Fairtrade - the good reason, and the real reason

“A man always has two reasons for doing anything: a good reason and the real reason.” 

J. P. Morgan (1837-1913), banker

Fairtrade products cost more. But what happens to that extra you pay to be Fair? The supermarkets want you to think it goes like this:

You don’t have to be a bleeding heart to believe in fair trade. Fair trade isn’t in itself just about charitable giving. Of course, charity can be an element in any decision. An OFGEM survey on why people swapped energy supplier showed 9% of switchers over 65 years old did so in part because they wanted to do the salesman a favour. Even the Fairtrade Foundation states that its mission is not just about charity – it is about being Fair. But what does “Fair” mean? Does it mean it pays enough for a farmer to bring up and educate his family in good health regardless of the value the market puts on his produce? Or does it mean ensuring the farmer doesn’t get ripped-off by local agents, wholesalers and supermarkets? All that debate is important and is complicated, but not central to the subject of getting more cash to the farmers. For ordinary Fairtrade buying Britons, it is principally about getting more money to the farmers for whatever reason, just as Free-Range is about getting better conditions for chickens. If that motivates you, then you should be pretty grumpy about what is actually going on. Even if you don’t care much about our rural brethren, be they animal or vegetable, conscience driven products are easing food prices up in the UK marketplace. With about half of all eggs sold being free-range, barn or organically raised, and a fifth of all coffee and bananas being Fairtrade certified you are paying extra whatever the state of your conscience. When you know where all the extra pennies and pounds you are paying go to, regardless of your “Fair” sympathies, then you may sit less easily of a morning in your cotton pyjamas, downing your scrambled eggs and coffee whatever their origin.

Take the coffee industry as an example. Fairtrade promises farmers a minimum price for their coffee. When the price falls beneath this level, farmers on the Fairtrade scheme get paid the ‘Fairtrade Minimum Price’. When the market price is higher, they get paid that higher price. The pact with the consumer is that you pay more not for the flavour, the quantity, the quality, nor the environment, but you pay more for the farmer. And many consumers are willing to sign up to this pact, as can be seen from the supermarket shelf space allocated to Fairtrade Coffee. Going from a few token bottles just a few years ago, Fairtrade now fills up to half the instant coffee shelf space in some supermarkets. In February 2011, the price of Tesco’s own brand 100g bottles of instant coffee were £1.69 for “Gold” and £2.73 for “Fair Trade”. A difference of £1.04.

So if that extra pound is going to the farmer, then it’s money well spent. Isn’t it?

Actually, according to Oxfam, the amount paid to the farmers makes up just 2% of the retail price of a jar of coffee. The Oxfam figures break down the cost of the jar of coffee on your breakfast table as follows, which is best illustrated using a Pie Chart, showing the ‘share of the pie’ the farmer gets when you buy a bottle of instant. In effect, for every £1 you pay for instant coffee, the farmer gets 2 pence. So, doubling his money – more than what Fairtrade actually does - should only add another 2 pence in the pound to the cost of Fairtrade coffee.

Overall, the way this £1 is shared out along the chain of supply is as follows

·        Farmer       -           2%                   2p

·        Exporter     -           3%                   3p

·        Shipper      -           6%                   6p

·        Roaster      -           64%                 64p

·        Retailer       -           25%                 25p

Doubling the farmer’s share ups his money from £0.02 to £0.04.

What we know for certain is

a)      How much the farmer gets, from the Fairtrade guaranteed price 

b)      How much Tesco charges for the bottle of Fairtrade instant coffee

By taking (a) from (b), we know how much of the £1.04 the farmer is not getting – i.e. he is not getting £1.  We don’t really know who does get that £1, but it doesn’t go on additional costs as happens with Organic foods. There are many additional costs to producing Organic coffee, including how the coffee is grown, certifying that it is grown properly, tracking around the various dispersed producers to collect the organic beans, and having a separate manufacturing process to keep the organic stuff uncontaminated. The only true additional costs for Fairtrade is paying the farmer his extra couple of pennies in the premium pound.

Bananas are the clearest way of seeing how the Fairtrade business works. Coffee and garments made of Fairtrade Cotton involve a great deal of processing – a complex supply and manufacturing chain from farmer to supermarket in which the original commodity is primped and preened into something very different. But a banana is a banana. Nothing much happens to it from plant to palate beyond being transported, stored, and sold. What you put into your mouth is what left the farm. The Fairtrade Foundation set a minimum price in January 2010

·        From 1st January 2010, the Fairtrade minimum farmgate prices for conventional bananas will range from $5.30 to $9.00  per standard 18.14kg box.

·        Organic bananas’ Fairtrade price per box ranges from US$7.00 to US$10.76

On this basis, the Fairtrade price paid to a farmer for a kilogram of bananas is

·        30-50 US cents per kilo for non-organic

·        39-59 US cents per kilo for organic

The free market wholesale price for bananas has been higher than this for several years.

Which means the Fairtrade farmer gets the same market rate as any other farmer, as the Fairtrade price only applies if the market rate falls below that guaranteed Fairtrade price. And yet, in supermarkets such as Asda and Tesco, Fairtrade bananas cost 30-50% more. In February 2011, the Tesco “Eat me keep me” bananas cost 18.6p each, and their Fairtrade bananas cost 27.4p each.

The Fairtrade Foundation is trying to do a good thing. But it has no power to make the supermarkets change their ways and send the extra money you pay to the people you intend it for instead of pocketing it for executive bonuses and shareholder dividends. On the other hand, by asking the right questions you do.