Rachel Lauterbach Professor Amitava Dutt The Economics and Politics of Consumption and Happiness Seminar 25 March 2014

The Impact of Fair Trade of Coffee on Consumption T.S Elliot once said I have measured out my life with coffee spoons, in his book The Lovesong of J. Alfred Prufrock (T.S. Eliot Quotes). This quote illustrates the common habit of consuming coffee on a daily basis that many people around the world have, which makes coffee one of the most popular beverages in the world. The constant and increasing consumption of coffee has turned it into a $30 billion industry and caused coffee to become the second most traded good in the world. (Coffee FAQ Global Exchange, The Coffee Addiction). The coffee industry has changed and developed frequently over the years, and one event that has had a large impact in the industry is the creation of fair trade. Before exploring the impact that fair trade has had on the coffee industry, it is important to understand what fair trade truly means. The Fair Trade Federation defines fair trade as follows: Fair trade is an approach to business and to development based on dialogue, transparency, and respect that seeks to create greater equity in the international trading system. Fair trade supports farmers and craftspeople in developing countries who are socially and economically marginalized. These producers lack economic opportunity and often face steep hurdles in finding markets and customers for their goods. Fair trade is much more than just trade. At the core of the fair trade model is a direct, cooperative, and in-depth relationship between

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buyers and sellers that keeps all of the principles of fair trade at the forefront (What is Fair Trade?). On a basic level, fair trade is trade that is regulated and is designed to ensure that the growers of coffee are being paid a fair wage. The goal of fair trade is to be able to create a higher standard of living for the workers. Since it has started, fair trade has impacted the coffee market and how coffee is consumed drastically, specifically the workers and their ability to consume, the companies selling coffee, the consumers buying coffee and lastly the sales of coffee through a use of fair trade as a marketing technique. The history of fair traded coffee began in the 1980s by the Max Haavelar Foundation. Fair trade began by establishing a fair relationship between organizations, called Alternative Trade Organizations, and those who are producing the desired goods. (Ponte 23). In addition, there are also Fair Trade Guarantee Organizations that monitor these relationships to ensure that they are indeed fair and also to help sell the products that are created (Ponte 23). In his book, Brewing Justice: Fair Trade Coffee, Sustainability and Survival, Daniel Jaffee defines the standards that are usually used to define fair trade. The criteria he gives are guaranteed minimum (floor) prices to producers; fair wages to laborers; social development premium, advance credit or payment to producers, democratically run producer cooperatives or workplaces, long- term contracts and trading relationships, environmentally sustainable production practices, public accountability and financial transparency, financial and technical assistance to producers, and safe, nonexploitative working conditions ( Jaffee 2). These criteria are designed to ideally give workers the ability to farm sustainably while also improving their wages and job security, which is aimed to improve their overall life-satisfaction.

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By comparing workers and their families who participated in fair trade practices with similar growers who chose not to, Daniel Jaffee attempted to discover the true effects of fair trade and if its goals were being achieved. In his studies, he found that in the particular region of Mexico that he studied, those who participated in fair trade did noticeably benefit from their choice to be involved in trading fairly as opposed to the alternative of selling to local buyers (Jaffee 8). One of the most important benefits the participants in fair trade, who were in a group of coffee producers called Michiza, received was higher and more stable prices for the coffee they were producing. This benefit was most important during times when the market was particularly volatile or when prices were low. Fair trade guarantees the producer a minimum price per kilogram based on the market at the time (Jaffee 94). Fair trade farmers are also usually able to sell their coffee for a higher price because once they begin to participate, they are given money upfront, which allows them to invest in their crops and improve them, many of them being able to certify their crops as organic. If farmers are able to achieve organic status, they receive about 3 times more than what the traditional grower makes per kilogram. Even farmers who are simply part of the Michiza group participating in fair trade by selling to an organization rather than an individual make twice as much as they would otherwise (Jaffee 95). A study done elsewhere besides this region in Mexico found the same price difference when individuals are utilizing fair trade. Another benefit enjoyed by Michiza members and other participants is technical support that would otherwise be unavailable to farmers in the developing nations where coffee is usually grown. The services provided include technical assistance to improve their coffee plottraining

