Connecting Coffee Lovers to Farmers and Environment

As founding executive director of TransFair USA, Rice believes forces governing the global market for coffee – the world's second-most valuable traded commodity after oil – can be harnessed by farmers in developing countries to build self-reliance, dignity, and control over their communities, while promoting sustainable production.

TransFair USA controls the "Fair Trade Certified" label that guarantees coffee has been purchased from democratically-run cooperatives of small farmers at a price that makes farming viable. The success of fair trade hinges on whether consumers will see a connection between their caffeine fix, and the well-being of the coffee farmers and environment that produced the coffee.

Mundane, perhaps, but coffee is a huge global industry with more than $34.5 billion in annual sales. Entire countries – Uganda, Burundi and Rwanda for example – depend largely on coffee for export earnings. When the export price for coffee fell 50 percent in Rwanda in 1989, it contributed to tensions that sparked the ensuing genocide as hundreds of thousands of small farmers responsible for the majority of Rwanda's coffee production lost 50 percent of their cash incomes.

Rice experienced the plight of small farmers first-hand by going directly from college to Nicaragua in 1983 because he wanted to work in the field of international development as his way to "serve the poor and oppressed." His mother's father had worked as a hired farmworker after he lost the family's Oklahoma farm during the Great Depression, and he died when Rice's mother was just five.

Linking Social Justice and Economic Productivity

Rice's mother grew up "poor but proud," and she raised him with a "sense of compassion and sympathy for poor folk," he says. "As a kid, I felt anger and outrage at the social and racial injustice I saw around me in Texas. By the time I was 15, I knew I wanted to change the world."

Rice spent 11 years working in Nicaragua's rural mountain communities – often they were war zones where contra guerrillas fought to destabilize the country – because this was where professionals were most needed. During this period guerillas killed 17 of his friends and colleagues, whose memory continues to inspire his work today.

When he first arrived, Rice studied the productivity of formerly landless farm workers who had formed a cooperative in Santa Teresa. "My experience at Santa Teresa changed my life," he says. "I immersed myself in the life of his humble community and was blessed by its affection, kindness and camaraderie. I worked in the fields by day, planting corn and beans behind a team of oxen. By night I took oral histories and analyzed productivity data by candlelight.

"My data indicated that land and labor productivity were dramatically higher on the cooperative than it had been under the previous plantation owner. It stood to reason: now that the families were working for themselves, instead of the patrón, they worked harder, stayed in the fields longer, and harvested a bumper crop that summer. I left Santa Teresa feeling that social justice and economic productivity can and should go together."

By 1990, Rice had founded the Segovias Cooperative Development Corp. (PRODECOOP), Nicaragua's first farmer-owned coffee export company. A consortium of 52 grassroots cooperatives representing almost 3,000 small coffee farmers in northern Nicaragua, PRODECOOP became one of the world's largest organic coffee exporters during Rice's four years as CEO. It now exports $5 million of coffee annually.

Rice left PRODECOOP in 1994 to return to the U.S. to pursue an MBA degree, but not before building its internal leadership, and grooming his immediate successor, Rosario Castellon. She became the first woman to lead a large coffee company in the male-dominated Central American industry.

Castellon also served on the international board of the Organic Coffee Certification Agency (OCIA) and the national coffee export board of Nicaragua, giving her "a chance to influence government policy that affects the entire country," Rice said. "We see co-ops developing a voice in the national debate over laws that affect coffee. That's political power."

Life or Death Struggle

Roughly half the world's coffee is grown by small landholders, each owning less than 12.5 acres (five hectares) of land. Most receive only 30 to 50 cents per pound for coffee that sells for $10 per pound or more in the consumer market, providing their families with an average annual income of only $600.

Small coffee farmers generally lack good sources of credit and direct access to the market. They are forced to go to predatory moneylenders, and to sell their harvest to middlemen, aptly called "coyotes," who deliver their coffee to roasters, offering the farmers cash up-front in return for low prices.

