Unfair Trade in Belize - How Kraft Shafts Cocoa Farmers
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Opinion
FAQ: Do Fair Trade certified cacao farmers reliably earn more money than cacao farmers who are not Fair Trade Certified and reliably benefit from increased world market prices?
Answer : Probably not.
What? How can this be? A hint at the true nature of how "fair" Fair Trade is can be found in the
FAQ on the TransFair USA web site. Many people believe that Fair Trade benefits farmers directly. However, you have to go to the Advanced FAQs page to learn that
individual farmers don't benefit directly, though this is not how Fair Trade is understood by the general public . Fair Trade premiums are paid to farmer co-ops who deduct a variety of operating expenses (including certification costs - which are not directly mentioned and are bundled into "administrative costs") from the premium paid. Thus it is quite likely - almost certain - that the
average individual cocoa farmer receives little to no actual direct benefit from Fair Trade certification .
Let's do some math. Say that the Toledo Cacao Growers Association sold 40 tonnes of cocoa to Green and Black's (previously bought by Cadbury which was just purchased by Kraft) in 2009. Now Green and Black's tries to do the right thing and pays the entire Fair Trade premium ($150/tonne) irrespective of world market price, even though they are allowed to reduce the premium they pay as the world market price goes up.
This means that the maximum Fair Trade premium on 40 tonnes in 2009 would have been US$6000 (or Bz$12,000). From this amount it's prudent to account for and deduct all of the costs associated with attaining and maintaining Fair Trade certification. I was unable to discover what those are at the TCGA, but for argument's sake let's say they run to 8% to make the math easy, or just under Bz$1000 (they are likely far higher).
At the moment, there are nearly 900 active farmers in the TCGA. If the remaining premium (Bz$11,000) got distributed evenly it would mean that each farmer would receive about Bz$12 (or US$6) extra annually for their work. Fifty cents a month . More likely, the premium distribution is pro-rated according to how much cocoa gets contributed so some farmers will get more - while most get less - and the actual percentage of the premium available to be paid out is lower because overhead costs are much higher than 8%.
And this US$6 average per farmer figure is only because Green and Black's pays the maximum Fair Trade premium irrespective of market price.
How is this Fair?
One of the underlying fallacies of the whole Fair Trade pricing and premium structure is the assumption that, as the world price for an agricultural commodity (e.g., cocoa) increases, farmers automatically get paid more. In fact, this is not often the case because farmers are insulated from market prices through a variety of layers and mechanisms. In Grenada, the Grenada Cocoa Association sets the price, and it does not have to (and does not) reflect market prices as the quality of its cocoa is so high and the amount produced so low that it commands a premium over world market prices often exceeding US$1000/tonne. In Belize, the price paid to the TCGA (and therefore the price the TCGA pays to its farmer members) is based on a 5-year rolling average of the world market price. This rolling average protects Green and Black's from price volatility - at the expense of the farmer.
To be fair, Green and Black's does bring value to the TCGA and to its member farmers by providing a guaranteed market. Guaranteed markets are hard to find in the world and its presence in and around Punta Gorda has benefited farmers in the area immensely because they know they have a buyer for what they produce.However, the guaranteed market is a benefit Green and Black's offers and is not an intrinsic benefit of Fair Trade. In fact, a portion of this guaranteed market is about to go away as the new owners (Kraft) are shifting production from Italy to Canada requiring different organic certification and the TCGA will no longer be purchasing transitional cacao (cacao from farms in the process -which takes up to three years - of being certified organic).
The point to make here is not that Fair Trade is bad, but to acknowledge that while its aims are noble it is part of a solution, andnot the solution. It is important to remember that Fair Trade is a business. And while that business demands transparency and accountability from its member organizations all the way down to the farmer co-ops it certifies, as a business it does not demand the same accountability and transparency of itself .
Because of the nature of reporting required to achieve and maintain certification, I challenge FLO and ALL of the member organizations to publish, annually, a clear and detailed accounting of:
-) how the premium that gets paid varies based on changes in world prices
-) the premiums paid out to farmer co-ops by commodity, by country
-) the amount, by commodity, by country, of the certification and re-certification fees collected from farmer co-ops
-) the number of member co-ops, by commodity, by country
-) the fees collected from companies paying to license various Fair Trade logos
-) operating budgets, including salaries of all senior executives
-) the number of field personnel directly involved in certification along with detailed calendars and itineraries of time spent on certification activities including hard costs (e.g., salaries and travel expenses)
In other words, is Fair Trade as a business run well? As of the 2008-2009 Annual Report there were 746 producer organizations across all commodities in 59 countries with over 2700 companies making over 6000 licensed products worldwide.Is it cost-effective at delivering on its goals? Does the rhetoric of Fair Trade match the reality? Is Fair Trade effective? The total amount of Fair Trade cocoa produced in 2008 was 10,299 tonnes from a total harvest of over 3,000,000 - or about one-third of one percent.
If Fair Trade works so well, how come more cacao farmers aren't certified?
The simple answer is - they can't afford it.
updated by @Clay Gordon: 04/11/15 14:52:00
