28 May 2008 - Fair Trade is a way of promoting fair and good commercial practices between producers and consumers in order to warrant fair price, environmental respect, men and women labor equity conditions and quality products, among others. It was born when developed countries realized that is was common that Not Developed Countries (NDC) were not gaining any profit from their exports to industrialized countries, but the commercial intermediaries in the developed countries were. How does it work?
The Fair Trade Labelling Organization (FLO) is in charge of certifying products and making sure that a minimum price reaches the producers. This is important in agro-industrial products, because most of them have huge price volatility, and so it has an enormous impact on farmers. Coffee is one of the products involved in this program and Colombian coffee exporters should be aware that they can be protected from market risks; they need to know that people around the globe are more interested in buying ecological products and they also need to segment the international markets to find new opportunities.
Fair Trade works through world labelling initiatives in different countries and the certification process begins with a formal application followed by Audits, Evaluation, Certification, After Certification and Complaints/Allegations.
World Fair Trade Coffee Situation versus Colombian Situation
According to the latest data available in 2006, there were 241 certified coffee producer organizations in the world and 52.077 metric tones were sold and an extra amount of $62238889were earned through Fair Trade. In the same yer, Colombia exported 601.611 metric tones, equal to $1734219718. Coffee being one of Colombian traditional export products, its high market volatility risks could affect millions of Colombian families.
Chart 1 shows the coffee prices volatility in Colombia during 1991 to 2007.
According to the numbers the standard deviation is $0.34, which means that from the average price $1.01 it is expected for the price to move up or down in this quantity.
Chart 1 Colombian Coffee exports implicit price
Considering all these, when the producers organizations get involved in the Fair Trade Program they get a floor price of $1.19 per pound, in addition to a premium of 10 cents per pound as the purchase price for social and economic investment, so it is a risk management mechanism to avoid coffee market volatility.
Where to Sell Fair Trade Coffee?
Where are the opportunities besides having a floor price and a premium? The world is beginning a new economic trend that is likely to create awareness of environmental, survival and human nature. The European Union is the most advanced world region in terms of numbers of Fair Trade stores and the consumers are willing to pay more for these kinds of products as they know the value underneath the label.
It is common in stores or supermarkets that sell organic and gourmet products in Europe and in the United States to find Fair Trade products. The reasons are that Fair Trade has an environmental component as organic products do, and also the market segment where these kinds of products are sold are very specific, where people are willing to pay more because they are certain about the value they get, which means they are aware about the social, economic, equality and environmental world.
According to the /latest Fair Trade report from FLO, sales have been growing at rates higher than 20 percent since 2000. Fair Trade used to be an issue that only some countries knew about, but nowadays it is expanding and is becoming a long-term relationship between consumers and producers?. Europe and North America are the biggest consumers, the former having the highest participation between 60 and 70 percent. Statistics say that there are 2,854 Fair Trade Worldshops, 56,700 supermarkets and 19,300 other kinds of shops in a total of 78,900 outlets? or places where Colombian coffee can be sold, such as Café Direct, Auchan, Casino, Cora, Monoprix, Metro and? other commercial partners in Europe.
Even though the fair trade movement is bigger in Europe, the United States has also been showing high growth rates. The organisation in charge of tracking fair trade in North America is Transfair USA. Companies of the size of Starbucks have made a big difference with the coffee they serve, because they know the best coffee is cultivated in the tropical weather countries and so they have made Fair Trade contracts with coffee farmers in different countries. So they make business only with coffee farmers that warrant Starbucks that all the revenues are going to reach every single farmer. These are some examples of cafes and supermarkets that sell Fair Trade coffee in the United States, such as Ben & Jerry´s Scoop Shops, Bruegger´s, Caribou Coffee, Dunkin´ Donuts, Noah´s Bagels, Costco, Publix, Trader Joe´s and Whole Food Market, among others.
Fair Trade can increase Colombian Coffee Exports
As shown in Chart 1 the implicit Colombian coffee price has been moving up and down a lot. Even when calculating the growth rate from1991 to 2001, a small decrease of 1.7 percent in the total can be identified. This is an important point, because as mentioned earlier, the Fair Trade market growth rate has been more than 20 percent in the last five years and it is expected to grow even more.
The world is seeking trade equity, and this includes the environment and price volatility risk management. People are aware about Fair Trade label and this is translated into more sales and more Fair Trade conditions for farmers. The stores and supermarkets in Europe and in the United States as shown in the statistics are more than 80,000 and this number is increasing every year. The market growth rate speaks by itself with rates higher than 20 percent, meaning this is a market that has not stabilized yet into lower growth rates. It is time to move and enter the Fair Trade market dynamics and find the opportunities available in order to compete with quality, flavor, and aroma and make Colombian coffee even more attractive in the international markets.