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Rachel Lauterbach Professor Amitava Dutt The Economics and Politics of Consumption and Happiness Seminar 25 March 2014

The Impact of Fair Trade of Coffee on Consumption T.S Elliot once said “I have measured out my life with coffee spoons,” in his book The Lovesong of J. Alfred Prufrock (“T.S. Eliot Quotes”). This quote illustrates the common habit of consuming coffee on a daily basis that many people around the world have, which makes coffee one of the most popular beverages in the world. The constant and increasing consumption of coffee has turned it into a $30 billion industry and caused coffee to become the second most traded good in the world. (“Coffee FAQ Global Exchange”, “The Coffee Addiction”). The coffee industry has changed and developed frequently over the years, and one event that has had a large impact in the industry is the creation of fair trade. Before exploring the impact that fair trade has had on the coffee industry, it is important to understand what fair trade truly means. The Fair Trade Federation defines fair trade as follows: Fair trade is an approach to business and to development based on dialogue, transparency, and respect that seeks to create greater equity in the international trading system. Fair trade supports farmers and craftspeople in developing countries who are socially and economically marginalized. These producers lack economic opportunity and often face steep hurdles in finding markets and customers for their goods. Fair trade is much more than just trade. At the core of the fair trade model is a direct, cooperative, and in-depth relationship between

the consumers buying coffee and lastly the sales of coffee through a use of fair trade as a marketing technique. Brewing Justice: Fair Trade Coffee. specifically the workers and their ability to consume. there are also Fair Trade Guarantee Organizations that monitor these relationships to ensure that they are indeed fair and also to help sell the products that are created (Ponte 23). In addition. The history of fair traded coffee began in the 1980‟s by the Max Haavelar Foundation. On a basic level. nonexploitative working conditions” ( Jaffee 2). the companies selling coffee. . public accountability and financial transparency. These criteria are designed to ideally give workers the ability to farm sustainably while also improving their wages and job security. and those who are producing the desired goods. The goal of fair trade is to be able to create a higher standard of living for the workers. (Ponte 23). Sustainability and Survival. In his book. Daniel Jaffee defines the standards that are usually used to define fair trade.Lauterbach 2 buyers and sellers that keeps all of the principles of fair trade at the forefront (“What is Fair Trade?‟). social development premium. long. and safe. Since it has started. advance credit or payment to producers. which is aimed to improve their overall life-satisfaction. The criteria he gives are “guaranteed minimum (floor) prices to producers. fair wages to laborers. financial and technical assistance to producers. environmentally sustainable production practices. fair trade has impacted the coffee market and how coffee is consumed drastically. Fair trade began by establishing a fair relationship between organizations. called Alternative Trade Organizations.term contracts and trading relationships. fair trade is trade that is regulated and is designed to ensure that the growers of coffee are being paid a fair wage. democratically run producer cooperatives or workplaces.

Even farmers who are simply part of the Michiza group participating in fair trade by selling to an organization rather than an individual make twice as much as they would otherwise (Jaffee 95). This benefit was most important during times when the market was particularly volatile or when prices were low. The services provided include “technical assistance to improve their coffee plot…training . those who participated in fair trade did noticeably benefit from their choice to be involved in trading “fairly” as opposed to the alternative of selling to local buyers (Jaffee 8).Lauterbach 3 By comparing workers and their families who participated in fair trade practices with similar growers who chose not to. Another benefit enjoyed by Michiza members and other participants is technical support that would otherwise be unavailable to farmers in the developing nations where coffee is usually grown. If farmers are able to achieve organic status. which allows them to invest in their crops and improve them. A study done elsewhere besides this region in Mexico found the same price difference when individuals are utilizing fair trade. Fair trade guarantees the producer a minimum price per kilogram based on the market at the time (Jaffee 94). received was higher and more stable prices for the coffee they were producing. who were in a group of coffee producers called Michiza. Fair trade farmers are also usually able to sell their coffee for a higher price because once they begin to participate. they are given money upfront. Daniel Jaffee attempted to discover the true effects of fair trade and if its goals were being achieved. they receive about 3 times more than what the traditional grower makes per kilogram. One of the most important benefits the participants in fair trade. he found that in the particular region of Mexico that he studied. many of them being able to certify their crops as organic. In his studies.

