Thanksgiving Coffee Company

Fair Trade Retail Pricing

Posted: 06 May 2009 02:11 PM PDT

I recently received this question from a coffee lover in Oakland California.      

 

 

“A friend recently commented that “fair trade” growers are still underpaid, with growers paid less than a dollar a pound for a product that retails for $12.   of course there are many cost involved in getting product to people, but can you confirm or comment on the compensation for Fair trade coffee? “

My reply :

Dear Nancy,      Your friend is correct if you want to compare coffee farmers in Peru with a coffee farmer in Hawaii(USA) . Hawiian coffee costs $14.00 a pound green in 100 lb sacks. Why ? Because the Hawaii  farmer is paid at least minimum wage ($ 7.50/hour.) So you , the consumer will pay $24.00 per pound in the grocery. The Fair Trade Peruvian Farmer sells his coffee to a his producer cooperative of which he is a member with one vote. The coop gets  about $2.00 per pound for its certified organic coffee from roasters in the USA . The coop keeps about .50 cents (it varies from co-op to co-op) so the farmer is getting $1.50 per pound. That is hard to translate into wages per hour but it is allot less then the Hawiian coffee farmer. You can tell because one is poor and the other is middle class. One has electricity and a life in the fast lane, the other has a horse and a quiet village with only a small school and a church.  However, Fair Trade farmers are not as vulnerable as their brothers and sisters who are not co-op members. There is strength in numbers and there is commeraderie as well. Coops build their communities socially and economically so they are a further benefit to people and communities. Only cooperatives can be certified to be Fair Trade sellers. Individuals and Plantations are not eligable for the Fair Trade Certification.

As for the economics of coffee. Here is how it works on a per pound basis :.

$2.00……….Green Coffee

     .50 ……..20% shrinkage in roasting

     .50……… roasting costs for gas and labor  

   1.00………Packaging materials and production labor

   3.50 …….operating expenses (for the coffee roaster/distributor)

       .50 ……gross profit to roaster before taxes

   $7.50 wholesale price

   3.50     retailers gross profit

$ 10.99 shelf price.

The Fair Trade price is set at $1.51 per pound FOB country of origin. This is the lowest price one can offer for Organic Fair Trade coffee.  Most often, a premium above the FT minimum is paid for quality so the price is often about $2.00 per pound. The price is paid to the cooperative , not the individual farmer. The farmer gets a percentage of that price depending on how well the cooperative is run, what social benefit programs they sponsor, and how good their financial situation is. In reality, this persntage averages around 70 % . The cooperatives organizational structure and their financial records are monitored yearly by The Fair Trade Labeling  Organization  (FLO) and cooperatives that do not meet open and transparent standards are “decertified” . This is obviously a major simplification so for a greater ,in depth look at Fair Trade you can check out  www.FairTradeCertified.org.

 

One of my favorite Fair Trade Coffees comes from our partner in Rwanda , the Dukunde Kawa Cooperative. Their coffee has been described as “delicious” by some and having hints of dark cherry and chocolate by others. I enjoy it because it makes my mouth water, and has a  beautifully  round acidity that is mellow and soft .  

Paul Katzeff