Does Fair Trade USA's expansion plan threaten its purpose?

The Gunther Report

Does Fair Trade USA's expansion plan threaten its purpose?

Paul Rice is a man on a mission.

The 51-year-old president and CEO of Fair Trade USA, who has led the group since 1998, says he wants the practice of Fair Trade to become bigger, engaging more consumers and helping more farmers around the world.

To that end, Fair Trade USA last year quit the international Fairtrade Labelling Organizations, or FLO, an international federation of fair trade groups, to pursue a vision that Rice calls "Fair Trade for All." He and his allies want to broaden the definition of Fair Trade, which when it comes to coffee now requires importers to buy from grower-owned cooperatives.

The "Fair Trade for All" permits buying from collections of small farmers and even coffee estates, or plantations, that are deemed to be worker-friendly.

"Fair Trade can be more than a tiny market niche," Rice says. "It can be scalable and significant."

Bringing in plantations will make it easier for big coffee buyers like Green Mountain Coffee Roasters, Starbucks (Nasdaq: SBUX) and Whole Foods to buy more Fair Trade products -- and that's exactly the problem, his critics say.

Including bigger farms, they argue, will endanger the co-ops that are the heart and soul of the Fair Trade movement.

"Fair Trade is designed to change commerce," says Rodney North of Equal Exchange, a cooperative that sells Fair Trade and organic coffee, tea, chocolate bars, cocoa, bananas and almonds. "We shouldn't be changing Fair Trade to accommodate commerce."

Equal Exchange's campaignEqual Exchange has launched a petition drive asking companies, organizations and consumers to choose "authentic, small farmer-centered Fair Trade." It says:

Small farmer co-operatives are the center of our Fair Trade movement. We believe that cooperative organization is essential for small farmers to survive and thrive, and the cooperative model is an important vehicle for economic empowerment and social change….

Therefore we vigorously oppose Fair Trade USA (previously Transfair USA)'s Fair Trade for All initiative, which seeks to allow coffee, cacao and other commodities from plantations into the Fair Trade system. This strategy means that small farmers will now be forced to compete with large plantations for market access… We oppose the lower standards Fair Trade USA proposes and the lack of farmer and producer governance on Fair Trade USA's board. We believe that their Fair Trade For All initiative threatens small farmer cooperatives' existence and Fair Trade itself.

Caught in the middle are coffee companies (and other retailers big and small), which must decide whether to embrace Rice's "Fair Trade For All" mantra or side with the international federation and traditionalists in the U.S. who favor the co-op model. The brouhaha creates a risk: That what is now a relatively small market — roughly 5 percent of the coffee sold in the U.S. is certified as Fair Trade — will be further splintered, with competing logos, brands and ideologies.

"This is an exciting moment in the Fair Trade movement's history because it's a chance to revisit our purpose, our goals and our practices," says Ben Corey-Moran, the president of Thanksgiving Coffee Co., a socially conscious artisan roaster in northern California. (Its slogan: "Not Just a Cup, But a Just Cup.") "But it's also a very dangerous moment. We could confuse or alienate a lot of consumers."

The idea of Fair Trade dates back to the 1940s when a prominent Mennonite woman from Pennsylvania began selling imported crafts in small stores that eventually grew into the Fair Trade retailer Ten Thousand Villages. "Max Havelaar," the first Fair Trade label, was launched in Europe in the late 1980s. Other labels followed, and FLO was established in Germany in 1997 to bring the labels together and set worldwide certification standards.

Now producers and consumers faced a proliferation of labels and standards -- not just Fair Trade International and Fair Trade USA, but also independent labels like Rainforest Alliance, which certifies cocoa, coffee, flowers, tea and other products, and a Bird-Friendly seal from the Smithsonian Institution. In every instance, buyers are assured that growers are being paid a premium price for their products and that, in return, they adopt social and environmental practices that are verified by third parties. It's a market-friendly way to fight global poverty.

The current battle over who owns the idea of Fair Trade is likely to focus on coffee, America's biggest food import ($526 million in 2011) and the most-traded Fair Trade commodity. Last year, Fair Trade USA certified more than 138 million pounds of coffee, a 32 percent increase over 2010. This enabled Fair Trade coffee cooperatives to earn $17 million in community development premiums, up 61 percent from 2010. The extra money goes to projects selected by each co-op in education, health care, environment, business management, quality improvement or productivity.

Rice wants to double the impact of Fair Trade by 2015. To make a bigger dent in global poverty, he argues, Fair Trade has to include all kinds of producers, including workers on plantations. FLO limits its certification for coffee, cacao and sugar to co-ops, although it will certify plantations that grown banana or tea.

"We tried our damnedest over the last three years to get FLO to move," Rice told me. "They flat out said no. I find it very rigid and unrealistic for the Fair Trade movement to insist to the farmers out there that we won't work with you unless you join a co-op."

Money, not surprisingly, played a part in the disagreement. Fair Trade USA paid more than 20 percent of its revenues to FLO which sets global standards, coordinates labeling and advocates on behalf of Fair Trade. Rice will save that money by going out on his own, and it could come in handy: Fair Trade USA has about $5 million in loans outstanding to the Ford Foundation, among others. (Its annual revenues will be about $11 million this year.) "We needed an injection of growth capital in order to invest in consumer awareness" and drive demand for Fair Trade, Rice says.

