the market. One theory is the zero-sum view that the estates’ gain will be the coops’ loss. He prefers the rising-tide-will-lift-all-boats theory: the entry of estates will increase the overall volume of FTC coffee in the U.S. market without reducing the volume of coffee smallholders are selling. What ultimately happens will depend on the answers to two questions: How fast and how high will the tide rise? And who will get the lifeboats?
HOW HIGH? HOW FAST?
Whether Fair Trade for All succeeds in lifting all boats will depend on how high and how fast the tide rises when the estate coffee floodgates open.
Rice argued during our conversation – compellingly, from my perspective – that Fair Trade for All’s success in defending the smallholder cooperative position in the marketplace should not be judged by the share of the FTC coffee market claimed by cooperatives, which will inevitably decline when their protected market niche is opened to other competitors, but rather the volume of FTC coffee sourced from cooperatives. If coops can maintain or even increase their sales volume as estates move into the market, he argues, Fair Trade for All will have effectively protected the cooperative position in the FT marketplace.
But Rice’s theory can only play itself out in practice if the latent demand for FTC coffee in the U.S. market is huge, and the increase in supply can be absorbed by massive new corporate commitments to FTC coffee. Rice made reference last week to corporate coffee buyers who have pledged to buy more FTC coffee if supply constraints were eased, but I haven’t seen any market research to quantify the expected growth in the market. If the calculations are off and there isn’t enough demand to absorb the new wave of estate coffee supply, Rice’s win-win vision could be in jeopardy.
Alternatively, FTUSA could protect the cooperative market position if it is very deliberate about regulating supply and demand, and pacing the entry of estates with the growth of the market. This would require a more gradual, brokered approach between estates and corporate buyers, but could be a reliable way to protect smallholder markets.
WHO GETS THE LIFEBOATS?
Even if the U.S. market for FTC coffee is big enough to accommodate the entry of estates without jeopardizing the position of smallholder cooperatives, buyers still decide where they will source their coffee. There is no guarantee current buyers will not shift their purchase orders to larger, better capitalized, more efficient estates.
Rice reasons that buyers of FTC coffee will not abandon their long-time cooperative partners just because estate coffee becomes available. For Fair Trade pioneers for whom Fair Trade has always meant Direct Trade with smallholder farmer cooperatives, the advent of the estate era won’t change a thing in terms of their sourcing.
But there are countless roasters out there for whom Fair Trade hasn’t necessarily meant a direct-to-origin connection with smallholder coops; for whom Fair Trade Certified coffee has been an item on a menu of coffee offerings served up by importers. Will these buyers remain as loyal to their cooperative trading partners as Fair Trade’s coffee pioneers?
I hope they do, but a conversation I had once with a coffee buyer for a large U.S. roaster about the challenges of smallholder coffee keeps replaying itself in my mind and sowing seeds of concern. We were talking about the messiness of cooperative structures and the conflicts that can arise among poor farmers working to manage increasingly sophisticated grassroots enterprises democratically. He suggested that when things get messy at origin, it is sometimes more trouble than it is worth as a buyer to get involved and try to work toward a solution.
If FTC coffee buyers start selecting estates over coops because they are less messy and more efficient, then we will have succeeded in replicating within the FT system the same structural disadvantage for smallholders that made FT for coops necessary in the first place.