Fair Trade and Coffee Prices

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Coffee Prices

Or, why paying farmers a living wage won’t affect the price you pay very much.

When looked at from a historical perspective the amount that retailers pay for coffee, has been and continues to be, notoriously volatile. This makes it difficult for coffee farmers to plan for the future and when coffee bean prices drop dramatically, as they did 2001, it can make it difficult for such farmers even to survive and meet very basic needs. Most people will have noticed no difference in their local Starbucks. This is because the international prices of green coffee on the global commodity markets will have little or no affect whatsoever on the retail price for coffee that consumers eventually end up paying. What this means essentially, is that these price fluctuations are artificial, or more properly, market created. They are the result of the massive speculations that traders make everyday on global markets and the hardship they cause for farmers can be avoided.

The fair trade system seeks to ensure that producers in third world countries continue to get a fair price their produce. This has been most dramatically shown with fair trade’s involvement with coffee farmers. The price paid by fair trade for coffee guarantees a minimum price that represents the cost of production in a sustainable and environmentally friendly way, while still ensuring that the producer gets enough money to meet a satisfactory standard of living. On top of this price, fair trade buyers also pay a premium that goes into local funds to pay for development projects that will benefit the local community.

Market Price for Coffee

The current price of Arabica coffee beans on the global market is about 75 cents per pound. This has been rising steadily and has come up from an all time low of 45 cents per pound in 2001. However, the price paid by fair trade merchants for a pound of coffee is $1.26 per pound. This is because the fair trade association has set $1.21 as the sustainable production price for coffee. This means that in order for a farmer to produce a pound of coffee in a sustainable and environmentally friendly way, and still have enough left over to live a tolerable life, he will need $1.21 per pound. 5 cents is then added to this price to represent a premium, that will go into a special fund to pay for development projects and other needs of the community as a whole. If the price of coffee goes up on the global market as it sometimes does, then the fair trade price will match it, plus pay the 5 cents premium.

Global coffee prices have been rising recently because of speculation that weather factors will lead to a poor crop. Such predictions always lead to commodity price increases as a shortage of coffee means higher prices on commodity markets. While these prices will eventually be passed on to consumers in the supermarket, it is not really something that people will be worried about.

The price consumers pay for coffee represents so much more than what the producer actually gets that even significant changes in the price of green coffee have relatively minor effects on supermarket prices and virtually none at all in cafes around the world. This is why fair trade coffee does not cost three times as much as other coffees in the supermarket, even though they sometimes pay triple for the beans.

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