Posts tagged with: coffee

Blog author: sstanley
Wednesday, July 16, 2014

A few months ago, the Fairtrade movement came under fire after a British study stated that fairtrade certified farmers were actually making less  and were working in worse conditions than non-certified farmers. Of course, this was not the first time the fairtrade movement was accused of failing to fulfill its goals. However, Vega, a new company based in León, Nicaragua has decided to employ a new method of business that focuses much more on the coffee farmers.  They see the problem with fairtrade products in a bloated  supply chain; this is the normal supply chain for a cup of fairtrade coffee:

Supply Chain

Forbes contributor, Anne field, shows the disparity between the amount Americans pay for a cup of coffee and what the farmers receive:

Each small scale farmer produces about 500 pounds of Fair Trade organic coffee  a year and gets around $1.30 a pound, or $700 a year.  The upshot: Farmers of specialty grade coffee beans earn $1 a pound for a product costing U .S. consumers maybe $20. (more…)

Café con leche - Milchkaffee (CC)“Who could be against fairness?” Victor Claar asked this question at Acton University last month. He and Travis Hester gave a talk titled, “Fair Trade Versus Free Trade” with their focus on the coffee industry. They explained what the fair trade movement is, evaluated its effectiveness, and explored ways for caring people to help coffee growers overcome poverty.

Before looking at the fair trade movement, it is important to note that coffee is what economists call an inelastic good. That means that if the price of coffee increases, the quantity demanded will not decrease by a lot. Claar puts it simply: “If coffee prices rise, coffee drinkers will probably buy less coffee, but probably not much less.” Spikes occur frequently in coffee prices due to bad weather and the delicacy of Arabica coffee plants. The price of coffee is volatile and is, according to fair trade advocates, too low. (more…)

The NYT Freakonomics blog notes that the Fair Trade movement does not exist independently of the laws of economics:

But the problem with Fair Trade coffee is that as the program scales up, the alternative market ethics it wants to sustain collapse. Inevitably, the Fair Trade market becomes subject to the same laws that drive the conventional commodities market. When the price of coffee drops, the appeal of Fair Trade’s price support lures growers into the cooperatives that sell coffee under the Fair Trade label. As poor growers rush into Fair Trade agreements, the supply of Fair Trade coffee rises. Protected by the price floor, the Fair Trade coffee remains inflated despite flagging demand. What Fair Trade importers thus end up doing with the excess Fair Trade coffee is dumping it—upwards of 75 percent of it!—on the conventional market.

This is a huge problem for Fair Trade. Essentially, to be successful, it must, as I have stated in the past, “argue for a complete standardization of its price-fixing methods.”

Fair TradeThis gets at the paradox of religious support for Fair Trade. It makes those who argue so vociferously against “consumption” as an evil, something that feeds the Big Ag “devil” (to use the Freakonomics blog’s terminology), instead rather promote and endorse consumerism of another kind: Fair Trade consumerism.

That’s how you get to the point of mainline denominations pushing Fair Trade commodities (like coffee) in the church narthex and small groups, like moneychangers in the temple courtyard.

The Freakonomics post is lengthy and worthy of attention. But for a more comprehensive discussion of Fair Trade, be sure to check out the new monograph in the Studies in Christian Social Ethics and Economics series, Fair Trade? Its Prospects as a Poverty Solution.

In this book, Henderson State University economics professor Victor Claar examines the case of coffee in particular, and relates that in his

past place of worship, dedicated parishioners freely gave of their time and talents throughout the year to serve the retailing, advertising, and distribution efforts of Equal Exchange. Those parishioners who had taken on the ministry of fair trade coffee advertised frequently in the weekly bulletin and monthly newsletter—at no charge, of course. They also operated a coffee cart that was open for business between and after Sunday services, and they took great care to stock up on extra-special goodies in anticipation of gift-giving occasions such as Christmas and Valentine’s Day. They carefully maintained their inventory on hand, placing
orders with Equal Exchange when stocks were getting low. Of course, Equal Exchange was the only coffee served during coffee hour, where an Equal Exchange sign was prominently displayed to remind everyone that ours was a congregation that cared about the poor.

