Fair Trade: What Price for Good Coffee?

Fair Trade practices were created to help small farmers. But they may have hit their limits.

Ever since Jesuit monks brought coffee to Guatemala three centuries ago, raising the beans has been a losing business for small farmers. Conditions are miserable — try lugging 100 lb. of fertilizer up a mountain — and even though coffee is the world's second most valuable traded commodity, after oil, the money it brings in is measly. "It's not enough to live on," says Luis Antonio, who has grown coffee near Quetzaltenango, in Guatemala's western highlands, for three decades but gets deeper in debt each year. "What we earn isn't enough to buy food for our children."

Antonio and the world's 25 million other small coffee growers don't have a lot of career alternatives. So you'd think they would be enthusiastic about Fair Trade — a global campaign that for 25 years has sought to bring struggling Third World farmers, including Antonio, out of poverty by paying them higher-than-market prices for everything from coffee to quinoa. Along the way, it has recruited retail giants like Starbucks, which is the globe's largest purchaser of Fair Trade — certified coffee.

But the future of the Fair Trade — coffee movement is in question, as some backers raise concerns about whether it has reached the limit of how much it can help. In a private-industry survey last year of 179 Fair Trade coffee farmers in Central America and Mexico, a copy of which TIME obtained, more than half said their families have still been going hungry for several months a year. "When I got the results, I was shocked," says Rick Peyser, director of social advocacy for Green Mountain Coffee Roasters in Vermont, the Fair Trade company that commissioned the survey. "I was ready to quit." Massachusetts Fair Trade firm Equal Exchange spokesman Rodney North admits, "There is a potential disconnect between what the buyer thinks Fair Trade is accomplishing and the situation on the ground," from Latin America to Asia.

Fair Trade pays $1.55 per lb. for Antonio's organic coffee, almost 10% more than the market price. But Antonio is left with only 50¢ per lb. after paying Fair Trade cooperative fees, government taxes and farming expenses. By year's end, he says, from the few thousand pounds he grows, he'll pocket about $1,000 — around half the meager minimum wage in Guatemala — or $2.75 a day, not enough for Starbucks' cheapest latte. The same holds true for other Guatemalan growers, like Mateo Reynoso, also from Quetzaltenango. Without Fair Trade, he says, "we wouldn't be growing coffee anymore." But even Fair Trade prices "haven't kept up" with the costs small farmers face, he adds.

For most coffee growers, Fair Trade is still slightly more lucrative than the open market. Two years ago, the Germany-based Fairtrade Labelling Organizations International (FLO), which sets worldwide prices and standards, raised the minimum per-pound price of nonorganic coffee 9¢, to $1.35 (a dime of which goes to social programs like scholarships for growers' children). That's 15¢ higher than the current market rate. And yet, according to Fair Trade researcher Christopher Bacon of the University of California, Berkeley, the per-pound price that's needed for farmers to rise above subsistence is really more than $2. Farmer advocates are urging the FLO to consider raising the price that much. But because such a big jump would probably mean Fair Trade could help fewer farmers — even Starbucks is likely to buy less java at that cost — the FLO is balking. "What good is it to have $2-per-lb. coffee if you can only serve tens of thousands of farmers" instead of millions? asks Paul Rice, president and CEO of TransFair USA, the California-based nonprofit that oversees Fair Trade in the U.S. "You risk killing the goose." Instead, the FLO's main growth strategy is to keep recruiting retailers like Starbucks. "We are going more and more mainstream," says FLO chief operating officer Tuulia Syvanen. "We're doing it to increase the market for our farmers."

Few foresaw this dilemma a decade ago, when coffee prices, which had been falling since the end of the Cold War, dropped to as low as 45¢ per lb. Fair Trade was the small farmer's savior during that crisis, paying twice the going rate. Starbucks joined the cause and this year has pledged to double the amount of Fair Trade coffee it buys, to 40 million lb., 40% of the Fair Trade beans the U.S. imports. The company declined to comment on whether Fair Trade's benefits fall short of its vision or how much it would need to raise prices if coffee were to climb to $2 per lb. Fair Trade "isn't the only reason I drink Starbucks, but it's a big one," says Connie Silver, a nurse, sipping a large, $4.15 Frappuccino outside a Miami store. Asked if she'd pay, say, $4.50 or even $5 to help absorb higher Fair Trade prices, Silver raises her eyebrows and says, "Wow, these days, that's a tough one."

In lieu of imposing a major price hike, the FLO is reviewing other ways it can help farmers. It's making cheaper loans more widely available, providing more technical assistance to help farmers grow better-quality beans and may begin automatically adjusting its minimum price for inflation.

With $1.75 billion in worldwide sales last year, Fair Trade is still a small player in the $70 billion global coffee industry, dominated by leviathans like Nestlé and Kraft. Because producer countries reap only $5 billion of that $70 billion, Fair Trade can help growers get more of their share. "Fair Trade is still, and will remain, a better deal for farmers," says Bacon. But it can help only so much. "This isn't a condemnation of the Fair Trade model," says Peyser. "It's a fact of life." One that all coffee drinkers may have to swallow.