BITTERSWEET: As competition brews among
coffee fair traders, a movement comes of age.

"Connection to the Americas", Vol. 15 No. 8, October 1998
(Monthly newsletter of the Resource Centre of the Americas,
317 17th Ave. SE, Minneapolis MN 55414-2077, USA

by Chip Mitchell

If any community could convince big supermarkets to sell fair-trade coffee, surely it was Madison, Wisconsin. With one of the nation's largest universities and a history of grass-roots ferment, the town was brimming with support for sustainable agriculture and Latin America solidarity. Its population of 200,000 included plenty of young caffeine junkies eager to participate in a consumer campaign that resembled the one that busted Kathie Lee Gifford for her ties to Third World sweatshops. And the city's two grocery cooperatives were willing to unleash their customers for the cause.

That's why Equal Exchange, the U.S. pioneer of fair-trade coffee, picked Madison for a campaign to springboard farmer-friendly joe beyond co-ops, natural-foods stores and hip cafés and into the mainstream. In June 1997, Equal Exchange relocated organizer Virginia Berman from headquarters in Canton, Massachusetts, to form the Madison Fair Trade Coffee Initiative. Berman's kick-off was a potluck hosted by a Methodist church, one of several religious groups that agreed to help cajole grocery managers into opening shelf space to Equal Exchange.

Steeped in hundreds of letters, phone calls and in-person requests for the fair-trade beans, the managers of two Copp's Food Centers and two Woodman's Food Markets quickly recognized sales potential and agreed to stock Equal Exchange.

But as fair-trade coffee sales mounted last fall, Madison's leading gourmet roaster and retailer, Steep & Brew, got religion. By May, the company had launched its own alternative line, Café Fair. Ever since, Equal Exchange's grass-roots campaign tactics have proven to be no match for Steep & Brew's local market prowess. In just four months, Café Fair has cut into Equal Exchange shelf space at Woodman's by 50 percent. At Copp's, Café Fair has completely shouldered out the Massachusetts company.

The whole experience leaves Berman steamed. "There's a difference between Equal Exchange and a company that's simply trying to profit from fair trade without a long-term commitment to educating about it," she says.

The hometown roaster sees it differently. "Equal Exchange has been pretty aggressive at trying to snuff us out," says Steep & Brew President Mark Ballering. "They've spread rumors and visited store managers under the guise of being students."

Whatever the merits of these charges, Equal Exchange has little to show for blazing the fair-trade trail in Madison. The frustration is similar to the feeling at a grocery co-op when a Whole Foods Market sets up down the road. (The Austin, Texas based chain has made a quick killing off an organic niche that took co-ops decades to establish.)

But Equal Exchange is jumping back into the ring. This time it will square off with Steep & Brew on more neutral territory the Twin Cities, where both companies have come from out of town, established themselves in co-ops, and eyed the mainstream groceries. Equal Exchange plans to staff an office here beginning in November. If the fair-trade jockeying in the Twin Cities is anything like it was in Madison, things could get bitter or, as they say in the business, stewed.

But the competition shows that the U.S. fair-trade movement is finally coming of age. As Equal Exchange and other fair-trade retailers increase their sales by as much as 25 percent a year, mainstream gourmet retailers are jumping on the bandwagon, and the four conglomerates that dominate the global coffee industry are on the defensive. This is great news for Third World farm cooperatives that grow fair-trade beans.

Even more hopeful, after years of prodding from organizers in Europe and Canada, the U.S. fair-trade players are finally setting aside political and commercial rivalries to develop the TransFair USA seal for coffee and eventually other products. In a country that imports a third of the world's coffee beans, the seal will give consumers a powerful tool for pressuring transnational giants to treat Third World producers fairly.

For true believers such as Equal Exchange, the progress is bittersweet. "Sooner or later we know we'll rub up against the competition," says organizing manager Rob Everts. "That's when we have to do a gut check and remember that our mission of growing the fair-trade market will occasionally collide with our bottom line."


Among the world's legally traded commodities, coffee ranks second only to oil. Green (unroasted) beans remain the most important agricultural export for most southern countries, including Mexico, the chief supplier of the United States. The U.S. coffee retailing market, the world's largest, totals some $3 billion a year.

Coffee beans must be picked by hand. Workers on large plantations toil under horrible conditions for very low pay. Most of the work is seasonal, ending when the harvest is over. Conditions are especially bad on plantations, most of which have switched to sun-grown coffee trees. The trees require no shade but lots of pesticides and synthetic fertilizers a hazard for the workers. And cutting down canopy trees for the sun-grown coffee destroys bird habitats and leads to soil erosion.

Workers that have their own land often don't have access to proper credit. They end up paying exorbitant interest to money lenders or coffee traders. Their lives revolve around wildly fluctuating coffee prices set by speculative commodity exchanges in the North. Often they have no choice but to sell beans for less than it took to produce them.