© 1999 Susan Meiselas/Magnum Photos

Santiago Rivera, a member of the fair trade cooperative PRODECOOP, picks ripe coffee cherries on his farm in the Segovias region of Nicaragua.

"It's a life or death struggle in which farmers are literally going under this year," Rice says.

Fair trade eliminates the coyotes' cut, guaranteeing that roasters will pay farmer cooperatives a fixed price (e.g., the fair trade price for washed arabica beans from Central America, Mexico and Africa is now set at $1.26 per pound). The farmers' cooperatives take about 20 cents per pound to cover their costs, leaving the farmers with about $1 a pound, doubling or tripling their incomes.

The increased revenues can lift farmers from poverty. "This allows them to keep their kids in school (rather than work on the farm), eat better, and improve their housing and their farms," Rice said. The fair trade price for coffee also includes a premium earmarked to help farmers gain access to the credit, coffee markets, and skills they need to become more self-reliant.

Standards + Certification = Linkage

Though well-intentioned, the classic "development aid" programs that focus on production, technical assistance and micro-lending for farmers have done more to foster dependency on foreign aid than self-reliance, according to Rice. They have failed to help farmers market their crops effectively, or to gain economic and political power by getting organized. "Ultimately, they fail to develop local problem-solving capacity and ignore the market as both a necessary component of economic sustainability and a potential force for change," he said.

By organizing through their cooperatives, the farmers are gaining political power. "Not only does fair trade and market linkage help people fill their bellies, it also helps people build their power; it helps them build their voice," Rice says. "One of the things I hear over and over again in communities from farmers is the word dignidad – people talk about their dignity, they talk about self-confidence – and you see it."

© 1999 Susan Meiselas/Magnum Photos

Coffee farmer on horseback. Says farmer Santiago Rivera: "Before, life was very hard for us, mainly because we could never get a decent price for our coffee. Now we have our own export co-op, and we sell to the Fair Trade market. We have bought mules to carry the heavy coffee sacks down the mountainside, instead of using our backs. Fair Trade gives us a fair price and access to credit. It also gives us dignity. We are treated as equals."

Getting consumers to see the connection between farmers, and consumers who wish to support them and the environment, is a key challenge and requires a fair trade standard that must be well-known and understood by all parties involved. The trustworthiness and credibility of this standard must be maintained by reliable audits and certification.

TransFair USA takes advantage of standards for fair trade coffee that have been set by the Fairtrade Labeling Organizations International (FLO), based in Bonn, Germany. FLO was established in 1997 as an umbrella organization granting exclusive rights to certify fair trade products to a single certification agency in each of 17 member countries (TransFair is the certification agency in the U.S., and there are similar organizations in Canada, Japan, and most of the western European nations).

Each year, a committee within FLO sets a fixed fair trade price floor for coffee that covers the cost of farmers' production and provides:

a social premium for development purposes (now set at five cents)

an additional premium (now 15 cents) for certified organic or biological coffee

partial payment in advance to avoid having small producer organizations fall into debt

contracts that allow long-term production planning

long-term trade relations that allow proper planning and sustainable production practices

In return, FLO requires that organizations of small coffee producers who sell to fair trade:

be comprised of small producers who are managing their farm mainly with their own and their family's labor-force

be politically independent, transparent, open, and democratically controlled by their members, with a participative structure

not practice political, racial, religious or sexual discrimination

pursue crop diversification and sustainable development that conserves natural resources and avoids the use of chemical inputs

pursue integrated social development for families and communities, such as improved health care, education, housing and water supplies

build the skills of members and their overall organizational development, and improve the quality of products and production systems

TransFair USA and the other national certifying organizations pay dues to FLO to support a network of fair trade inspectors who perform field inspections to determine whether farmers are meeting fair trade criteria. Once approved, cooperatives are re-inspected and certified on an annual basis.

