Poverty Alleviation and Fair Trade in Latin America CENTRO DE INVESTIGACIONES Y ESTUDIOS SUPERIORES EN ANTROPOLOGIA Desarrollo Alternativo, A.C. SOCIAL DEL SURESTE ONE CUP AT A TIME: POVERTY ALLEVIATION AND FAIR TRADE COFFEE IN LATIN AMERICA Prepared by Douglas Murray Laura T. Raynolds Peter Leigh Taylor FAIR TRADE RESEARCH GROUP http://www.colostate.edu/Depts/Sociology/FairTradeResearchGroup COLORADO STATE UNIVERSITY March 2003 Table of Contents I. PREFACE...............................................................................................................................................1 II. INTRODUCTION................................................................................................................................3 III. A BRIEF DESCRIPTION OF FAIR TRADE COFFEE .............................................................. 5 IV. THE BENEFITS OF FAIR TRADE COFFEE PRODUCTION....................................................6 A. Benefi ts to Individual Producers.......................................................................................................6 B. Benefi ts to Families..........................................................................................................................9 C. Benefit s to Communities................................................................................................................. 10 D. Organizational Benefi ts..................................................................................................................11 V. ISSUES, OBSTACLES AND PROBLEMS......................................................................................14 A. Slow Growth in the Fair Trade Market .......................................................................................15 B. Producer Knowledge About Fair Trade Networks..........................................................................16 C. How or Whether to Expand Fair Trade Membership......................................................................18 D. Governance Issues Within the FLO System ..................................................................................20 E. Opportunities and Problems in the New Marketing Strategies.......................................................23 F. State Involvement in Fair Trade.......................................................................................................24 G. The Need for Production Diversifi cation........................................................................................26 H. Gender Issues..................................................................................................................................26 VI. CONCLUSION.................................................................................................................................27 VII. ISSUES FOR FURTHER INVESTIGATION AND RECOMMENDATIONS.........................28 Issue A - Dynamics of the Northern Fair Trade Market......................................................................29 Recommendation A (1): Collaborative research should be initiated on market opportunities and obstacles. .........................................................................................................29 Issue B – New Trade Initiatives in Coffee Markets Related to Fair Trade..........................................29 Recommendation B (1): Collaborative research should be initiated on emerging direct marketing strategies and combined certifi cation and labeling efforts. ..............................30 Issue C – Beyond Coffee: Exploring Synergies Between Coffee and Other Fair Trade Commodities............................................................................................................30 Recommendation C (1): Develop collaborative research across Fair Trade commodity areas in support of greater coordination of organizational and market strategies........................31 Issue D - Strengthening the North/South Fair Trade Research Network............................................31 Recommendation D (1): Extend and strengthen the capacity of the North/South Fair Trade research network to facilitate additional in-depth investigations, information exchanges, and the dissemination of research on major Fair Trade issues.....................................................32 Issue E – The need to Expand Producer Participation in Fair Trade Networks..................................32 Recommendation E (1): Develop a series of workshops involving Southern producer organizations, FLO, TransFair USA and Canada to strengthen North-South dialogue and identify producer information needs for research support.....................................................33 Meetings should be undertaken in conjunction with the FLO Producer Support Network and the Mexican producer liaison offi cer to identify means for communication enhancement within the existing FLO framework, as well as to identify potential producer information........ 