Claar concludes presciently: “In any other setting but a church, the message would be clear: If you enjoyed today’s free sample, be sure to pick some up on your way out to savor at home all week long.”

Order your copy of Fair Trade? Its Prospects as a Poverty Solution today.

This week’s commentary is from Victor V. Claar, an economist at Henderson State University and the author of a new Acton Institute monograph, Fair Trade? Its Prospects as a Poverty Solution. Follow his economics blog here.


Poverty, Capital and Economic Freedom

By Victor V. Claar

When poor countries grow rich, it rarely has anything at all to do with how many mouths they have to feed or the abundance of natural resources. Instead, across the globe, poor countries of all sizes, climates, and endowments begin to grow rich as two key factors increase.

First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education—including the knowledge of the English language—of its people.

Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable. That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of even greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.

If we want to be effective agents in aiding the poor, we should focus our efforts in directions leading to the enhanced value of an hour of labor. That is, we should help poor countries wisely grow their stocks of human and physical capital, all the while bearing in mind that markets and their prices send the best available signals regarding where our efforts can have the greatest impact. The newfound success of innovative micro lending efforts such as Kiva can help show us ways to effectively invest in the accumulation of physical capital by the global poor. Compassion International is a marvelous organization that works to further the education—the human capital—of poor children worldwide, with a financial accountability record above reproach. (more…)

Blog author: jballor
Friday, April 11, 2008

Late last month I argued that recipients of the federal government’s stimulus package “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing.” Now other voices are giving similar advice, recommending saving rather than spending.

Rick Haglund, a Michigan business columnist for the Grand Rapids Press, notes that “Some saving measures can go a little too far, though. I recently heard a personal financial consultant say people can save by no longer buying that cup of coffee and newspaper on the way to work.”

“Give up the coffee, but please, please keep buying the paper. The newspaper business is in a terrible financial state,” he writes. Haglund thinks that newspapers are more important to the country than coffee…a debatable proposition. Coffee, not oil, might well be the lifeblood of American enterprise.

But the economic status of newspaper publishing is in a strange place. I’ve been getting the weekend paper for a year or so, and when I renewed I received a call from the paper just to tell me that I’d be getting the rest of the week for free (a good thing too, or I would have missed Haglund’s column).

It reminded me of getting a postcard in the mail from the government telling me to expect a rebate…no notice necessary, just send the free stuff and the money. I don’t think it cost the Grand Rapids Press millions of dollars to make the phone calls, though (it cost the feds $42 million to mail out those inane little rebate notices).

In any case, it makes more sense for many newspapers to give their issues away to get a boost in circulation numbers than it does to count on the income from subscriptions. I also recently saw one of the narrowest daily newspapers I had ever seen last weekend, part of the trend to cut printing costs. (I can’t complain too much, though, since the Port Huron Times Herald has published more than one of my commentaries. Keep up the good work!)

Of course, some folks, like Betty J. Mazur, are going to do just what the government wants them to do with the money. “I’m going to buy new clothing with my check,” she said. (The piece linked above is in part about how it is necessary to file federal taxes for 2007 in order to get the 2008 rebate. Marketplace discusses that, and also debunks some myths about the rebate, here.)

Oh, and don’t forget to blame conservative theology for the credit crisis. After all, it seems as if adherents to so-called “conservative” theology don’t save as much as they ought.

How any decent sociologist could have this reaction is beyond me: “Keister was surprised that when demographic factors — such as education, age and race — were held as constant, religion still proved to be an influential factor in wealth accumulation” (emphasis added).

Amazing, just amazing. Can you dare admit that religious beliefs really do influence behavior?

Keister says a typical “conservative Protestant” might be a member of the Assemblies of God, Churches of Christ, Nazarene and Pentecostal churches. I guess they’ve forgotten what John Wesley said.

