Bitter Brew

By Lawrence Solomon
National Post
April 8, 2004

“Fair trade” coffee is one of the world’s fastest growing consumer movements, and for good reason.

Fair trade coffee puts extra money in the pockets of Third World farmers by fetching a little extra from consumers, salving the conscience of those in the West who feel guilty enjoying a cup of coffee at the expense of poor-country farmers.

It tends to rely on niche crops, promoting diversity in the marketplace. And it tastes good – much better than your average brew – because the small farmers that supply the fair trade market tend to harvest specialty crops.

Amid these many virtues, however, lies one very large vice. Fair trade advocates mislead Western consumers as to the cause of the Third World farmer’s plight. In doing so, they attribute guilt to the guiltless, absolve the guilty of responsibility, and, most seriously, perpetuate the plight of the people they hope to help.

Who cannot sympathize with the hardships inflicted on the Third World’s 20 million coffee producers, almost all of them small farmers cultivating a handful of acres. Coffee prices have plunged by two-thirds in the last decade, from about US$1.50 a pound to about US50 cents, putting prices at 100-year lows after accounting for inflation. In Nicaragua, El Salvador and other Central American countries, prices have been so low – below the cost of harvesting the beans and transporting them to market – that farmers let them rot in the fields. In Mexico alone, some 300,000 farmers have been forced to leave their land. Many of the illegal immigrants who have lost their lives in surreptitious attempts to cross the Mexican border into the United States were destitute coffee farmers desperate for a means of supporting their families. Similar hardships abound in coffee producing countries of Africa and Asia.

The world’s coffee farmers deserve better, all can agree. This consensus stimulated the recent rise of the Fair Trade Coffee movement and gave it immense clout in lobbying the coffee industry. To avoid bad press and consumer boycotts, numerous retailers – from Starbucks to Dunkin Donuts – now carry fair trade coffee, as do multinational roasters such as Proctor and Gamble and Nestle. Many in the public support the broad effort to promote fair trade beans, thinking it would right a wrong in the international trading order. One Simon Fraser University survey found two in three Vancouverites would buy fair trade coffee if it were readily available.

Most fair trade advocates argue that the multinational coffee companies manipulate prices to deny Third World coffee farmers a living wage. What they don’t argue, despite evidence that only the conspiratorial-minded can deny, is that the multinationals had nothing to do with the collapse of coffee prices.

Until the early 1990s, Vietnam was an insignificant coffee producer. Then, with help from the World Bank, France’s Agence Francaise de Developpement, and other international aid agencies, Vietnam embarked on a massive program of subsidized coffee growing. According to World Bank documents, Vietnam increased production at a torrid rate of 27% per annum. By 2000, Vietnam had surpassed Colombia as a coffee-producing country, making it second only to Brazil. Vietnam’s massive coffee exports not only won it badly needed foreign exchange, it accomplished another long-held goal of the Vietnamese government: The expropriation of the ancestral lands of Vietnam’s forest-dwelling tribal peoples. To encourage Vietnamese peasants to resettle on the tribal lands, the Vietnamese government offered them land and cash to take up cultivation of the coffee tree – the “dollar tree,” as it became known.

With Vietnam flooding international commodity markets with its cheap beans, coffee prices collapsed, leading to upheaval in coffee-growing regions worldwide. As expressed by the president of the International Coffee Organization, Vietnam is “the culprit of plummeting world coffee prices.” The enormous losses suffered by small farmers elsewhere, however, did not reflect great gains for Vietnam’s coffee industry. Most of Vietnam is ill-suited to coffee growing, leading to rapid indebtedness among the farmers and then thousands of farm failures and farm abandonments. Even where coffee beans do grow, the coffee is inferior, offering little but an above-average amount of caffeine. Apart from low-end uses, such as the coffee found in roadside motel rooms, the marketplace wouldn’t accept the beans, except when heavily disguised by flavours (the Vanilla-Hazelnut-type simulated coffee drinks that now appear on supermarket shelves). Vietnam’s coffee revenues began to tumble, just as those of other coffee-growing countries had earlier.

Vietnam’s coffee industry – one of the developing world’s great boondoggles – is now in retreat. Because the industry is unsustainable at its current level, the government announced that it would cut down up to 180,000 hectares of coffee trees – about one-third of the country’s crop.

The fair trade movement has made impressive gains. In some countries of Europe, where the fair trade concept first took hold, 2% to 3% of coffee sales involve fair trade beans, and in the still-nascent North American market, where fair trade sales have only just begun to grow rapidly, the same potential may exist. But the overall market share of fair trade beans is closer to 1% in the countries that import fair trade beans, and most consumers buy fair trade coffee more for its fad appeal than from altruism. In several European countries, in fact, consumer demand has waned, and in Germany and Switzerland the demand for fair trade coffee is actually dropping.

If the fair trade movement is to help the 95%-plus of farmers who will never be able to tap into the fair trade market, it must discover a system that can work for all. Ironically, that system became evident in the few years preceding Vietnam’s dramatic entrance into the marketplace, a brief period during which the world’s small coffee producers had begun to do well.

In the late 1980s, many Third World countries began to liberalize their government-run coffee industries. Freed of their governments’ cumbersome rules and the large share of profits that the governments took for themselves, small coffee farmers had begun to turn handsome profits and, like optimistic farmers everywhere, to invest in expanding their production. Vietnam soon ended their prosperity, but with Vietnam’s recent withdrawal from the coffee market, world coffee prices have started to climb. If Vietnam further curbs its appetite for uneconomic coffee growing, along with Uganda and other countries that the World Bank ill-advisedly encouraged to raise coffee production, coffee prices would rise further.

By providing the Third World’s farmers with above-market payments after Vietnam spoiled the international coffee market, the fair trade movement rescued many farmers in a time of need. But in the end, the world’s small farmers need trade, not aid. Now that the international coffee market is righting itself, the fair trade coffee movement can best aid small farmers by opposing the ruinous policies of governments and government agencies. They, not the multinationals, have made a bitter brew of the coffee marketplace.

Lawrence Solomon is executive director of Urban Renaissance Institute and Consumer Policy Institute, divisions of Energy Probe Research Foundation. He is also a director of, a non-profit coffee merchant.