33 Recommendation E (2): Pursue on-going training and education activities within the existing Fair Trade cooperatives. .................................................................................................33 Recommendation E (3): Foster exchanges between producer groups in the South and consumers, buyers and others involved in Fair Trade in the North...............................................33 Recommendation E (4): Continue collaborative research on emerging Southern national Fair Trade market opportunities....................................................................................................34 VIII. REFERENCES..............................................................................................................................35 * Note: All case studies and background documents prepared for this report can be accessed at: http://www.colostate.edu/Depts/Sociology/FairTradeResearchGroup I. PREFACE Fair Trade has emerged as a potentially important movement for social change in Europe, North America, and regions of the developing world. Fair Trade challenges historically unequal international market relations, seeking to transform North-South trade into an avenue for producer empowerment and poverty alleviation. Markets for Fair Trade coffee and other items link ethically minded Northern consumers with democratically organized groups of poor Southern producers. The goal of this alliance is to provide disadvantaged producers a chance to “increase their control over their own future, have a fair and just return for their work, continuity of income and decent working and living conditions through sustainable development” (Fairtrade Foundation, 2002). Both celebratory and less sanguine accounts of Fair Trade abound in popular and scholarly literature. Yet the questions underpinning the assessments of Fair Trade are often more complex, and the answers more ambiguous, than many of these accounts recognize. Most observers agree that Fair Trade cannot solve all the problems of poverty in the South. At the same time, many acknowledge Fair Trade has had a signifi cant impact on the well-being of those producers who joined in on the emerging alternative trade movement. But diffi cult questions remain: • What are the real benefi ts of the Fair Trade movement? • Can the benefi ts of Fair Trade be sustained over time? • Can Fair Trade grow to encompass a greater number of farmers and communities throughout the developing world? • Can Fair Trade be expanded to encompass not only poor farmers, but also other sectors connecting Southern producers and Northern consumers? Answering these questions is an ambitious and long-term venture. Yet there is an urgency to this venture as well. The answers to these questions are crucial not only to the future of millions of impoverished rural producers in the South; they also represent an opportunity for understanding the future prospects for sustainable and equitable development on a global scale. To address these questions, the Fair Trade Research Group (FTRG) was established at Colorado State University in 1999. With funding from the John D. and Catherine T. MacArthur Foundation (Collaborative Research Planning Grant, Program on Global Security and Sustainability), an exploratory workshop was held at the Keystone Center in Colorado in May of 2000. Over a three-day period, 20 leading Fair Trade activists, practitioners and proponents from Latin America, Europe, Canada and the U.S., in a dialogue with a team of U.S.– based scholars, explored the potential of the Fair Trade movement. Fair Trade proponents and doubters challenged each other’s assumptions and strategies. This workshop produced a North/South Fair Trade research network, organized to pursue some of the more perplexing and provocative questions about Fair Trade. In the fall of 2001, the FTRG began work on one important dimension of this broader research agenda: assessing the impact of Fair Trade on coffee producers in Latin America. A second Fair Trade workshop, funded by the Ford Foundation’s Community and Resource Development Program, was organized in Mexico City in March, 2002, in collaboration with the 1 Mexican Non-Governmental Organization Desarrollo Alternativo (DESAL), under the leadership of Maria Elena Martinez Torres, and Centro de Investigaciones y Estudios Superiores en Antropologia Social (CIESAS), led by Ronald Nigh. Following this workshop, the participants decided to generate preliminary information on how Fair Trade was developing in the region, based on case studies carried out in Mexico and Central America. The results are the basis for this report.1 From its inception, this project has been a collective endeavor. The research was informed by the debates and conclusions of the Keystone Workshop. The research protocol was subsequently developed through a participatory process in the Mexico City workshop.2 The case studies were carried out by Ernesto Méndez, Sarah Lyon, Franz VanderHoff Boersma, Josefi na Aranda, Carmen Morales, Victor Pérezgrovas Garza, Edith Cervantes Trejos, Alma Amalia Gonzalez Cabanas, and Maria Elena Martinez Torres, with the