Small farmers receive about 10 percent of the price we pay for coffee. Retailers keep 25 percent. About 30 percent goes to intermediaries, known as coyotes, who control financing, transportation and equipment in producer countries.

The biggest share, about 35 percent, of what we pay for coffee goes to four transnational firms that roast, package and market most of the world's supply:

Despite their retail dominance, these transnationals still do not control production by the world's 25 million coffee growers, who are mostly small-scale farmers. This distinguishes coffee from the garment industry, in which laborers around the world have no control of production and work directly or indirectly for just a few dozen apparel retailers. "Coffee is different than garments," says Everts of Equal Exchange. "Rare is the moment when we can find a real, live alternative to products generated from sweatshops and child labor."

Half a million coffee farmers, mostly in Latin America, have organized into cooperatives that sell beans directly to northern consumers through a fair-trade system. In this system, producers and importers agree on a fair price that never falls below $1.26 a pound, even if the New York commodities market dips below $1 a pound, as it has this fall, or even further. The floor price covers production costs and a fair return for the growers. When market prices exceed the floor price, importers pay the going rate plus a premium of $.05 per pound. Fair-trade buyers also extend credit and offer long-term contracts to the co-ops.

The co-ops, democratically organized, invest the proceeds into member education, production and quality improvements, schools, health clinics and other community-development projects. They also adopt environmentally sound production methods. They reduce or avoid fertilizers and pesticides. Most specialize in shade-grown coffee that preserves the forest and bird habitats. Many offer certified organic beans.

With 1997 retail sales of $225 million, mostly in Europe, coffee is the world's top fairly traded product. It's sold under 130 brand names in 35,000 European retail outlets. In Britain, about 90 percent of supermarkets carry fair-trade coffee. Cafédirect, launched in 1991, is one of Britain's fastest growing coffees, with 55 percent sales growth last year.

Behind coffee, bananas have become the second-largest fairly traded commodity. In Holland and Switzerland, the Max Havelaar labels began licensing fairly traded bananas last year from Ghana, Costa Rica, the Dominican Republic and Ecuador, paying suppliers considerably more than what the transnational behemoths pay. Two-thirds of the world banana trade is controlled by three firms: Chiquita, Del Monte and Dole. In response to the Max Havelaar efforts, Chiquita, based in Cincinnati, cut its banana price by 5 percent.

Fairly traded items in Europe and Canada also include crafts, tea, chocolate, cocoa, sugar and honey. The work on that side of the Atlantic is coordinated by the European Fair Trade Association, a group of 13 alternative trading organizations (ATOs), as fair traders are known.

In the United States, the only significant fair-trade items are handicrafts and coffee.

What is Fair Trade?

The largest U.S. coffee fair trader is Equal Exchange, founded in 1986 by New England food-cooperative activists with leftist sympathies and no experience in the world coffee market. The founders chose Nicaraguan beans as their first import. To sidestep a U.S. economic embargo aimed at crushing that nation's Sandinista-led revolution, Equal Exchange had the beans roasted in Holland before importing them to the United States.

Since then, the company has expanded to work with 16 trading partners in Nicaragua, Colombia, Mexico, Peru, Guatemala, Costa Rica, El Salvador, Indonesia and Tanzania. It imports the beans, has them roasted, and retails them coast-to-coast, mostly in grocery cooperatives and other natural-food stores. This fall Equal Exchange is experimenting with fairly traded tea. The company's first shipment from small growers in Darjeeling, India, arrived in September and will hit retail shelves in November.

Since its first profitable year, 1989, Equal Exchange's annual growth has been as high as 25 percent. The firm's $4.5 million in sales last year generated $175,000 in pretax profits. Projected sales for 1998 are $5.5 million. (The sum still leaves Equal Exchange with less than 0.2 percent of the U.S. coffee market.)

The company's 30 employees include 19 worker-owners who control the board of directors. Equal Exchange pays modest dividends to these employees and to 188 outside investors. The investors, who have no control over the board, range from progressive individuals to Catholic religious orders.

In recent years, Equal Exchange has focused on breaking into mainstream stores, as it did in Madison, by organizing consumer pressure. This year the company made it onto shelves of Heinen's Super Markets Inc., a chain of 12 stores in Cleveland, thanks to help from the local InterReligious Task Force on Central America. The solidarity group arranged speaking engagements for an Equal Exchange supplier visiting from El Salvador.

In June, the company penetrated two of seven Donelan's Supermarkets in Boston's western suburbs. Equal Exchange has also opened an office with one staffer in Portland, Oregon. Plans for November include opening an office in the Twin Cities.

