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Direct Trade Coffee

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In addition to Fair Trade, direct trade has emerged as an alternative contender for the “ethical coffee” market. Direct trade coffee is similar to fair trade insofar as it seeks to provide a fair price for small farmers and encourage them to develop sustainable, ecologically responsible practices. As does fair trade, direct trade eliminates advantages that “middlemen” have over farmers in the traditional coffee market.

What Is Direct Trade?Edit

Geoff Watts, the Director of Coffee and Green Coffee Purchaser for Intelligentsia Coffee, has been a prominent spokesman for direct trade. According to Jay Kilby, the author of the Think 2100 Blog", in an email interview, Mr. Watts explained that the problem with “middlemen” in the coffee industry is not that they are necessarily bad. They can perform valuable functions. Rather, the problem is that in the traditional coffee market, they often take advantage of the farmer’s lack of knowledge about the market, lack of access to multiple buyers, and lack of capital resources. Middlemen often use these disadvantages facing the farmer in order to extract a greater share of the coffee retail price for themselves. For example, a “collector,” traveling to remote areas to collect the coffee cherries and transport them to mills or exporters, may offer cash to farmers who have little alternative but to accept the offered price. The farmers do not have the financial resources to buy equipment to mill their cherries or hold them until a better price is offered, and they are not in communication with alternative buyers. So collectors often buy the cherries at the lowest possible price and, of course, try to sell at a relatively high price.

Direct trade roasters remedy this situation by first negotiating a fair price with the farmers, and then negotiating additional costs to be paid to whichever “middlemen” have a legitimate function to play in bringing the product to market. All are party to a common contract that stipulates how much will be paid at each stage in the process—including farmers and all other intermediaries deemed necessary, such as a collector, miller, exporter, and importer. In the fair trade or direct trade system, farmer coops are sometimes able to get financing to buy a truck for transporting the cherries to a mill themselves, eliminating the need for the collector. Some farmers may also buy their own milling equipment, thereby acquiring another link in the production of coffee and retaining the corresponding portion of the retail price. Whether particular farming coops are able to profit from taking over these intermediate steps depends upon how efficiently they operate. But when roasters negotiate directly with farmers on price and assure transparency in contractual relationships with all intermediaries, this eliminates much of the abuse suffered by farmers in the traditional market. Clubs such as the Direct Trade Coffee Club offer direct trade coffees to consumers from a number of roasters who participate in direct trade. These roasters include MadCap Coffee, Intelligentsia Coffee, Reunion Island Coffee and Barefoot Coffee Roasters.

Direct Trade and Fair TradeEdit

One distinction between fair trade and direct trade is that direct trade roasters pay a premium price above the fair trade price for high quality specialty coffee. Whereas fair trade certification assures that farmers will receive a minimum price, any margin above the minimum cannot be guaranteed by fair trade organizations because they do not negotiate these margins. Roasters do. Direct trade specialty roasters such as Intelligentsia seek premium coffee quality that brings a high price on the retail market, and they generally pay farmers 25% or more above the guaranteed fair trade minimum, rewarding farmers who live in the right climate and develop the right skills necessary for growing premium coffee.

Where To Buy Green Coffee BeansEdit

Direct trade roasters can also become fair trade certified. However, Intelligentsia has chosen not to seek such certification and save the expense of the certification licensing fee charged to roasters. In the past, this fee amounted to 10¢/lb, but now varies, depending upon a sliding scale related to volume purchased and other factors. Intelligentsia claims that they are able to pass on this savings from the licensing fee to their farmers by including it in the premium price that they offer.