while other households was merely 1. there has been a noticeable impact from the growth of fair trade on companies that buy and sell coffee. higher wages for the farmers. Jaffee was able to prove through his research that it is more beneficial to join in fair trade for growers than to choose not to.Lauterbach 4 and in-field help. As a result of higher prices from base prices and also due to improvement of crops. In addition to the workers. they began to pressure companies such as Starbucks to participate. This help allows for higher quality coffee to be grown and as a result. The fact that coffee is such a widely consumed good worldwide makes it a market that has a large potential to create a positive impact by utilizing free trade and attracting more businesses to participate and buy from Fair Trade Organizations (“Coffee FAQ Global Exchange”). where they own one-fifth of all cafes nationally (“Coffee FAQ Global Exchange”). its market and popularity has grown steadily (Jaffee 15). Starbucks has become the largest coffee chain in the United States. A higher relative income allows those who participate in fair trade to consume more and families do not have to worry as much about being able to afford to consume. A group named Global Exchange took notice that Starbucks did not buy or sell any .431 pesos. Once Americans were aware of fair trading and its mission. the household income from coffee sales for a family using fair trade was recorded as an average of 5. Although fair trade does not solve all the problems faced by coffee growers and it is still a difficult career and lifestyle full of uncertainty. Since fair trade coffee first hit the market in the United States in 1999.428 pesos ( Jaffee 104).” among other services (Jaffee 100). drinking about one-fifth of the world‟s total coffee. and as a result it consumes the largest amount of fair trade coffee. The United States is the largest consumer of coffee.

allowing them to “achieve maximum public-relations benefic with minimal changes in its actual practices” (Jaffee 16). the United States were buying about 1. However. like Starbucks demonstrated. Starbucks did not agree at first. Starbucks did not specify how much of their coffee they would change to being fair trade. Now Starbucks reports that in 2012 about 8 percent of its coffee was fair trade purchased (“Coffee” Starbucks Company). First. Prior to this agreement. the company decided to participate and announced they would sell fair-trade coffee. This agreement was a major breakthrough for fair trade coffee and helped it gain even more mainstream appeal. These companies include Safeway.Lauterbach 5 fair trade coffee and saw an opportunity to create a change. a company can claim to be practicing fair trade. After five years. only about 3 percent of their coffee was certified as being bought using fair trade practices. (Jaffee 15-16). even if there are only using it for a small percentage of their products. Sam‟s Club. The company was able to strategically publically associate itself with fair trade coffee. Costco and Dunkin‟ Donuts (Jaffee 16). but as Global Exchange was planning a “Roast Starbucks” campaign. The next large company to decide to use fair-trade-certified coffee was Proctor & Gamble. a “Big Three” coffee producing company. Activists continued to pressure other companies to take action as well. even though the agreement gave fair trade coffee national exposure. The company now uses fair trade coffee for their brand called Millstone. Target. Although companies participating in fair trade is good for the cause. Other large-scale companies made the change to begin selling fairly traded products in 2005. There is no way of simply knowing a company‟s actual commitment to fair trade without doing . it does also present some negative effects as well.3 million pounds of fair trade coffee and by 2005 that had risen to 45 million pounds.

If they notice that their colleagues or friends are now only drinking fair trade coffee because they say it‟s good and helps a good cause. Therefore. where a nominal commitment to improvements in one area is used to burnish an entire corporation‟s image” which is allowing companies to “ensure access to a growing market segment without embracing Fair Trade ideas or practices” (Raynolds). Reynolds explains that companies label their coffee as fair trade and market that in order to “satisfy consumer demand and convey their coffee‟s multidimensional profile” (Raynolds). Secondly. This idea is discussed by Robert H. They use this in order to persuade buyers into believing that this means they are treating the growers fairly while also selling a high-quality coffee. Reynolds describes this technique as companies attempting to create “a „halo‟ effect. I will be more likely to have that available to me as well and buy it also. the label “Fair Trade” has become a marketing technique used to appeal to buyers. . As demonstrated by the actions of these companies.Lauterbach 6 research and checking facts. Their marketing technique is also aimed at people‟s natural desire to consume and spend based on how others are consuming and spending around them. they will be more likely to do it as well so they look like a good person to others too. Frank in Luxury Fever when he states that “our individual spending decisions are often influenced by the fact that our menu of available choices is so strongly shaped by what others spend” (Frank 10). the company can manipulate buyers into thinking that there are more moral and fair than they truly are. Companies have taken note of the increase in sales of coffee that is fairly traded and have begun to market and display that in order to attract more socially aware buyers. if people are willing to spend more money in order to buy a fair traded good. Laura T.