As Equal Exchange has expanded, some conservatives have learned the wrong lesson. A May 8 National Catholic Reporter essay called the company proof that capitalism and free markets offer the best hope for Latin America's poor. "Business is the only antidote to reverse what business alone is responsible for," wrote John Caron. "The union of commerce and social change is clearly possible, for it is within our midst."

Fair traders admit they walk a fine line. "As a long-time social activist, I often find it difficult to deal with corporate types," says Bob Thomson, managing director of the Ottawa-based Fair TradeMark Canada. "But we have to partner with them to get a fair return for the farmers."

"Unless you're an NGO with deep pockets, you've got to be for-profit to get start-up capital, distribution channels, and efficiency," Thomson says. "You can't survive with a lousy product sold only from the basement of a church. Yes, people will buy bad-tasting coffee out of solidarity, but only once."


Perhaps the best measure of fair-trade success is the reaction of transnational coffee giants. After British Cabinet Minister Clare Short issued a "Fair Trade Coffee Challenge" in March, urging British employers to stock the coffee in their vending machines, Nestlé and Philip Morris assumed battle stations. The firms mobilized the Confederation of British Industry and other trade bodies to help crush still-tiny companies such as Britain's Cafédirect. At one point, without any independent verification, Nestlé absurdly claimed one of its coffees was fairly traded.

In this sense, the coffee giants seem to be taking cues from PR-hungry apparel retailers that devise codes of conduct for overseas factories but resist independent monitoring.

The World Trade Organization bars governments from mandating anti-sweatshop or fair-trade seals. The WTO says goods cannot be differentiated or subjected to statutory labeling on the basis of how they are produced.

Under these conditions, progressive movements have turned to voluntary labeling. To certify that child labor was not used, the International Federation of Football Associations (FIFA) certifies soccer balls, and Rugmark certifies rugs. Environmental labels range from organic food to sustainably harvested wood.

Seals for fair-trade commodities did not exist until 1988, when a collapse in the world coffee market dropped the price of green beans more than 50 percent to $.60 per pound. Hardest hit were small growers, whose production costs remained about $1.10 per pound.

In response, Dutch non-governmental organizations launched the Max Havelaar seal. The mark was an instant success, lifting alternative coffee sales from less than 0.3 percent of Dutch consumption in 1988 to almost 3 percent today. Fair-trade seals for coffee and other commodities have sprung up across western Europe and Japan. The movement has been especially strong in Germany, where organizing that began in 1992 led to the first TransFair seal. After forming in 1994, Fair TradeMark Canada's first seal certified coffee sold by Ottawa-based Bridgehead, an arm of Oxfam Canada.

From the beginning, the labeling movement has been complex, fraught with internal tensions over market share, ideology, male egos, and national cultures and histories. Equal Exchange's Madison experience was played out a decade ago in the Netherlands, where many alternative trading organizations (ATOs) feared they would be clobbered by a seal that pushed fair-trade items into mainstream groceries. That's because ATOs had sold most of their goods in Europe's 7,000 "world" shops community centers linked to international solidarity.

Contrary to the fears, Holland's Max Havelaar label forged an explosion of ATO coffee sales across the continent. And almost half of today's certified fair-trade joe still sells through "world" shops, including 370 in Holland alone.

In April 1997, the movement took a big step forward when the Fairtrade Labeling Organizations formed in Bonn, Germany, to develop international product-specific and general fair-trade criteria. Besides coffee, the FLO has developed licensing criteria for tea, cocoa, honey, sugar and bananas, and expects to finish criteria for orange-juice concentrate early next year.

On the production end, the FLO runs a producers' registry that certifies 340 fair-trade coffee co-ops in 18 countries, representing 500,000 farmers. The FLO monitors its registered producer groups at least once a year.

On the retailing side, the FLO coordinates 17 national fair-trade initiatives such as Max Havelaar and TransFair. The national bodies grant two types of licenses: one for importers and one for retailers. The retailer's license authorizes the fair trader to use a seal that guarantees consumers that the product comes from FLO-certified farmers and meets other fair-trade criteria. Coffee retailers pay a $.09-per-pound royalty for their seal.

MUDDY WATERS: Equal Exchange has not been alone among U.S. coffee roasters offering fair-trade products. During the 1996 1997 harvest, Sustainable Harvest in Emeryville, California, imported more than $2 million of beans from five Nicaraguan farmer groups cultivating certified organic and shade- grown (bird friendly) varieties. Another respectable line of beans comes from the Thanksgiving Coffee Company in Fort Bragg, California.

But as fair-trade seals took off in Europe in the early 1990s, U.S. organizing remained mired. Mark Ritchie, president of the Minneapolis-based Institute for Agriculture and Trade Policy (IATP) says early efforts got bogged down in differences between environmentalists concerned chiefly with organic, shade-grown coffee and social activists concerned more with economic justice. "People coming from the social angle were willing to incorporate the environmental agenda," but usually not vice-versa, he says.

