ORGANIZING HOPE: THE FOUNDING FATHERS OF FAIR TRADE MEET AGAIN

On Thursday 17 October, after many years, Francisco van der Hoff and I met again in Mexico City to celebrate decades of fair trade, which started thanks to our close cooperation back in 1985. The fair trade celebrations were linked to the 10 year anniversary of Solidaridad’s Central America office and were followed by a conference: ‘Smallholder farming: challenges, trends and solutions’ held at the Universidad Autónoma Chapingo.

Then and now: 2001 - a brainstorm with Fransisco van der Hoff, while walking in coastal dunes in the Netherlands, 2019 - friends meeting again in Mexico

Max Havelaar

In 1988 the first fair trade Max Havelaar labelled coffee was introduced into Dutch supermarkets. The cooperation between Francisco and I goes back to May 1985 when we met to discuss Solidaridad’s relationship with the Uciri coffee farmers cooperative in southern Mexico. Frans’ core message was:

‘Uciri farmers do not want project funding any more, but a fair price for their coffee at scale’.

Using the inspiring slogan ‘organizar la esperanza’ – ‘organize the hope’, Uciri farmers wanted to move from a small market presence in the alternative market of ‘third world shops’, to a successful mainstream brand in the supermarket. Only scale would create a fair price for producers.

For the two of us, our role division was immediately clear. Frans should take care of the supply side, organizing the producer side building on a network of farmer cooperatives already operating in the existing 0.2% ‘alternative market’. I became responsible for creating a much broader market acceptance moving to the retail market. The rest is history. 

Publication 2001: 5 editions about the history of fair trade labelling. 

Three years later, November 1988, farmer certification and fair trade labelling of the first fair trade brands became a reality and allowed us to test this innovative concept in the Netherlands. A new movement was born that would spread all over the world. 

Unfair supply chains

During last week’s conference, there was a growing consensus that fair trade has initiated change by raising awareness among consumers, and has triggered businesses to accept corporate social responsibility. Moreover gradually governments are being pressured to offer good governance, creating an enabling environment for sustainability. 

The coffee crisis is deeper than ever.

However, at the same time, the coffee crisis is deeper than ever. Fair trade gives some protection against this crisis, offering farmers a relevant minimum price and additional benefits. Unfortunately, this only happens in still a small segment of the market. And a fair price turns out to be an insufficient instrument: fair supply chains are key. 

The everyday reality is that businesses continue to make only small investments in sustainability, while big investments are made in the consolidation of trade and marketing, resulting in a boom in acquisitions and mergers. 

Three coffee giants dominate the market: Nestle, Jacobs/DE Coffee and Lavazza Group. Based on their increased size and growing market influence, leading roasters now force traders to accept tightened payment terms of up to 360 days, using traders as their bankers. Only very large traders can provide such extensive financing, which stimulates further concentration. So, in the end, there will be only three major dominant market players and five dominant trading companies. The market has to be protected against monopolistic power, as economist Adam Smith has already foreseen.  

Prices are at the lowest levels and the relative share for the farmer is under permanent pressure.

Understanding these market realities is crucial to understanding why the fair share for the farmer is under constant pressure. The coffee supply chain has become more unbalanced than ever. Farmer share has further decreased from 12% to 6.7%, and less than 10% of aggregated wealth stays in coffee producing countries. Prices are at the lowest levels and the relative share for the farmer is under permanent pressure. The result is a never-ending economic drama for farming families. 

Discussing 30 years of Fair Trade during the conference in Mexico City

Producer side unbalanced too 

One remark about the producer side of the equation. Here, the key words are Brazil and Vietnam. Of the 3.7 million tons of coffee added to world production between 1995 and 2017, 83% came from Brazil and Vietnam. This increase has been driven significantly by productivity improvements in both countries, at over 100% in Vietnam and 30% in Brazil. These increases contrast starkly with the relatively stable yields for the remaining coffee-producing countries. As a consequence, prices have been pushed down while costs have increased, further squeezing farmer incomes. Production costs have risen particularly sharply since 2010. This picture will not change in the short term. Moreover, climate change will lead to significant regional differences. For example with the roya crisis of the last decade, coffee production in Central America was down by between 30-70%. Mexico was probably the hardest hit due to the lack of adequate assistance. 

Next steps

What to do about all of this?

The CSO agenda now focuses on productivity and quality. And of course, on climate smart coffee production. This is the agenda of common interest, based on plenty of partnerships, and co-funding from private and public funds.

However, after all these necessary investments and efforts, farmers are still poor, I fear. A living income for farmers and workers – male and female – is not a priority of the business world, and will not be an expected outcome of sustainable transformation. In spite of all rhetoric on inclusive development, history gives us little evidence that this will happen in the foreseeable future. 

Transforming the unbalanced supply chain has to be at the core of our strategy and programming; it is the only realistic path forwards solving urgent issues. 

Consensus is growing that forward integration in the chain is the best way to get a fair share of profits throughout the chain. Professional producers and cooperatives are already investing in their own wet mills and ‘beneficios’ for the export of coffee. More and more they are roasting their coffee on a small scale, and start by fulfilling local demand. Primary producers become owners, or at least shareholders, of trading and marketing companies. Producers want to integrate forward and look for the consolidation of supply. Shortening the supply chain will reduce the power and margins of traders and brands. Entering the international market with ready-to-roast green coffee blends or, even better, with finished products for retailers or catering will make producers the new supply chain directors of the next generation coffees.

Speaking at Chapingo University in Mexico - one of the leading agricultural universities in the world

Fair data

The data revolution of our times will enable us to do things which were long considered impossible. Producers can build self-owned digital platforms offering farmers an efficient cultivation registration of coffee varieties and a benchmark of different production methods and results. Data from producers from all over the world can be used for intelligent and timely decision-making, and the analytics behind big data can serve the best interest of farmers. 

Of course, a crucial factor is the ownership of the data. This requires a low-cost, truly neutral, decentralized and green internet, and a valuable digital currency that is safe-guarded, and easily transferable. Such a breakthrough is on the horizon, and could possibly bring disruptive, pro-farmer changes to supply chains. Solidaridad is exploring these opportunities and is determined to make them the new reality. 

Ownership of data is a crucial factor

Francisco was impressed by my disruptive thinking but commented, ‘with us living in remote mountains we have no signal, let alone a smartphone. Please connect us and we will join you in the data revolution’. 

Two recent publications of Francisco van der Hoff (80)