Opinion : David Richardson 17/12/04

MANY RESPECTABLE institutions that regard doing the right thing as more important than saving the last penny instruct those who buy such things as coffee for consumption on their premises to select Fairtrade products wherever possible.

Our own church has recently taken such a decision, and I applaud the idea if growers of coffee beans, who have been producing at a loss for years, receive viable prices. And I have no reason to doubt that coffee farmers that supply Fairtrade benefit.

But the Fairtrade Foundation is not the only organisation bidding for ethical customers. The Rainforest Alliance has set up in competition and there has been a spat recently over their conflicting claims.

Fairtrade, which supplies Cafedirect, Starbucks, Costa and Pret a Manger, among others, claims that it is more ethical than Rainforest because it guarantees growers a 5% premium above world prices and pays for it by levying 2% from those licensed to use the Fairtrade mark.

Rainforest, which supplies Maxwell House, Marks & Spencer, Lyons, Gloria Jeans and Kenco, says that although it does not guarantee a premium, in practice it pays 20% above the world price and charges its customers pro rata.

How wonderful that these organisations should be vying with one another to prove who pays most to the primary producer. Wouldn”t it be grand if similar competition were to develop among those who buy commodities from British farmers?

As recent letters to FW have asked – why should fair trade be limited to overseas farmers? There is just as strong a case for fair trade at home. We, too, have been producing commodities at a loss for years.

Before we become too excited at that prospect, however, it may be useful to put the coffee situation into perspective. The Fairtrade Foundation claims UK sales last year of some 20,000t of coffee, which was a 26% increase on 2002. The Rainforest Alliance in its most recent full year says it sold about 7000t.

World production of coffee beans is between 6 and 7m tonnes/year. For all their claims, therefore, the joint efforts of Fairtrade and Rainforest can influence only a tiny proportion of world producers.

That is not to say the efforts of those who run those well-meaning schemes are useless. As Mao Tse-Tung said, “A journey of 1000 miles begins with a single step”. But those statistics spell out the scale of the problem and it may be instructive to consider if coffee contains lessons for other commodities.

Until 1989 the market for coffee beans was managed on a global scale, with care taken to ensure production did not outstrip demand. Then the international agreement broke down and despite several attempts has never been replaced.

Since 1989, therefore, coffee has been the only fully freely traded commodity in the world. For a few years, old disciplines held production in check. Then low-cost countries like Vietnam and Brazil realised there was nothing to stop them expanding production. Others followed to try to maintain a margin by producing more. By the mid-1990s production was exceeding demand and that has been the case ever since.

Fifteen years ago coffee-producing countries grossed about US$10bn from their crops from a retail coffee market worth US$30bn. Today coffee-bean producers are grossing about US$6bn from a retail market value of US$60bn. So growers’ returns have shrunk from 30% of retail value to 10% and primary producers cannot recover costs of production. Sound familiar?

That is what happens when globalisation rules and production and markets are not managed. Growers who have a climatic or cost advantage, or both, expand. Production rises to exceed demand and prices collapse.

It has already happened with coffee; it is happening with sugar in most countries, except the EU, which is about to reform its policy to bring it into line with coffee; it will happen with cereals and who knows what other commodities if the World Trade Organisation continues on its present course.

Although there may spring up groups of people with consciences willing to pay extra for what they know has been produced to standards of which they approve, the sad fact is they may be a tiny minority and make little difference to the great bulk of agriculture.

I hope I am being pessimistic. But when I consider the actual impact of well-publicised and well-regarded schemes like Fairtrade compared with the size of the problem I find it difficult to be optimistic.