Study of money traffic in Fairtrade coffee business attracted attention
18.1.2011
The well-known Fair Trade certification system was created in the 1980s to improve the position of small-scale farmers and farm labourers in developing countries, which are often former colonies, in the unpredictable international business environment.
Fair Trade sales figures around the world have increased significantly during the first decade of this millennium, and this is also the case in Finland. Fair Trade is an easy way to provide assistance and make a statement.
Professor of International Economics Pertti Haaparanta, researcher Niina Niemi and Joni Valkila, who researches developing countries at the University of Helsinki, examined the Fair Trade coffee business between Nicaragua and Finland. In late 2010 and early 2011 their conclusions attracted plenty of media attention.
Commissioned by the Finnish Ministry for Foreign Trade and based on a field study in Nicaragua and trade statistics from Finland, the research report “Can Fair Trade Certification Promote Sustainable Agriculture?” was published just before Christmas. Debate on the topic began immediately after the release of the report, which took a rather critical position on the movement of money in Fair Trade.
The primary conclusion of the researchers was that the relative share of the Fair Trade coffee price that remains in producer countries is smaller than that of market-priced coffee, meaning that the greatest beneficiary of Fair Trade coffee is actually the Finnish intermediary, in other words, the retail sector.
The study also expressed suspicions that the price of Fair Trade coffee would cause general instability on the global market.
This is confusing for consumers, because such information about Fair Trade hasn’t been presented earlier in public.
Fair Trade coffee requires fair play
Fair Trade includes a guarantee system that uses a specific minimum price to protect small-scale farmers in developing countries from fluctuations in the global market.
When the global prices of products like coffee rise above this minimum price, it would be ideal if the additional income provided the community with increased benefits.
The study focused on a situation in which the price of coffee rose above the minimum price.
“In our opinion, a general rise in the price of coffee does not lead to additional income; instead a large part of the money ends up in the purchasing country’s pocket. As an economist, I also believe that the minimum price system as such is the wrong way to regulate regional trade,” states Professor Pertti Haaparanta.
Public debate about the results presented in the report focused on the fairness of the retail business. What’s wrong if the money doesn’t go to developing countries?
“Of course, the actions of the retail intermediary should be examined. There’s no such study at this time,” explains Haaparanta.
“I also believe that the ability of the Fair Trade system to operate as a regional developer is an issue.”
The legitimacy of the whole study was also a topic of debate.
“Our goal was to use scientific methods to determine the impacts and opportunities of the Fair Trade certificate to function as a developer in poor regions. We were criticised for trying to investigate and interpret one segment of Fair Trade – coffee – and for focusing only on money in that segment. But this opened the door for other studies, and people are entitled to criticize our research – that’s the foundation of scientific information,” sums up Haaparanta.
The researchers, each of whom worked on the study according to their own very different values, don't as such want to target Fair Trade activities, in which humane, ethical values and activities that increasingly comply with environmental criteria are at least as important as money.
Text: Eeva Pitkälä
The researchers wrote an article on the topic in the Journal of Business Ethics
Volume 97, Number 2, 257-270, DOI: 10.1007/s10551-010-0508-z Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers Joni Valkila, Pertti Haaparanta and Niina Niemi