Lauterbach 4 and in-field help, among other services (Jaffee 100). This help allows for higher quality coffee to be grown and as a result, higher wages for the farmers. As a result of higher prices from base prices and also due to improvement of crops, the household income from coffee sales for a family using fair trade was recorded as an average of 5,431 pesos, while other households was merely 1,428 pesos ( Jaffee 104). A higher relative income allows those who participate in fair trade to consume more and families do not have to worry as much about being able to afford to consume. Although fair trade does not solve all the problems faced by coffee growers and it is still a difficult career and lifestyle full of uncertainty, Jaffee was able to prove through his research that it is more beneficial to join in fair trade for growers than to choose not to. In addition to the workers, there has been a noticeable impact from the growth of fair trade on companies that buy and sell coffee. The fact that coffee is such a widely consumed good worldwide makes it a market that has a large potential to create a positive impact by utilizing free trade and attracting more businesses to participate and buy from Fair Trade Organizations (Coffee FAQ Global Exchange). Since fair trade coffee first hit the market in the United States in 1999, its market and popularity has grown steadily (Jaffee 15). The United States is the largest consumer of coffee, drinking about one-fifth of the worlds total coffee, and as a result it consumes the largest amount of fair trade coffee. Once Americans were aware of fair trading and its mission, they began to pressure companies such as Starbucks to participate. Starbucks has become the largest coffee chain in the United States, where they own one-fifth of all cafes nationally (Coffee FAQ Global Exchange). A group named Global Exchange took notice that Starbucks did not buy or sell any

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fair trade coffee and saw an opportunity to create a change. Starbucks did not agree at first, but as Global Exchange was planning a Roast Starbucks campaign, the company decided to participate and announced they would sell fair-trade coffee. (Jaffee 15-16). This agreement was a major breakthrough for fair trade coffee and helped it gain even more mainstream appeal. Prior to this agreement, the United States were buying about 1.3 million pounds of fair trade coffee and by 2005 that had risen to 45 million pounds. However, even though the agreement gave fair trade coffee national exposure, Starbucks did not specify how much of their coffee they would change to being fair trade. After five years, only about 3 percent of their coffee was certified as being bought using fair trade practices. Now Starbucks reports that in 2012 about 8 percent of its coffee was fair trade purchased (Coffee Starbucks Company). The company was able to strategically publically associate itself with fair trade coffee, allowing them to achieve maximum public-relations benefic with minimal changes in its actual practices (Jaffee 16). Activists continued to pressure other companies to take action as well. The next large company to decide to use fair-trade-certified coffee was Proctor & Gamble, a Big Three coffee producing company. The company now uses fair trade coffee for their brand called Millstone. Other large-scale companies made the change to begin selling fairly traded products in 2005. These companies include Safeway, Target, Sams Club, Costco and Dunkin Donuts (Jaffee 16). Although companies participating in fair trade is good for the cause, it does also present some negative effects as well. First, like Starbucks demonstrated, a company can claim to be practicing fair trade, even if there are only using it for a small percentage of their products. There is no way of simply knowing a companys actual commitment to fair trade without doing

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research and checking facts. Secondly, the company can manipulate buyers into thinking that there are more moral and fair than they truly are. Laura T. Reynolds describes this technique as companies attempting to create a halo effect, where a nominal commitment to improvements in one area is used to burnish an entire corporations image which is allowing companies to ensure access to a growing market segment without embracing Fair Trade ideas or practices (Raynolds). As demonstrated by the actions of these companies, the label Fair Trade has become a marketing technique used to appeal to buyers. Reynolds explains that companies label their coffee as fair trade and market that in order to satisfy consumer demand and convey their coffees multidimensional profile (Raynolds). They use this in order to persuade buyers into believing that this means they are treating the growers fairly while also selling a high-quality coffee. Companies have taken note of the increase in sales of coffee that is fairly traded and have begun to market and display that in order to attract more socially aware buyers. Their marketing technique is also aimed at peoples natural desire to consume and spend based on how others are consuming and spending around them. If they notice that their colleagues or friends are now only drinking fair trade coffee because they say its good and helps a good cause, they will be more likely to do it as well so they look like a good person to others too. This idea is discussed by Robert H. Frank in Luxury Fever when he states that our individual spending decisions are often influenced by the fact that our menu of available choices is so strongly shaped by what others spend (Frank 10). Therefore, if people are willing to spend more money in order to buy a fair traded good, I will be more likely to have that available to me as well and buy it also.

