Fair Trade and Direct Trade - Is One Better Than The Other?

For those that are socially and environmentally conscious about their coffee purchases (and any other purchase for that matter), the terms fair trade and direct trade are certain to come up.  While most know that these two terms mean the product is a more socially conscious product, they don’t know exactly what these terms mean, and which, if any, is better.  By the end of this, you should have a better understanding of each, so you can make that determination on your own.

 

Fair Trade

As the name suggests, the idea behind fair trade is to aid developing countries by way of trade, improve working conditions and promote sustainability.  This is done by ensuring that farmers (and other trades) are guaranteed a minimum sale price for their goods, regardless of market demand.  Economic theory dictates that if the supply of coffee is abundant, market prices will fall.  Conversely, if supply is sparse, market prices will rise.  In the past, these prices sometimes fell below what the farmers needed to maintain a sustainable operation, resulting in deteriorated working conditions, lower pay, and poverty.  From a realist perspective, this is a functioning global model; there are winners and there are losers.  But proponents of social democracy (typically First World countries) saw a problem with this model.  So in the 1990’s we began to see a shift in the world marketplace.  Organizations such as Fairtrade International, World Fair Trade Organization, and the Fair Trade Federation began to form with the idea of making trade from Third World to First World countries more fair.

 

Most of these organizations have the same mode of operation, farmers pay a fee to be part of a cooperative, when their goods are are ready they are pooled together with other cooperative members’ goods, such as coffee, and are packed, and sold.  Essentially allowing small famers to enjoy the economies of scale.

 

Much of a fair trade organizations’s expenditures go towards marketing the cooperatives products and getting them into high volume retailers.  In addition, organizations usually pay the cooperatives an additional per pound premium that is intended to help with development projects in their respective communities.  

 

While it may seem that all is well and good with fair trade, there are many arguments to the contrary.  I’ll state a few of them, but it’s up to you to do the research and decide on the validity. 

 

  • Most of the money doesn’t reach the Third World
  • Unethical politics are imposed on farmers and cooperatives
  • Fair trade hurts non-fair trade farmers
  • Evidence to support positive impact is lacking
  • Fees to participate are too high

 

Direct Trade

Direct trade is an alternative to fair trade, often for those who disagree with fair trade’s effectiveness, but is also practiced in conjunction with fair trade.  As of yet, there aren’t any third-party organizations that monitor and govern direct trade like in fair trade.  Direct trade believes that buyers should communicate directly with the farmers to select goods, negotiate prices, and arrange shipment.  Proponents of direct trade believe that by going directly to the farmer, they are able to ensure their trade relationship is helping to improve the lives of those in that particular community.  Also, it allows the buyer to select the highest quality goods, as opposed to fair trades’ mish-mash of goods from multiple farmers.

 

The downside to direct trade is that without the backing of a large, multi-national free trade organization, costs for the buyer are often much more.  For instance, a fair trade organization may have greatly reduced shipping rates because of the large quantities of shipments, or they may have reduced per pound rates of coffee beans, again because of the large quantities purchased.  Meanwhile, a small or medium sized roaster will have to pay much more because they purchase very little in comparison.

 

So what does all this mean to you as the consumer?  Both trade models are good and aim to improve the quality of life and sustainability of trade.  They are both rooted in social responsibility.  But in my personal opinion, direct trade allows for a better quality product and, ideally, more transparency when it comes to how the local community is benefiting.  I say ideally because direct trade is still a new concept and does not yet have the structure required to empirically show this. 

 

This was meant to be a superficial intro to free trade versus direct trade.  If you want to know more, do a little research on Google, talk to a few people, or read a book or two.  Then decide which, if not both, fit you.  

 

Soon we should be adding the function to sort coffees by fair and direct trade.

October 16, 2013 by Mark Evans
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