Nevertheless, Mr. Watts is not suggesting that direct trade should replace fair trade. He believes that fair trade coffee performs at least two important functions. First, by widely publicizing abuses in the traditional market, assuring participating coops a minimum price, and placing a certification label on products, fair trade organizations have made consumers conscious of the impact their choices have upon farmers. Secondly, by influencing consumer choice, fair trade is beginning to have an impact on the broader coffee market, where the bulk of coffee is produced and sold. As large retailers such as Sam’s Club and Dunkin’ Donuts sell more fair trade coffee to meet consumer demand, larger players in the traditional coffee market, such as Nestle’, Kraft, and Proctor and Gamble, may begin to move increasing portions of their coffee into fair trade, thereby affecting a much larger group of farmers than those select few who produce premium coffees for the specialty market.

Watts is less enthusiastic about the role that fair trade plays in the specialty market. In this market, he believes that direct trade roasters can work with farmers to create a high quality product and reward them with a price significantly higher than the minimum fair trade price. If that is the case, then why should farmers and roasters selling premium coffee pay additional costs for fair trade certification?

On this point, proponents of fair trade would argue that independent third-party organizations such as Transfair USA are better able than roasters to convince consumers that their judgment is unbiased, providing greater assurance to consumers that the products they are buying meet standards that contribute to the public good. These standards not only assure a minimum price paid to farmers, but also require that participating coops embrace democratic procedures and use a portion of their coffee revenue (a social premium) for programs that will provide long-term benefits for the community, such as improved health and educational facilities. They also provide assurance that the producers are using farming techniques that protect the environment.

It is true that direct trade roasters embrace similar goals. Intelligentsia requires that producers who meet their direct trade standards promote healthy environmental practices and be committed to sustainable social practices. The question is whether consumers will feel that they can trust roasters as much as an independent, third-party organization like Transfair USA to assure that such criteria are being met.

For example, can the consumer trust that coffee roasters will encourage its producers to protect the environment in the absence of third-party certification. In an article in which he discusses this issue, Mr. Watts convincingly argues that environmental standards must be considered in the context of the economic needs of particular farming communities. In some cases, it is better to use fertilizers to boost crop production so that farmers can increase their yield enough to climb out of poverty. The economic benefit gained in these cases outweighs the costs to the environment created by use of fertilizer. Similarly, costs and benefits must be weighed in making judgments about the types of shade that should be required on particular coffee farms. The question is whether the consumer can have confidence that roasters will make the best judgment calls in these particular cases. Or will their financial interests bias their judgment in some cases in favor of larger yields of high quality coffee at the expense of the environment? Fair trade advocates would argue that third-party certification creates greater consumer confidence that such judgment calls will remain unbiased.

This does not mean that fair trade never fails in its attempt to inspire confidence that its standards are being met. Clearly, there will be abuses and transgressions in any system that attempts to hold small farmers living in remote regions accountable to particular standards. Rather, the question is which system is best suited to guard against such abuses. Proponents of fair trade would maintain that independent, third-party oversight is needed.

Moreover, “direct trade” is not a uniform set of standards or principles. It is a pledge made by individual roasters regarding their way of doing business, and its meaning may vary from one roaster to the next. If a consumer reads “direct trade” on a product, the meaning of the phrase will depend upon the particular roaster selling the product. It will be up to the consumer to determine what “direct trade” signifies by educating himself about the particular roaster using the phrase.

There is no simple answer as to whether fair trade or direct trade is the better alternative for the socially responsible consumer. As Mr. Watts said in the above-mentioned email interview, “I think that what we need to avoid is to give too much credit to ANY system as being the principle agent of change . . . the coops that have grown and improved and are producing better coffees than before are the ones that have had good leadership on the local level, the ones with good vision and strong ethics. My feeling is that many of these would succeed with or without DT [direct trade], FT [fair trade], or any other type of system.”

Each of these systems offers advantages over the other. Direct trade is able to reward coffee quality with a higher price than that paid by fair trade. Fair trade offers the simplicity of a label that has consistent meaning, providing assurance to the consumer through independent third-party certification that minimal standards protecting the farming community and the environment are being met. Both options are contributing to considerable improvements over the traditional coffee market.

This article originally appeared under the title What Is Direct Trade Coffee? and is reprinted here with permission of the author.

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