News from Fair Trade: FLO’s Pricing Announcement, Market Forces & Peru

 Last Week, the Fairtrade Labelling Organizations International (FLO) announced a long-awaited decision to increase the Fair Trade certified minimum price for washed and unwashed arabica coffees. The press release is here: FLO Price Increase Release

For washed arabicas the minimum price per pound bumped to $1.25 per pound (up from $1.20) and for unwashed the price increased to $1.20 USD per pound (from $1.15). The FLO increase translates into a base price of $1.55 for organic fair trade washed arabica coffees. ($1.25 minimum + $.20 organic premium + $.10 fair trade premium).

FLO’s press release states that market pressures didn’t warrant a price increase for robusta coffees.

This announcement follows on a decision made in June 2007 when FLO conceded a modest increase on both the organic and fair trade premiums by 5 USD cents each under  pressure from producers, ATOs (alternative trade organizations) and allies. 

For many ATO’s and trade allies, FLO’s decision to increase pricing is too little too late. For several years now, alternative traders and small scale producers have attempted to engage FLO on the minimum price issue. How are Fair Trade cooperatives supposed to secure coffee in a market when, on one hand, the global commodity market prices are reaching those of the Fair Trade minimum and, on the other end of the spectrum, elitist coffee importers are offering exhorbitant prices to indiviual farming families for a year’s entire harvest?

So, while FLO’s price increase may be vital when the world’s coffee prices spiral downwards once again, it is unlikely that small scale farmers will see much benefit in 2008 from the recently announced price increase.  In 2007, importers of specialty coffee were forced to pay prices that far exceed fair trade minimums in order to secure high-quality coffee. 2008 promises to be yet another year of increasing prices in the specialty market.  The Oromia co-op from Ethiopia, for example, recently announced they expect approximately $2.50 per pound USD on 2008 contracts.  

The increase in coffee prices, whether dictated by FLO or a result of demand for specialty coffee, is a victory for small scale producers. Alternative traders and allies have long advocated for severing ties with the commodity markets and, instead, create pricing structures based on the cost of production plus differentials related to quality, cost of living, isolation of the farmers and inflation in the country. It remains to be seen what our market in the States will bear as increasing prices get passed along to roasters, retailers and consumers. The value of currency will be another factor to watch in 2008 because buyers from Europe, New Zealand and other countries, with their currencies becoming stronger and stronger against the dollar, have more flexibity to deal with increasing prices in their respective markets.

 Finally, it’s important to note that healthy trading relationships shouldn’t be relegated to pricing alone. Small scale coffee growers from Peru circulated the following letter (linked below), admonishing FLO for their acceptance of Perales Huancaruna into the FLO certification program. They assert that Perales Huancaruna, the biggest coffee exporting corporation in Peru,  has a long history of disenfranchising small scale growers in order to make a profit.  They fear the entrance of Perales Huancaruna into FLO’s system will be the demise of the fair trade certification system for small scale growers in Peru. Read the letter by clicking below

Letter from the National Association for Small Scale Producers in Peru