Fair Trade USA also collects fees from the roasters and retailers that use its logo. Critics say that creates an incentive for the NGO to loosen standards and expand the market to bring in more revenue for itself.

A graduate of Yale with an MBA from Berkeley, Rice spent 11 years working in Nicaragua where he started a successful coffee co-op called PRODECOOP. Under his leadership, Fair Trade USA has won awards from the likes of the World Economic Forum, the Skoll Foundation, Ashoka and Fast Company magazine.

"Our approach is, by definition, unconventional," Rice says. "Some people celebrate that. Some people don't. The purists in the movement don't."

Some of the purists who are unhappy include coffee growers -- the very people Fair Trade is supposed to serve. Three networks of co-ops, which together represent 800 producers groups and about 1 million farmers in 60 countries, have opposed Fair Trade USA's split. They fear they won't be able to compete with the big plantations that are approved by "the people who are trying to steal fair trade from us," as Rink Dickinson, a co-founder of Equal Exchange, said last year in a speech.

Rodney North

Equal Exchange's Rodney North told me that Fair Trade at its best should democratize economies and empower to farmers who form co-ops. "People who were formerly marginalized become participants in the economy," he told me. "They go from being a peasant to becoming owners of a going concern."

"Fair Trade should be transformative," he said. "No plantation, no matter how benevolently run, delivers that kind of change."

But Erik Nicholson, who is national vice president of the United Farm Workers union, and a board member of Fair Trade USA, says it's wrong to leave the plantation workers behind. He told me: "My concern with the traditionalists is that their position is one of exclusion. They offer no hope or alternative to farm workers."

The argument goes on and on (and this blog post can't). The critics say there's no need to broaden the definition of Fair Trade because there's more than an ample supply of Fair Trade coffee available just from co-ops. Rice responds that it's not a zero sum game, that expanding the supply will drive demand and end up helping the co-ops. He's hope that some big buyers will go 100 percent Fair Trade, which they can't do without including larger farms.

An industry insider, who asked not to be identified, told me:

Paul Rice is a cowboy. He goes at things with guns blazing. For him, FLO does not move at the speed of business, and he's right. FLO does amazing work, but they do it very slowly. Paul wants to go for mainstream distribution. He's got an MBA, and he's taking a classic business approach and he's leaving the hippies behind.

I called a number of coffee companies to see what they think. Most seem to be taking a wait-and-see approach. At Green Mountain Coffee, which has embraced Fair Trade for years to become the No. 1 US buyer of Fair Trade Coffee, Lindsey Bolger, the senior director of coffee sourcing and relationships, said:

We're maneuvering cautiously through this landscape. We have made it very clear to the producers that we work with that we are not going to throw the co-ops off the back of the bus, even if we bring the estates onto the front of the bus.

Ben Packard, vice president of global responsibility at Starbucks, which has been less enthusiastic about the Fair Trade model, at least here in the US, told me: "We are waiting, along with everyone else, to see what the implications of the split will be."

Brooke McDonnell, the founder of a widely admired boutique roaster called Equator Coffees & Teas, said: "I'm inclined to give Fair Trade USA the benefit of the doubt." Her company, while small, has made loans to co-ops in Ecuador and Nicaragua, and bought land to set up its own operations in Panama. "As coffee roasters, if we're concerned about a future supply of quality coffee, we've got to support the growers in any way we can," she said.

Other companies, meanwhile, are working with FLO to set up a new affiliate in the U.S. that would presumably adhere to the traditional co-op model. Equal Exchange is small but influential; it has long-term relationships with colleges, churches, food co-ops and progressive retailers. Divine Chocolate, which is 45%-owned by cocoa growers, is also supporting what some call "authentic Fair Trade."

I'm not sure what to make of all this. I agree with Ben Corey-Moran of Thanksgiving Coffee that this is a risky moment for Fair Trade. This dispute has surfaced some unavoidable tensions in the Fair Trade model, not just between the pragmatists and the pursuits but between the labels and the brands: Fair Trade USA and FLO are asking Starbucks and Green Mountain, as well as the small roasters, to pay them fees that are then used to promote the Fair Trade "brand." In its own way, Fair Trade is competing with Starbucks and Green Mountain to become the trusted brand in coffee. The coffee firms would prefer to persuade consumers that any coffee they buy from Starbucks or Green Mountain is socially and environmentally responsible. If they succeed, that could marginalize Fair Trade.

Brooke McDonnell of Equator is right, too, when she argues that ultimately the onus falls on the coffee importers to take a long-term view and build win-win relationships with their growers. That's what the better importers are doing, for business as well as humane reasons, because they want to preserve a secure supply chain. I'll take a look next week at the ways a big company (Starbucks) and a small one (Thanksgiving Coffee) are working to close relationships with growers, along with the trust of coffee drinkers.

Coffee bean photo at top via Shutterstock; inline photos courtesy of the author.

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