Based on this finding. health. Richard Layard discusses the concept of human morality as a feeling that “comes from the deep sense of mutuality we feel for other people. and education (Stokes 2).Lauterbach 7 Based on research. If companies are able to successfully convey to their targeted consumer what the cause is. a feeling that we should treat them as we would like them to treat us” (Layard 101). Daniel Stokes also a survey that found that 75% of men and 84% of women “considered a company‟s commitment to social issues very important when deciding where to shop” (Stokes 2). Now that it is easy to research and discover the true conditions of workers. Stokes also mentions the three most important social issues to Americans: worker welfare. People may be more likely to consume fair trade goods out of a sense of morality and the pleasure they get from not only getting to consume a new good. American would all be quick to support fair trade and its mission once they become aware of what it does for workers and their families. The same study also found that 54% of people would be willing to pay more for these types of products (Coffee FAQ Global Exchange). In his book. A study conducted by Cone/Roper found that 78% of consumers would rather buy something if it has a cause associated with it that they care about or believe in. consumers would be more likely to buy something that they know is made by someone who is able to support themselves and their family as a result of the fair trade program rather than someone who is not being paid and cannot afford the necessities to support themself or their family. Happiness. . but also from having the satisfaction that they are also helping someone at the same time. the environment. they are likely to achieve success. companies who do this are wise and costumers will be willingly and sometimes more likely to buy their product as opposed to a regularly traded product.

and increased happiness from consuming a good that is also helping someone. even with the market and conditions like they are currently. it is still beneficial for workers to join a fair trade organization if they are able to. if more companies continue to use the fair trade “brand” to market. . the market needs to experience more growth before workers can enjoy drastic benefits and a level of income similar to that in more developed countries.Lauterbach 8 Fair trade is a concept that has large potential to have a significant impact on the wellbeing of many workers worldwide. producers and consumers will all experience positive effects of profit. an increased income. In addition. However. the companies. For coffee in particular.

2013. Stokes. Daniel. 24 Mar. 2014. CNBC LLC. Print. Frank. 2005. "Coffee FAQ | Global Exchange. 2014.6 (2009): 1083-093. Eliot Quotes. Notable Quotes. "T. Luxury Fever: Weighing the Cost of Excess. New York: Penguin. "Standards.Lauterbach 9 Works Cited "The Coffee Addiction. Brewing Justice: Fair Trade Coffee. 2014.d. Elsevier ScienceDirect. n. 23 Mar. Web. "What Is Fair Trade?" Fair Trade Federation What Is Fair Trade. 24 Mar. Trade and Equity: Lessons from the Specialty Coffee Industry.d. Web. 2014. 2011." World Development 37. 2014. NJ: Princeton UP. Berkeley: University of California. Print. Stefano.d. Global Exchange. and Survival." T." CNBC. Laura T. "Coffee." TransFair USA. 2014. Daniel. Eliot Quotes. 2010.S. Web. 2014. Web." Coffee FAQ. Richard. n. Web. Happiness: Lessons from a New Science.S. Ponte. Layard. Web. 2014. "Consumers and Fair Trade: Lessons from a Decade of Dramatic Growth and Growing Impact. . 22 Mar.” Centre for Development Research Working Paper 2. Princeton. Starbucks Corporation. Jaffee." Starbucks Company.13 (2002): 23-24. Raynolds. "Mainstreaming Fair Trade Coffee: From Partnership to Traceability. n. 22 Mar. Fair Trade Federation. Print.com. 23 Mar. 2007. 25 Mar. Web. Robert H. Sustainability. George Washington University. Web.