support of Ronald Nigh and the FTRG.3 A background paper on Fair Trade Coffee was written by Laura Raynolds (Raynolds, 2002b), and a synthesis of the Research Question Findings was prepared by Peter Leigh Taylor (Taylor, 2002).4 The fi nal report was written by Douglas Murray, Laura Raynolds and Peter Leigh Taylor, after a preliminary draft was circulated among the project participants. Responsibility for the case studies lies with the individual authors of these reports, while responsibility for the fi nal report lies with the FTRG. 1 The study was designed as a relatively short-term exploration of current conditions in the production of Fair Trade coffee in Mexico and Central America. This report focuses on issues raised and addressed by the investigators and their informants at the level of production. While a number of signifi cant fi ndings are presented, they should not be considered to be comprehensive or conclusive. Many pressing issues and questions related to Fair Trade cannot be addressed in depth through this initial inquiry, including whether and how the Fair Trade market can be expanded in the North to provide greater opportunities for producers in the South, or how Fair Trade can be made more “fair” in the North with expectations analogous to those placed upon producers in the South. These and other questions will be the subject of further investigations, including those proposed in Section VII of this report. 2 We are indebted to Marie Christine Renard for her assistance in both workshops and her extensive knowledge of the Fair Trade movement. 3 The authors of the case studies were selected for their existing knowledge of and rapport with Fair Trade registered coffee cooperatives. Several of the investigators work directly within the case study organizations. The proximity of these researchers to the organizations and processes they are reporting on could pose a potential for bias. At the same time, their deep commitment to and years of experience with Fair Trade have also made possible a high level of in-depth knowledge about the movement and the coffee cooperatives. During fi eld research and writing, the diverse backgrounds and perspectives of all the study’s contributors, including those of the three co-authors of this report, were kept in mind in an effort to control for individual and collective biases, both overly favorable and overly skeptical. Each case study underwent several rounds of review and revision by the FTRG, which included fi eld visits to most of the study sites. Findings were subsequently triangulated through comparative analysis across the cases and with existing literature. 4 Case studies and background documents can be accessed online at: http://www.colostate.edu/Depts/Sociology/FairTradeResearchGroup 2 II. INTRODUCTION The global coffee market has fallen into a profound crisis. Prices paid to coffee producers, in real dollar terms, have fallen to a hundred year low (Oxfam 2002: 9). According to the Wall Street Journal, “the collapse of world coffee prices is contributing to societal meltdowns affecting an estimated 125 million people…from Central America to Africa” (Fritsch, 2002). Coffee is one of the fi ve most important commodities, in value terms, traded in the international economy. It is predominantly produced by poor, small-scale farmers in Latin America, Africa and Asia. Seventy percent of the world’s coffee is grown on farms of less than 25 acres, with the vast majority of these ranging between 2.5 and 12.5 acres (Oxfam 2002:7). As one Mexican observer put it, “the coffee producing zones coincide exactly with a map of extreme poverty…” (Aranda and Morales, 2002:18). Already living on marginal incomes, a few producers will escape the crisis by fi nding arduous and low-paid employment in surrounding areas—but for the majority, the prospects of eking out a living are grim. In Central America, the World Bank estimates the crisis has caused a 54 percent decline in permanent employment and a 21 percent decline in seasonal employment in the coffee sector (IADB et al, 2002). When combined with data from Mexico, the Bank estimates over 600,000 jobs were lost in the region in the past two years alone (Fritsch, 2002). One plantation owner in Guatemala, looking back over 70 years, observed, “I have never seen hunger in this region like we are seeing now” (Personal interview, DM). Many families have been forced to abandon traditional farming. Five hundred families a week have been migrating out of Chiapas in Southern Mexico (Oxfam, 2001). In the Southern- most Costa Rican Canton of Brunca, much of the adult male population in the coffee zone has left in search of work in urban areas or in “El Norte” (the United States), leaving behind disintegrating families and communities (Personal observation, DM). In their migration northward, many are forced to brave hardships and dangers to escape the crisis. The potentially tragic consequences that await some were demonstrated in May, 2001 when U.S. Border Patrol agents found the bodies of 14 men and women who died of dehydration while