As a coffee lover, you have probably heard about Fairtrade and Direct trade coffee, and there is a lot of debate surrounding which is better.
To dispel some of the myths, we wanted to explain the difference between the two and each's pros and cons.
In a world of free market economics, the price of a commodity such as coffee is determined by its supply levels versus the level of demand for it. If the supply level is higher than the demand for it, the price generally reduces; however, when the supply falls and demand exceeds the supply, the price will go up as buyers are prepared to pay more for it.
The problem with this is that when supply becomes too high, prices will fall, and large buyers using their purchase power can push prices even lower. This affects the farmer adversely as falling prices mean losing profits and declining wages. As most farmers are small rural businesses, this can seriously affect the livelihoods of these communities.
To address some of these disparities, Fairtrade practices were developed by an organisation called Fairtrade International. They promote fair pay and ethical treatment to coffee producer groups.
For coffee to be certified as Fairtrade, a coffee producer must first apply for certification (which requires paying a fee) to obtain a license. Once the producer completes these steps, they are introduced to and marketed to a large consumer base through being able to display the famous Fairtrade logo on their products. The producer then effectively acts as an exporter of the coffee if selling to international markets, as is usually the case.
Fairtrade importers must also register with Fairtrade International and pay a fee. When purchasing coffee from the producer or exporter, the importer must pay the market price for the coffee, but significantly, a further minimum additional premium on account of being part of the Fairtrade movement. This adjusted price ensures that the producers receive a higher price than the usual free market price for their coffee.
The downside to this is that as Fairtrade requires the buyer to pay an increased price, when in a market with an oversupply of coffee, the producer/exporter often loses out anyway due to paying extra license fees to Fairtrade International and a lowered market price. Quality may also suffer as the farmer stops being incentivised to produce coffee at a good quality when they know the price will be low anyway.
The case for Direct trade
Direct trade coffee is a type of sourcing where the roaster or distributor buys directly from the farmer, without the involvement of any third party such as Fairtrade International or importer organisations. This means that the farmer can set their own price for their coffee and not be forced to accept the lower market price.
This results in higher profits for the farmer, higher wages for workers, and more investment in the local communities. In the longer term, the farmers can invest more in their coffee processing methods and produce a higher quality coffee when they know they will command a better price for it. Overall this increases sustainability on both sides of the equation.
As Don Maslow Coffee works with very small producers for whom registering with Fairtrade International is not economically viable, we use the Direct trade methodology and as a result, the price we pay for our coffee is higher than the Fairtrade rate. This naturally results in a slightly higher price for our customers, but our business is built on the principle that our coffee must be of the highest quality and must also pay our producers well so they can invest back into their communities. This is at the heart of what we do, and we hope that our customers will also buy into this vital principle.