Monitoring the Chain: From Farmer to Consumer

TransFair USA also monitors coffee importers, roasters and retailers, who must sign a licensing agreement to use TranFair's trademarked "Fair Trade Certified" label. This involves various reporting requirements on a regular basis to verify that what they are selling is in fact coming from a fair trade farmer who received a fair trade price.

"We get to see a copy of every contract signed between an importer up here and a fair trade co-op," Rice said. "We get to physically verify that, in fact, the contract says $1.26 or better. There are a series of other reports that importers and roasters must file so that we can credibly monitor the flow of the coffee beans from the farmer all the way down the chain to the consumer."

TransFair creates an audit trail that tracks each bag from cooperative to importer to roaster because every bag of coffee in each shipping container is labeled with that container's unique identification number.

"The only problem has been getting companies to feel comfortable opening their books, because, as you might guess, a lot of companies are very sensitive to revealing proprietary information," Rice said. At first, two companies balked at signing licensing agreements because of reporting requirements, but they eventually decided that TransFair's extensive confidentiality clauses made the reporting requirements acceptable.

He adds, "Once they are onboard, everyone has been pretty good about filing their reports. And the contract allows us to cancel the agreement at any time for non-compliance, so if someone failed to send in the report we could take away their fair trade label." Occasionally, TransFair decertifies co-ops, as happened to a Guatemala co-op that resisted visits from inspectors and seemed to be mismanaging its money and ignoring its members.

Because TransFair does not control the fair trade standards, it avoids any conflict between the demands of the market it is trying to serve, and its social objectives, Rice said. "I can't unilaterally change the standard that defines fair trade. There is only one fair trade standard in the world: $1.26 per pound. Tomorrow, I can't say it's $1.46 or it's $1.06. So in that sense, I am not at all susceptible to someone coming to me saying, 'Hey, I'll do a lot more fair trade volume if you just lower the price by a dime.' I can't do it."

Markets Drive the Process

The demands of the marketplace fully support TransFair's social agenda because all major stakeholders gain by increasing sales of fair trade coffee, Rice said. "That is the strength and the brilliance of the fair trade model: the fact that we have been able to create a model that is based on a congruence of interests between farmers, consumers, the industry, and ourselves as the labeling organization. We all win by moving more fair trade volume."

Most small farmers produce only a couple thousand pounds of coffee, and it takes 37,000 pounds to fill one container. Because some eight to ten containers are required to be a viable exporter, hundreds of small farmers must work together to produce enough coffee to enter the export market.

© 1999 Susan Meiselas/Magnum Photos

Santiago Rivera (wearing hat), a Nicaraguan coffee farmer who sells his coffee through a fair trade cooperative, pictured here with his family.

So, market forces, rather than ideology, unite the small farmers, Rice said. "There is no ideology to this. I've seen it happen over and over again – a co-op gets organized. They start plugging into fair trade to get a better price. They build a school. Farmers down the road that aren't organized see that, and there's a powerful demonstration effect. Before you know it, those unorganized farmers are either knocking on the door of the co-op, wanting to join up, or they are trying to organize their own co-op to get plugged-in directly. We have new farmer groups applying every year, and the process drives itself."

The result is an oversupply problem, with too many farmers relative to the demand. Rather then trying to organize new farmers, TransFair is just trying to build the market.

Most of the 550,000 farmers who are represented by more than 300 fair trade cooperatives in 21 countries can sell only 40 to 50 percent of their coffee volume on fair trade terms. An estimated 3 million more small farmers are eligible for fair trade, but are not yet able to participate due the limited size of the consumer market.

"PRODECOOP currently exports approximately 40 percent of our coffee to the Fair Trade market," notes Merling Preza Ramos, PRODECOOP's general manager. "Our goal is to increase that percentage in order to provide more direct benefits for our communities, which, despite our successes, are still very poor. Our most urgent challenge, therefore, is to build the market for Fair Trade coffee in consuming countries, especially the United States."