trying to cross the Sonora desert in a desperate search for work in the U.S. (Bacon, 2001). All were poor peasants from Vera Cruz, one of the coffee growing regions hard hit by the current crisis. The full impact of the crisis on human lives, families and communities will probably not be known for years to come. Meanwhile, a small but growing percentage of small-scale coffee farmers have found a solution to the crisis. In the past decade, more than 500,000 farmers from 23 countries in Latin America, the Caribbean, Africa and elsewhere have become Fair Trade certifi ed coffee producers. Agreeing to produce their coffee under an externally monitored set of social and environmental standards, Fair Trade coffee producers in turn have received a guaranteed price for their coffee. That guaranteed price has been double or more the recent price paid for conventionally produced coffee, and along with the social and environmental conditions fostered by participation in Fair Trade has enabled these farmers to survive the crisis and invest in the future. Evidence of Fair Trade’s benefi ts can be found throughout Mexico and Central America. In Oaxaca, the Fair Trade-registered cooperative UCIRI used the Fair Trade social premium (see Section III, below) to create a training center for women’s literacy and other projects. In Chiapas, 3 the cooperative Majomut used the same premium to hire a community organic farming promoter, which has allowed farmers to convert their coffee and other crops to higher-income generating and more ecologically sound organic production. The vast majority of Fair Trade coffee is produced in indigenous communities in Latin America. Consequently, Fair Trade is contributing to indigenous cultural survival. For example, Fair Trade is revitalizing traditional Mayan farming techniques in the La Voz cooperative of the Guatemalan highlands. One cooperative member observed that through Fair Trade-supported organic farming, “we are rescuing the culture and rescuing the system of production that was used before, but with more technical knowledge”(Lyon, 2002:32). Clearly, Fair Trade is having a positive impact on the farmers, families, communities and organizations in this alternative trade system. Yet there remain important questions as to how signifi cant, widespread and sustainable this impact has been or might be. This report attempts to answer these concerns by identifying the major strengths and weaknesses of Fair Trade production. The research for this report focused on seven questions: • What is the history of small-scale coffee producer participation in Fair Trade? • What are the characteristics of the Fair Trade networks in which these producers have participated? • How do the producers’ cooperative organizations function? • What are the characteristics of the systems of Fair Trade certifi cation and quality control in which producers have participated? • How have producers, their families, their organizations and communities benefi ted from Fair Trade participation? • What have been the problems of participation in Fair Trade networks, and what might be the solutions? To answer these questions, seven case studies were carried out in Mexico and Central America over the spring and summer of 2002. As Table 1 below demonstrates, the cases studied Table 1: Case Study Organizations Name Location Year Founded Number of members CEPCO Oaxaca, Mexico 1989 41 organizations 16,000 UCIRI Oaxaca, Mexico 1981 2, 076 Majomut Chiapas, Mexico 1983 1,500 La Selva Chiapas, Mexico 1976 943 Tzotzilotic Chiapas, Mexico 1992 840 La Voz Guatemala Late 70s 116 APECAFE 1997 11 cooperatives Las Colinas 1980 99 El Sincuyo El Salvador 2000 28 4 range in size from very small (28 members) to very large cooperative organizations (16,000 members). Some cases involve cooperatives with many years of experience in Fair Trade, such as UCIRI, while others, such as El Sincuyo, have only recently begun to participate. Still others, La Selva and Tzotzilotic, have lost Fair Trade certifi cation and are in the process of re- establishing their formal relationships with Fair Trade. Thus the cases studied represent a variety of experiences and examples of the impact of Fair Trade in the South. The following discussion begins with a brief description of Fair Trade as it relates to coffee (Section III), followed by a discussion of the benefi ts of Fair Trade in the coffee sector of Mexico and Central America (Section IV). A discussion of the unresolved issues, obstacles and problems of Fair Trade coffee production follows (Section V), along with brief concluding observations on the implications of fi ndings of this study (Section VI). The report closes with a series of recommendations for building upon this initial investigation (Section VII). III. A BRIEF DESCRIPTION OF FAIR TRADE COFFEE5 Fair Trade began several decades ago through the efforts of alternative trade organizations (ATOs). These organizations purchased products directly from poor producers in the South for sale to socially conscious consumers in the North through networks of Third