New Premium, Minimum Price and Trade Standards in Coffee
15 March 2011
In the past year international prices for coffee have hit a 14-year high, sending waves throughout the coffee world from farmers to consumers. Fairtrade International (FLO) today announces a new Fairtrade Minimum Price and Premium, a higher organic differential and revised trade standards for coffee to support producers and help ensure stable supply chains.
Lower than expected coffee harvests due to inconsistent rainfall and a lack of investment in coffee plots, increased competition for high quality coffee beans, and financial speculation fuelled the rise of coffee prices. A recent New York Times article highlights some of the problems that are driving prices up around the world (“Heat Hampers Colombian Coffee Crop, Jeopardizing Supply,” The New York Times).
In November, Fairtrade International (FLO) announced the Fairtrade Coffee Actions, a number of concrete steps to help producer organizations, traders and roasters cope with the market fluctuations. The review of the Fairtrade Minimum Price, Premium and trade standards are part of the effort.
- An increase in the Fairtrade Premium to USD 20 cents/lb from the current USD 10 cents/lb, of which 5 cents will be earmarked for productivity and quality improvement efforts. Use of the Premium is democratically decided upon by members of the producer organizations and is often used for social or business development efforts.
- An increase of the Fairtrade Minimum Price to USD 1.40/lb for washed Arabica coffee from the current USD 1.25; Arabica naturals will increase to USD 1.35/lb from USD 1.20. The new Minimum Price provides a stronger safety net for farmers if prices fall and helps producer organizations secure more pre-financing to purchase coffee from their members.
- An organic differential of USD 30 cents/lb from the current USD 20 cents/lb. As prices for conventional coffee have risen, fewer farmers see value in seeking and maintaining organic certification even as demand is increasing. The organic differential is in addition to the agreed price to account for higher costs of organic production and encourage organic coffee farming.
Revised trading standards that were developed to encourage fairer negotiations, clarify the role of price fixing, and reduce speculation. Complementary to the new Trade Standards, FLO is facilitating training for producers and traders on contracts, price fixation and risk management strategies.
The changes made by FLO strive to meet the needs of producers and ensure healthy supply chains for traders and roasters.
“The coffee industry has not taken a hard look at risk management and FLO adding that in to [the trade standards] really helps us open up that conversation,” said Ed Canty, Fair Trade Organic Coffee Buyer at Green Mountain Coffee Roasters in the United States. “For too long as an industry, all of the risk rolled back down to producers and this year [many roasters and traders] got caught.”
Silvio Cerda, Executive Director of the Red Café, an organization representing the interests of small-scale coffee producers throughout Latin America, added: “In the medium- and long-term, we hope to see a strong impact from the creation of this earmark for improving productivity and quality. The CLAC and Red Café are convinced that having the resources needed to invest in the medium-term can guarantee that small producers will be able to increase their productivity, which will result in not only greater income, but will help ensure that producer organizations can deliver and supply coffee for the industry.”
In researching and recommending premiums, prices and trade standards, project managers at FLO walk a line between providing the greatest benefit to small-scale farmers and workers, while ensuring market accessibility. The review process is a monumental collaborative effort based on consultations with producers, traders and all players in the field, external studies on costs of production, and input from experts around the world.
“The current market for coffee has pushed us to consider how the Fairtrade system operates and provides value to producers, importers and roasters,” said Caren Holzman, Head of Global Product Management at FLO. “The results strive to meet the needs of producers and address the challenges at the heart of this coffee crisis.”
The Fairtrade Premium, organic differential and trade standards will apply to Arabica and Robusta coffee. The Minimum Prices announced apply only to Arabica coffee. A review of Robusta coffee, which makes up 4% of Fairtrade certified coffee sold, will follow in the near future.