Blog author: jballor
Thursday, October 4, 2007

The Free Exchange blog at (HT) concludes a long and thoughtful post on fair trade, specifically in response to this recent NYT article, “Fair Trade in Bloom,” by wondering:

And how does this affect coffee supply? If a premium is available for fair-trade coffee, shouldn’t other growers enter the market to take advantage of it until the price of coffee is bid down to market levels, leaving total producer take–baseline coffee price plus premium–where it stood before? Such a scenario would also raise distributional questions. If higher coffee prices attract market entrants, then coffee-growing nations will shift resources into that sector, which might be good for grower incomes, but could potentially inhibit the development of other economic activities.

Not to take anything away from the stated goals of the fair-trade movement or the well-meaning consumers who wish to do better by farmers in poor countries. Still, in any economic process, it’s often difficult to foresee the second- and third-order effects of a decision. It will be interesting to observe how growth in fair-trade products changes the structure of markets for targeted commodities.

These sorts of questions and concerns are at the heart of my past criticisms of the fair trade movement.

To the extent that fair trade certifiers are simply acting as agents to inform consumers and guarantee certain practices, to which coffee buyers can freely respond either affirmatively or negatively, there’s no real complaint. Fair trade becomes a boutique item that has to compete in the free marketplace.

But to the extent that the fair trade movement reflects a more thoroughgoing critique of market forces and the “fairness” or justice of market prices, it becomes more problematic. It becomes an entirely different paradigmatic alternative to a system of free trade.

You’ve essentially replaced market prices with arbitrarily determined prices, which are subjectively determined to be “fair.” Compare this with the traditional and classic scholastic understanding of a “just” price as the market value in the absence of any and all fraud and conspiracy.

The Free Exchange blog piece points out all sorts of negative consequences of the change from “just” to “fair” prices, not least of which is the increasing saturation of an already saturated market because of artificial subsidization of a particular commodity. Furthermore, it’s hard to see how it makes good economic and environmental stewardship to subsidize and promote the growth and production of a commodity of which we already have too much.

For more on the disconnect between the intentions and the consequences of the fair trade movement, check out this study, “Does Fair Trade Coffee Help the Poor?”

Railing against corporate dictatorship, helps consumers find locally-owned cafes, bookstores, and movie theatres in their area — alternatives to the “invasion” of Starbucks, Borders, and their ilk. The site itself is actually quite an interesting capitalist idea in its freshness and creativity, and people certainly should eat or drink or shop where they are most comfortable. That’s the beauty of competition! And the kind of community-building that often takes place at familiar, time-tested, local shops is to be encouraged.

But to say local businesses possess some kind of moral magic simply by virtue of being family-owned and homey is preposterous. Such shops may be more ethically run in some ways, partially through close personal ties to the community and to fellow owners and employees. But this bespeaks the virtue of the management, not of the abstract institution of the local business itself (just as it indicates the poor character of the management of a corporate business, and not all of corporate business itself, when one falls into unethical dealings). Also, independent stores are often smaller, so they may provide fewer jobs to people in the community and supply fewer products to their customers. Neither of these are inherently good qualities for businesses to have.

In saying that independent, community-operated businesses “deserve your dime,” forgets that consumers may have different preferences, needs, and reasons for choosing bigger stores, and that it is not immoral for them to do so. While it is true that corporate business is not inherently praiseworthy, neither are small businesses — but inherently good things can come out of both types of stores in different circumstances, even if ignoring the economic benefits of competition. Making books more widely available to average people is a good thing. Having a choice of coffee shops — for atmosphere, taste, cost, or convenience — is a good thing. Even facing more snack options at a bigger movie theater is, in its own sense, desirable.

If delocator fans don’t find these things desirable, they should by all means avoid them. But to limit personal choice and to condemn the multiplicity of options seems to defeat the principle of independence that claims to inform them in the first place.