World shops and other specialty outlets. In the late 1980s, ATO’s began labeling Fair Trade products to broaden their availability, moving “Fairtrade into the supermarkets where most people do their shopping” (FLO 2002b). The introduction of the TransFair, Max Havelaar, and Fairtrade Mark labels greatly increased sales of Fair Trade food commodities. But this strategy was not without problems, as the entry of conventional distributors and retailers into Fair Trade networks brought additional pressures on producers to conform to traditional industrial and commercial expectations (Raynolds 2002a). Fair Trade has grown rapidly over the past 15 years. In North America, like Europe, Fair Trade labeling campaigns have been most successful in coffee. The various Fair Trade initiatives have harmonized their standards and coordinated their activities through an umbrella organization, the Fairtrade Labeling Organizations International (FLO), which now represents members in 17 countries. FLO established detailed standards for its seven certifi ed commodities based on a common set of principles. FLO monitors producer and trader groups and de-certifi es those that fail to uphold accepted standards. To be included on FLO’s approved registry of growers permitted to supply Fair Trade coffee, producers must uphold a set of standards: 1) Producers must be small, family-based growers. 2) Producers must be organized into politically independent democratic associations. 3) Producers must pursue ecological goals by conserving natural resources and limiting chemical input use. 5 For further detail on the development of the Fair Trade movement beyond this brief description, see Raynolds (2000; 2002a; 2002b), Murray and Raynolds (2000), Oxfam (2001), and Rice (2001). 5 Coffee importers using Fair Trade labels must comply with another set of FLO standards: 1) Purchases must be made directly from grower organizations using purchasing agreements that extend beyond one harvest cycle. 2) Importers must guarantee the FLO minimum price (US $1.21 per pound for Arabica coffee) and pay a social premium (US $.05 per pound) above this minimum, or pay the world market price, whichever is higher; certifi ed organic coffee receives a further premium (US $.15 per pound). 3) Importers must offer pre-fi nancing equal to 60 percent of the contract value upon request. FLO has registered over 300 coffee grower associations representing 500,000 small-scale growers in Latin America, Africa and Asia. According to one estimate, this represents 30 percent of the world’s small-scale coffee growers (Conroy, 2001:10).6 Most of the Fair Trade coffee, approximately 84 percent, comes from Latin America; Mexico is by far the single largest national supplier. IV. THE BENEFITS OF FAIR TRADE COFFEE PRODUCTION Fair Trade has made considerable contributions to the lives of the rural poor in the global South. All seven case studies demonstrate that Fair Trade brings a variety of concrete, positive benefi ts to participants. These studies also point to a number of limitations and challenges to Fair Trade, discussed in Section V. But the fact that almost all the coffee producer groups emphasized the need to increase the size of the Fair Trade market demonstrates the importance that poor farmers place on Fair Trade as a vehicle for positive change. When producers are paid double the conventional market price, as is currently the case with Fair Trade coffee, one would logically expect demonstrable benefi ts to be captured by individual farmers and perhaps their immediate families. Yet in the societies where coffee is produced, the survival of extended families, communities and producer organizations is often considered to be of greater importance. Fair Trade’s contributions to the overall viability of these social systems have been largely overlooked. The following discussion begins with the obvious benefi ts of the higher price captured by Fair Trade producers, then moves on to explore the more subtle, and in some cases more signifi cant, benefi ts that accrue at the individual, family, community and organizational levels. These additional benefi ts include increases in lower cost credit, family and community stability, training, new business opportunities, self-esteem, formal education, employment, cultural revival and environmental conservation. A. Benefi ts to Individual Producers The higher price paid for Fair Trade coffee is the most direct benefi t to the small-scale farmer. Fair Trade coffee receives a minimum US $1.26 per pound (including the fi ve cent social premium) and an additional US $0.15 if it is certifi ed organic. The precise amount of direct 6 While the number of producers certifi ed through FLO’s registry seems quite large, a much smaller number have been able to consistently sell their coffee on the Fair Trade market, and most of these have succeeded in selling only a portion of their coffee harvests. As noted in Sections IV and V below, this problem is primarily due to the still small market and limited demand for Fair Trade certifi ed coffee in the North. 6