In May 1994, Martin Kuntz, general secretary of TransFair International (an FLO forerunner), visited from Germany to meet with Ritchie, Equal Exchange co-founder Jonathan Rosenthal and Oxfam America Trading's Elizabeth Carney. The four came up with a plan to launch a U.S. seal, with IATP spearheading the effort.

But squabbles among some fair-trade players, largely over turf and organizing style, have mired TransFair USA for the better part of four years.

This year the group reorganized. Thanks to a $100,000 Ford Foundation grant, TransFair is opening a headquarters in Oakland and hiring two staffers this fall, says Paul Rice, the treasurer.

So far TransFair USA has licensed Equal Exchange as a fair-trade importer and retailer. It has also granted importer and retailer licenses to Headwaters International, a for-profit coffee fair-trader incorporated by IATP in December 1995. TransFair USA has also licensed Steep & Brew as a retailer. The first U.S. product to display the TransFair seal is Steep & Brew's Café Fair.

For the next two years, TransFair USA will continue focusing on coffee, Rice says, developing a longer list of certified companies and publicizing the seal.

The group's nearest FLO cousin, Fair TradeMark Canada, offers a model. In February and March, the Canadian group worked on a grass-roots campaign with five of that nation's mainstream Christian churches, activating 1,000 congregations around fair trade. Under the slogan, "Buycott, Not Boycott," the campaign generated 60 paid newspaper ads, 100 news articles, and hundreds of letters to coffee companies. It led the Coffee Association of Canada to add a corporate-responsibility speaker to its annual-meeting agenda. It also whetted the public appetite, helping Canada's nine fair-trade coffee licensees triple their retail sails so far this year to $900,000.


Such a din from grass-roots activists is what the Equal Exchange organizer will likely try to foment after arriving in the Twin Cities this November. Everts, the organizing manager, says the company hasn't yet identified the target supermarkets or a specific strategy for securing fair-trade shelf space. As possible supporters, he mentions the Resource Center of the Americas and the Catholic Archdiocese of St. Paul and Minneapolis.

One goal, Everts says, is avoiding a repeat of Steep & Brew's Café Fair triumph in Madison. "How do we prevent losing to a mainstream fair trader again?" Everts says Equal Exchange is interested in working on an educational campaign with Headwaters, the Minneapolis-based coffee fair-trader.

But Headwaters President Reginaldo Haslett-Marroquín says he doesn't want to work on any venture whose main purpose is selling Equal Exchange. "I want to do a truly independent campaign on fair trade," he says. "But Equal Exchange doesn't want to do anything that could benefit Steep & Brew, so we've ruled it out."

Haslett-Marroquín, with an eye on Steep & Brew market access in three Midwest states, seems committed more than anything else to staying on good terms with the company. "Our whole corporate strategy is to form partnerships with anyone to penetrate the market, as long as it's fair-trade coffee," he says. Headwaters has already developed a working relationship with Steep & Brew, supplying all the green beans for its Café Fair line because the company lacks a TransFair USA importer's license.

Headwaters, with projected sales of $225,000 this year, plans to phase out its Aztec Harvest brand and launch a line of 12 "Peace Coffees" modeled after the most successful Headwaters brand, "Guatemalan Peace Coffee," endorsed in 1996 by Nobel Peace Prize Winner Rigoberta Menchu Tum. The new coffee bins will sit in displays made of certified sustainably harvested wood, Haslett-Marroquín says. Another Headwaters strategy is to develop connections through its roaster, Duluth-based Alakef Coffee Roasters Inc., which supplies 25 percent of Twin Cities coffeeshops, reaching 100,000 people.

Steep & Brew, founded in 1979 as a single coffeeshop in Madison, started wholesaling gourmet beans in 1989. It has since become a Midwest roasting and retailing power, though annual sales are still "way under $10 million," says Ballering, the president. The company has concentrated on Wisconsin, Chicago and, increasingly, the Twin Cities.

Since launching Café Fair in May, Steep & Brew has pushed it into 65 retail stores, including 42 Dominick's Finer Foods markets in the Chicago area, Ballering says. In the Twin Cities, Steep & Brew has presented its Café Fair line to Byerly's, but the grocery chain turned it down. Ballering says the company is considering fair-trade tea and sugar.

He says adding the fair-trade line this year "was not a big change for us." Steep & Brew, he said, had always operated with "social responsibility." Ballering says he had personally visited half of the company's regular Central American suppliers and was impressed with their medical facilities and schools.

Everts doesn't buy it. "We hope mainstream companies keep adding fair trade, but when the going gets rough, when coffee prices plummet, we'll be the ones still selling only fair-trade coffee."

Let the competition begin.

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