Small Drop, Large Bucket

The U.S. is the most promising and least developed market for fair trade coffee. It is the world's largest consumer market, where 80 percent of American adults drink coffee, consuming one-fifth of the world's coffee supply. Because growth rates in fair trade coffee sales in Europe have leveled off somewhat, fair trade coffee growers are looking to the U.S. to provide sustainable markets for the growing supply of fair trade coffee.

When TransFair introduced fair trade coffee in the U.S. in 1999, it sold 1.5 million pounds. Sales volume grew to 2.5 million pounds in 2000 and Rice projects that the 16 coffee importers and 72 coffee roasting companies now offering fair trade coffee in the U.S. will sell 5 million pounds this year. The number of retail outlets is expanding: in addition to Safeway, and Starbucks and its competitors, Green Mountain Coffee Roasters now offers organic fair trade coffees in 300 New England supermarkets and 1,200 Exxon/Mobil convenience stores.

Fair trade coffee is the fastest growing niche in specialty coffee and the initial growth curve has been steep, but it's still just a small drop in a very large bucket. Fair trade coffee sales are less than one-tenth of one percent of the more than 2.5 billion pounds of coffee imported to the U.S. annually. Worldwide sales of fair trade coffee totaled 60 million pounds in 1999, less than half of one percent of the world's 13-billion-pound coffee crop.

To build the market, TransFair has been promoting fair trade coffee to the industry, through individual coffee roasters and importers and the Specialty Coffee Association of America. "Corporate responsibility campaigns in this country have focused on negative pressure tactics, such as public embarrassment and boycotts," Rice said. Instead, fair trade encourages companies to try a new way of doing business, rather than stop a specific practice, in order to build "long-term partnerships on a foundation of trust and mutual benefit.

More importantly, "we actively build consumer demand for fair trade products, rather than waiting for industry to do all the work," Rice said. This requires a significant investment in consumer awareness education campaigns, and forging alliances with consumer, community, and student activist groups, as well as churches and environmental organizations.

Students Form a Wedge

The college student market has been an important opening wedge for marketing fair trade coffee. Helping university activists set-up tables to educate students about fair trade coffee has led to demands for fair trade coffee at several schools.

When Starbucks could not supply Columbia and Northwestern Universities with fair trade coffee last fall, they switched their accounts to Green Mountain Coffee, Inc. "Starbucks got some bad press over losing those accounts, because it wasn't willing to serve fair trade coffee," Rice said. "That story is out in the industry, and roasters that are providing coffee to university accounts know that if they don't deal with the student pressure, not only could it lead to lost business, but it could also damage their corporate image or branding."

Rice now is negotiating with Sara Lee, the third-largest coffee company in the country, which contacted TransFair after receiving some pressure from two separate universities over converting to fair trade coffee. This marks TransFair's first dealings with the world's top four coffee companies: Procter & Gamble Co. (Folgers coffee), Philip Morris Cos. (Maxwell House), Sara Lee Corp. and Nestle SA (Nescafe). Together, they control most of the world's coffee business, including more than 75 percent of the retail coffee sales in the U.S.

Sara Lee is the third-largest purchaser of green coffee beans in the world, a $2.6 billion business. It is the third-largest retail coffee roaster in the United States, the second-largest retail coffee roaster in Europe, and the largest coffee roaster in Brazil. Its brands include Hills Bros., Chase & Sanborn, Chock full o'Nuts, and MJB in the United States; Douwe Egberts, Maison du Cafi, and Marcilla in Europe; and, Uniao, Caboclo, and Cafi do Ponto in Brazil.

"When I was writing our business plan a few years ago, I didn't expect that we'd be talking to the likes of Sara Lee until a good four or five years into this thing," Rice said. "Here we are, two years into it, and we are already talking to those people."

The Bottom Line

TransFair's ability to build the market for fair trade coffee is limited by its ability to raise money to pay for consumer awareness campaigns, Rice said. "Financial challenges are our biggest obstacle right now because we see that as the key to raising consumer awareness. It's all about consumer awareness and brand recognition, and that ultimately depends on the investment that we are able to make.

