Direct Trade vs Fair trade
Author: Cheyenne Pittman
What do they actually mean and why am I paying more for my coffee?
In the coffee world, fancy and foreign jargon gets thrown around on a daily basis which can leave the unassuming consumer slightly confused. This article is hoping to clear up some disparities in a small sector of the language. You may have recently picked up a bag of coffee in your local grocery store or coffee shop that had a little “Fair Trade” certification on it. This is thought to be a good sign, but it's actually just a great start. Fair Trade certification is a similar concept to Certified Organic which is a topic we will be touching on in a different blog post. Here, we will clear up the differences in Fair Trade vs Direct Trade.
Coffee Crisis of 1989
In order to understand these terms we have to go to the root of the matter. Before 1989, the coffee prices were regulated by an organization called the International Coffee Association (ICA). The ICA imposed quotas and controlled the prices between producers and importers. They set the market price at 1.00 to 1.50 per pound. Every 5 years, the prices were reevaluated by participating countries. The United States did not renew their agreement with the ICA in 1989, causing the market to crash. This brought the market price down to .49 cents per pound in the free market in 1992. Small farmers faced the direct impact in this market value crash, which led to an increase in poverty. They experienced a 70% drop in their income which would threaten the livelihood of anyone, especially those living in already trying environments.
Born out of this crash, in the Netherlands, came the Fairtrade Certification. Fairtrade Certification aims to mitigate the option of supporting farmers that use forced labor or child labor. It also increases the market price in order to ensure that the farmers are getting paid what they deserve. The Fairtrade stamp has opened the eyes of consumers to thinking about the farmer and how they benefit in this market. It ensures that the coffee that you are drinking is ethically sourced. This concept has beautiful and good hearted roots; however, its execution has been detrimental to the survival of small plot farmers.
The Fair Trade Certification
In order to become Fairtrade Certified, coffee producers will join together with other producers in their community to form a Co-Op.This is to ensure product availability and farmer empowerment, the committee formed gives the farmers a voice as well as stability. Once this has been organized, they must apply for a license and become a registered Fairtrade producer. This comes with a hefty fee but getting the Fairtrade certification allows these producers to be recognized for their standards and protects their wages. Once they complete these steps they are introduced to a larger market, thus putting their farms on the map. It ensures that the products or coffee beans in this case stay above market price. It creates a safety net so that as market price rises and falls, they can remain stable.
Once the farmer has taken these steps, they are connected with Fairtrade importers who must also register with Fairtrade International, which also requires a fee. In doing the research for this post, we went to the FairTrade Trade FLOCERT cost calculator. If you had a Small Producer Organization with 15 employees and you were selling 1st grade coffee produced by 60 trees, you would have to pay 16,600 Euros ($17,747 in USD at the time of writing) in the first year. This only covers the first 12 months of your certification and then you would have to renew your contract for about 7,000 Euros the next year. Although the upfront cost is high, Fairtrade International supplies certified farmers with a surplus called a Fairtrade Premium. This is an additional allotment of money that is paid on top of the agreed price for the product. In 2017, the average amount premium was 111,000 Euros per Fairtrade Certified Organization. The committee formed in the community Co-Op is the ones that decide where the money will go. Many will choose to build schools, upgrade their farms to organic, or clean water. This creates a dignified giving model that allows the producers to be in charge instead of receiving an outside opinion. Fairtrade also benefits the importers because they are able to know for certain that their products are grown and produced by workers who are getting paid fair wages, living in good conditions, and being treated fairly.
Direct Trade: Who is at the table?
When looking at direct trade, it is an entirely different ballgame when you get down to the actual business deals. Direct Trade is exactly what it sounds like– it is a direct business deal between roaster and farmer. It is based on the building of relationships between the producers of a product and the ones actually importing them. Here, at the North Central Coffee Lab we are practicing this exact model. We have had relationships with coffee farmers in Guatemala for over 15 years and take trips with students twice a year in order to keep these relationships alive and well. Direct trade not only allows the farmers to be paid what they deserve, but they also don't have to pay a broker or importer any amount. Essentially, anyone in the supply chain that does not add value to the product is cut out. Most of the time, roasters will buy from these farmers in larger quantities which means less risk for the farmers who have to trust the broker with their product. The relationships and eye to eye business deals build trust, the producer needs to importer and vice versa. The importer is paying the same amount that they would or less in a Fairtrade deal; however, the farmer is getting all of the amount paid, instead of some getting siphoned off for licensing or fees. While there isn't an exact definition or organization policing direct trade deals, they have proven to be beneficial for everyone involved. The beans can come at a higher quality because there is respect in place and higher premiums for the beans. This also provides a higher expectation for workers’ environments on the farms because the roaster is making the trip to the actual farms and can see it for themselves. If they aren't pleased with the working conditions, they do not have to follow through. Transparency is the most important aspect of Direct Trade, for without it, business deals wouldn't happen. It’s no different than making a business deal with someone here in the United States, all of the information is laid out on the table in order for the transaction to be successful and benefit both parties. There is no broker that can dilute information.
So, is There a Real Benefit to Direct Trade?
We could list all the benefits and give reasons as to why our direct trade partnership is so beneficial, but we decided it would be best for the farmers to tell you themselves. Here are some quotes from some of our Guatemalan coffee partners!
Why Do These Definitions Matter?
When buying your next product or bag of coffee, do the research. These definitions are incredibly important because without them, exploitation happens. Cheap coffee comes with a price, which means that if you are only paying 5 or 6 dollars for your pound of coffee, the farmer is getting paid crumbs after it has gone through a roaster, multiple middlemen, packaging, and then them. While Fair trade has been beneficial in the past, the industry is starting to sway away from it and towards direct trade. In supporting direct trade businesses, you are directly impacting the lives of the producers of your products. It's not charity, it's just doing business the way it should be done.
North Central College Students Taking a photo with Guatemalan Partners
Photo Credit: Brad Thalmann
Craves, Julie. “The Coffee Crisis.” Coffee Conservation RSS, www.coffeehabitat.com/2006/02/the_coffee_cris/.
“Fair Trade vs Direct Trade Coffee: The Jargon of Sustainability.” Roasty Coffee, 12 July 2018, www.roastycoffee.com/fair-trade-vs-direct-trade-coffee/.
“Fairtrade for Producers.” Fairtrade International, www.fairtrade.net/act/fairtrade-for-producers.
“FLOCERT Supports Sustainable Businesses and Makes Global Trade Fairer.” FLOCERT, www.flocert.net/.
Toledo, Ronald, and Brett. “A Brief History of Coffee Price Volatility in the Modern Era (1963-2013).” Daily Coffee News by Roast Magazine, 6 Oct. 2014, dailycoffeenews.com/2014/10/06/a-brief-history-of-coffee-price-volatility-in-the-modern-era-1963-2013/.
“What Is Direct Trade Coffee? Learn More about What's in Your Cup.” Caffeine Magazine, 17 Dec. 2019, caffeinemag.com/wtf-is-the-difference-between-fair-trade-and-direct-trade/.