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Based on research, companies who do this are wise and costumers will be willingly and sometimes more likely to buy their product as opposed to a regularly traded product. A study conducted by Cone/Roper found that 78% of consumers would rather buy something if it has a cause associated with it that they care about or believe in. The same study also found that 54% of people would be willing to pay more for these types of products (Coffee FAQ Global Exchange). Daniel Stokes also a survey that found that 75% of men and 84% of women considered a companys commitment to social issues very important when deciding where to shop (Stokes 2). People may be more likely to consume fair trade goods out of a sense of morality and the pleasure they get from not only getting to consume a new good, but also from having the satisfaction that they are also helping someone at the same time. In his book, Happiness, Richard Layard discusses the concept of human morality as a feeling that comes from the deep sense of mutuality we feel for other people, a feeling that we should treat them as we would like them to treat us (Layard 101). Now that it is easy to research and discover the true conditions of workers, consumers would be more likely to buy something that they know is made by someone who is able to support themselves and their family as a result of the fair trade program rather than someone who is not being paid and cannot afford the necessities to support themself or their family. Stokes also mentions the three most important social issues to Americans: worker welfare, health, the environment, and education (Stokes 2). Based on this finding, American would all be quick to support fair trade and its mission once they become aware of what it does for workers and their families. If companies are able to successfully convey to their targeted consumer what the cause is, they are likely to achieve success.

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Fair trade is a concept that has large potential to have a significant impact on the wellbeing of many workers worldwide. For coffee in particular, the market needs to experience more growth before workers can enjoy drastic benefits and a level of income similar to that in more developed countries. However, even with the market and conditions like they are currently, it is still beneficial for workers to join a fair trade organization if they are able to. In addition, if more companies continue to use the fair trade brand to market, the companies, producers and consumers will all experience positive effects of profit, an increased income, and increased happiness from consuming a good that is also helping someone.

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Works Cited "The Coffee Addiction." CNBC.com. CNBC LLC, n.d. Web. 22 Mar. 2014. "Coffee FAQ | Global Exchange." Coffee FAQ. Global Exchange, 2011. Web. 25 Mar. 2014. "Coffee." Starbucks Company. Starbucks Corporation, 2014. Web. 24 Mar. 2014. Frank, Robert H. Luxury Fever: Weighing the Cost of Excess. Princeton, NJ: Princeton UP, 2010. Print. Jaffee, Daniel. Brewing Justice: Fair Trade Coffee, Sustainability, and Survival. Berkeley: University of California, 2007. Print. Layard, Richard. Happiness: Lessons from a New Science. New York: Penguin, 2005. Print. Ponte, Stefano. "Standards, Trade and Equity: Lessons from the Specialty Coffee Industry. Centre for Development Research Working Paper 2.13 (2002): 23-24. Web. Raynolds, Laura T. "Mainstreaming Fair Trade Coffee: From Partnership to Traceability." World Development 37.6 (2009): 1083-093. Elsevier ScienceDirect. Web. 23 Mar. 2013. Stokes, Daniel. "Consumers and Fair Trade: Lessons from a Decade of Dramatic Growth and Growing Impact." TransFair USA. George Washington University, n.d. Web. 24 Mar. 2014. "T.S. Eliot Quotes." T.S. Eliot Quotes. Notable Quotes, n.d. Web. 23 Mar. 2014. "What Is Fair Trade?" Fair Trade Federation What Is Fair Trade. Fair Trade Federation, 2014. Web. 22 Mar. 2014.