Combating Global Poverty with a Cup of Coffee

Release Date
July 12, 2013

Topic

Poverty & Inequality
Description

Millions of people in the developing world struggle to survive on just a couple of dollars a day. Fair trade claims that buying fair-trade labeled coffee is a way to help the poor. But is it the best way? Professor Colleen Haight has been researching fair-trade for the past 10 years; she’s also spent time on coffee plantations in Central America talking with the coffee farmers there about their experiences. She says that while fair trade has done a lot to increase consumer awareness, it may not be the best way to actually help the poor.
Fair-trade coffees cost a little bit more than necessary and the extra profit is returned to the farmer. Fair trade farmers are small landowners, but migrant workers—who are much poorer than any landowner—do not benefit from fair trade. Fair-trade farmers are required to pay migrant workers the minimum wage in their country, but that’s already the law.
Prof. Haight says there is a better way to help these poor migrant workers. You can help them by buying premium coffees instead of fair trade coffee. Premium coffee beans are harvested with greater care and fetch higher prices at the market. As a result, migrant workers receive higher pay working for farms that produce premium coffees. Premium coffees and fair-trade coffees cost about the same amount, but buying premium coffees does more to help the poor than buying fair-trade labeled coffees. You have a limited amount of money; you should be able to use it in a way that maximizes the benefits to the poor.

Data Sources
Does Fair Trade Coffee Help the Poor? Evidence from Costa Rica and Guatemala [report]: Drawing on field work conducted in Costa Rica and Guatemala, this report finds that Fair Trade may actually harm the long-term interests of small farmers in high-cost production areas
Learn More
Is Fair Trade a Fair Deal? [article]: Gene Callahan at the Freeman argues that the Fair Trade movement embodies a mixture of sound ideas for improving the state of the coffee industry and well-meaning but misguided attempts to fight the realities of supply and demand
The Problem with Fair Trade Coffee [article]: Fair Trade-certified coffee is growing in consumer familiarity and sales, but strict certification requirements  are resulting in uneven economic advantages for coffee growers and lower quality coffee for consumers.
How Fair Is Fair Trade? [article]: A BBC article asks the question, “Does Fair Trade promote self-sufficiency or cause dependency for third-world farmers?”
Fair Trade: Improving Lives (video): Paul Rice of Fair Trade USA explains how Fair Trade certification empowers farmers and communities to develop themselves
Fair Trade Coffee (video): A video explaining the basics and benefits of Fair Trade Coffee
Unfair Trade [report]: This report by the Adam Smith Institute argues that contrary to popular belief, the Fair Trade label does more harm than good to the poorest third-world farmers
Desert Island Game (game, beginner): Can you learn something about trade and cooperation by being marooned on a desert island?
Trade Ruler (game, advanced): As the Supreme Ruler of an island, you want the country to prosper. By engaging in international trade, you can achieve this goal.

Combating Global Poverty with a Cup of Coffee
You know there’s millions of people in the developing world who struggle to survive on just a couple of dollars a day. Fair trade tells us that we can help simply by buying a cup of fair-trade labeled coffee. But I have to ask myself, how effective is that really? It’s a complex issue but we owe it to those in need to make sure that every dollar counts.
I’m Colleen Haight, assistant professor of economics at San Jose State University. I’ve spent the past 10 years or so researching fair-trade coffee, and I’ve also spent a lot of time on coffee farms in Central America actually talking to the coffee farmers about their experiences.
The goals of fair trade are very admirable, and I love the fact that it’s a voluntary organization. They’ve done an outstanding job of creating better consumer awareness, for example. Consumers today are much more appreciative of how their purchases affect the world’s poor in our global economy. However, if you really want to help the poor, the fair-trade model for coffee isn’t the most effective way to do that.
Fair trade operates by asking consumers to pay a few cents more for each cup of coffee they buy. They even convey this extra money all the way down through their supply chain, all the way to the small farmer who grew the coffee. The problem is fair-trade regulations define that small farmer as a small land owner, but the poor in the coffee farming community don’t have enough money to own their own land. If you really want to help the poor, you have to address yourself to the migrant farm workers.
Migrant farm workers have to constantly move from farm to farm, picking up whatever work they can. The fair-trade regulations only say that we have to pay these laborers the country’s minimum wage. The problem is that’s already the law. Fair trade has absolutely nothing else to say about the migrant farm worker. So how can you make choices that better benefit the poor?
It might seem odd but one way you can do this is by buying high-quality coffee. High-quality beans take more time and care to harvest. This results in higher pay for the seasonal laborers who pick the coffee, as growers insist on quality beans that will fetch higher prices in the market. As the demand for premium coffee grows, more of these higher-paying jobs become available. It may be counter intuitive, but migrant workers who pick beans for premium coffees tend to receive higher pay than those workers who pick beans for most fair-trade brands. Since the price of fair-trade coffee is more or less the same as it is for premium coffees without the fair-trade label, consumers can do more for the poor by actually not buying the fair-trade label.
At the end of the day, you have to remember that fair trade is a brand just like any other brand. As a conscientious consumer, we can’t just accept the claims that are made. We have to do our own investigation. Our dollars are limited. We have to make sure that all of our choices have the impact that we want them to.