"Our biggest limitation has been not having the cash to really capture the market opportunity out there, and to convert that latent demand into expressed demand. If we are to reach the consuming population in this country, we need much more money to hire a bigger staff, set up regional offices to do advertising campaigns, and regional public awareness campaigns. The market opportunity is there – it's there for the taking, and the time is ripe."

TransFair has received start-up grants from the Ford Foundation and donations from smaller funders, as well as long-term low-interest loans from two alternative investment funds. As an Ashoka Fellow, Rice receives a stipend that supports him and his family. A small percentage of revenues (about 10 percent) now comes from a 10-cents-per-pound licensing fee that TransFair receives from roasters for use of the fair trade label.

TransFair plans to become self-supporting from these licensing revenues in the coming years as coffee sales increase. Rice hopes the fees will cover TransFair budgets within two or three years, when fair trade coffee sales reach 10 million pounds per year.

And TransFair is broadening its product offerings. In Europe, consumers can buy a range of food products that carry fair trade labels, including tea, chocolate, honey, sugar, orange juice, and bananas.

TransFair's first fair trade product was coffee because it offered a high-growth, high-margin business with a consumer profile that is nearly identical to that of the socially conscious consumer. "The dramatic success we've had with coffee over the last 18 months had led us to move up the diversification timetable a bit, since tea, chocolate and banana companies are already approaching us to inquire about fair trade certification," Rice said

Dreaming the Future

TransFair has just licensed a full line of ten fair trade organic teas from Choice Organic Teas, and it plans to sign-up several more tea companies this year. "We are looking to chocolate and bananas as our next product diversification effort, and that probably will start next year," Rice said.

Rice has positioned himself as a broker who can link the U.S. consumer market with small producers in developing countries in order to establish fair trade as an industry standard. After returning from his field work Nicaragua in 1994, he went back to school, earning an MBA from the University of California at Berkeley in 1996 that emphasized global management, strategic marketing, and entrepreneurship.

"Today my struggle is to take fair trade to the U.S. consumer mainstream, thereby extending the benefits of this model to hundreds of thousands, perhaps millions, of poor farmers and their families throughout the developing world," he said. "After 18 years of field work with Latin American farmers, this feels like the most powerful way I can serve them at this point in my life.

His goals are both lofty and ambitious. "I dream of the day when fair trade coffee and other products are easily found and widely consumed throughout the U.S. I dream of the day when fair trade has become the new standard for social responsibility in the coffee industry (not just the latest niche opportunity).

"I dream of the day when sweatshop industries (such as garments and shoes) look to the pioneering coffee industry for lessons on how to implement socially and environmentally sustainable global trading practices. And I dream of the day when the international development field, with its billions of dollars in annual foreign aid spending, looks to the fair trade model for critical lessons on how to effectively incorporate market linkage, enterprise development, and grassroots economic empowerment into its strategies for change. I intend to help make these dreams a reality."

• Interns and volunteers to help with research, outreach and administration (see our Web site for details)
• Allies to spread the word about availability of Fair Trade Certified coffee among their constituencies and in their communities throughout the US
• In-kind donations of professional services in the fields of marketing, public relations, advertising, and Web site design
• Free or low-cost advertising space
• Grants, individual donations, and other types of bridge funding for our start-up period

TransFair USA
Paul Rice, Executive Director
52 Ninth Street
Oakland, CA 94607
Office Tel: 510-663-5260
Paul Rice: 510-663-5261
Fax: 510-663-5264
Email: transfair@transfairusa.org

• Bridging the Urban-Rural Divide in Poland, by Steve Owad
• The Future is Calling: Building Rural Co-ops in Poland, by Steve Owad
• Herbal Remedies for Social Wellbeing, by Jennifer Gampell
• A New Look for Brazilian Workers' Cooperatives, by Shannon Walbran
• Portrait of Nalini Nayak, Advocate of the Fisherfolk (India), by Chandrika Sharma
• Sustainability and Environmental Awareness: Keeping Farmers on Their Farms in Poland, by John Babb

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