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*****

6/8/2004
The Wall Street Journal
At Some Retailers, 'Fair Trade' Carries A Very High Cost
by: Steve Stecklow and Erin White

At a Whole Foods Market in suburban Boston, the coffee aisle
recently was lined with leaflets promising to donate 5% of
sales to growers. Labels proclaimed that beans were
"purchased in accordance with international fair trade
standards." Pamphlets asked: "Is your coffee fair to farmers?"

The materials reflect a growing international campaign to
pay struggling farmers in poor countries more than market
rate for commodities like coffee, bananas and chocolate. The
extra cash has helped thousands of farmers fund education,
health-care and training projects, among other things.

But as "fair trade" catches on in the U.S., Europe's
experience shows that the biggest winners aren't always the
farmers -- but can be retailers that sometimes charge huge
markups on fair-trade goods while promoting themselves as
good corporate citizens. They can get away with it because
consumers usually are given little or no information about
how much of a product's price goes to farmers. In the case
of Whole Foods, the 5% promise doesn't refer to the retail
price, as shoppers might assume, but a different amount the
company pays its coffee unit. (See related article.)

Paying More

Sainsbury's, a British supermarket chain owned by J
Sainsbury PLC, has sold fair-trade bananas at more than
quadruple the price of conventional bananas -- and more than
16 times what growers receive. Tesco PLC, another chain,
recently tacked on $3.46 per pound for fair-trade coffee
while the grower gets about 44 cents above the world market
price.

"Supermarkets are taking advantage of the label to make more
profit because they know that consumers are willing to pay a
bit more because it's fair trade," says Emily Dardaine,
fruit-product manager at Fairtrade Labelling Organizations
International, or FLO, a Germany-based federation of
fair-trade groups.

Both British chains say they aren't exploiting fair-trade
products to their own advantage. In some cases, after being
asked about their margins, retailers cut their prices.

Last year, global sales of fair-trade goods -- everything
from nuts to wine -- surpassed $700 million. Strong sales in
Europe have caught the attention of U.S. companies,
including Starbucks Corp., Procter & Gamble Co. and Dunkin'
Donuts, which have all begun offering fair-trade coffee.

The history of fair-trade products goes back to about 50
years ago, when missionaries arranged to have Western
churches sell African handicrafts and return the profits to
the villages. In the late '60s and '70s, "world shops"
sprang up in Europe and the U.S., to give sellers in
developing countries access to Western markets. The shops
purchased craftwork, textiles and commodities such as
coffee, tea and honey directly from cooperatives and small
farmers, so there were no middlemen to take a cut of the sales.

Max and Minimums

In 1988, a Dutch foundation introduced a new label for
retail coffee that carried the name Max Havelaar, a
fictional 19th-century folk hero who campaigned for better
treatment of Indonesian workers on Dutch coffee plantations.
To carry the label, companies had to pay a minimum price for
coffee that guaranteed growers a profit -- along with small
premiums to fund development projects at their production
facilities. That gave growers access to Western consumers
without exposing them to swings in commodity prices, which
sometimes fall below production costs.

For example, raw Arabica coffee beans currently sell for
about 82 cents a pound on the world market. The fair-trade
minimum price, which hasn't changed since 1988, is $1.26.
Dean Cycon, chief executive of Dean's Beans, a wholesale
coffee roaster in Orange, Mass., says it generally costs
farmers about 60 cents a pound to produce coffee.

Nonprofits sprang up to launch fair-trade products in other
European countries, sometimes under different labels. To
improve the certification of fair-trade products, FLO, the
German federation, was established in 1997. Working with the
various country groups, it certifies producers of fair-trade
products, sets minimum prices for goods, verifies that
products labeled fair trade really benefit farmers, and
works toward introducing a universal fair-trade label.
Meanwhile, FLO's 18 affiliates in North America, Europe and
Japan license companies to put fair-trade labels on products.

These organizations don't suggest what retailers should
charge consumers for fair-trade products, which they say
would be illegal. Some critics suggest the groups worry that
if they criticize retailers over pricing, the companies will
stop selling fair-trade goods -- a charge the groups deny.
The groups, as well as retailers, also generally don't
emphasize how much of the retail price actually benefits
farmers. Such information is available, but is buried in
complex documents on FLO's Web site.

In some countries and among some retailers, the price
difference between fair-trade products and equivalent
conventional products is small. At Migros, a Swiss
supermarket chain, fair-trade bananas cost about 3.6 cents
more per pound than Chiquita bananas. A Migros spokeswoman
says there's not a big price difference because "the
Chiquita workers are fairly paid, and the costs of
production are similar."

It's a different story in some supermarkets in Britain.
Sainsbury's, which says it sells more fair-trade bananas
than any other British supermarket, sells the fruit in
bagged bunches of six, not by weight. A bag of fair-trade
Dominican Republic bananas, weighing about a pound, recently
cost around $2.74 in London. That's more than four times the
price of a pound of unbagged regular bananas, also from the
Dominican Republic. According to FLO, Dominican Republic
fair-trade banana growers receive about 16 cents a pound
from middlemen.

Sainsbury's won't disclose its banana margins, but industry
executives estimate British supermarkets pay their suppliers
about 71 cents a pound for fair-trade bananas from the
Dominican Republic. If that's the case, Sainsbury's is
earning almost $2 a pound.

A spokeswoman for Sainsbury's said in a statement that the
chain has generated more than $1.8 million of funds for
fair-trade projects since July 2000 that "has gone directly
to growers on projects such as improving roads, schools and
community projects." She also suggested that the chain had
lowered its margins on conventional bananas to compete
against price reductions by rivals.

Early last month, within two days of issuing its statement,
the chain lowered its price by 17% to about $2.26 for a bag
of six fair-trade bananas. The spokeswoman called it "a
coincidence."

Harriet Lamb, executive director of the Fairtrade Foundation
in London, which licenses Sainsbury's, says of the chain's
prices, "The concern of the Fairtrade Foundation is about
the price paid back to the producer organizations." But
Alistair Smith, international coordinator for Banana Link, a
nonprofit British group that promotes the rights of banana
workers and small farmers, called Sainsbury's fair-trade
prices "unjustified," adding, "It would be all right if a
much higher price was going to the producer."

At Waitrose, another British supermarket chain, fair-trade
bananas are the most expensive variety sold, costing $2.30
for just five. A spokeswoman says the company isn't using
the fair-trade label to charge unreasonably higher prices
and adds, "Our suppliers and customers are confident that we
are charging a fair price for our fair-trade bananas." She
didn't disclose margins.

At the online site of Tesco, Britain's biggest supermarket
chain, half-pound containers of the company's fair-trade
decaffeinated coffee recently cost 46% more than similarly
described decaffeinated coffee. The price works out to $3.46
per pound extra. The farmer is guaranteed about 44 cents
more than the current world market price of 82 cents a
pound, according to FLO. A Tesco spokeswoman says the
company's profit margin on the fair-trade product is
"significantly less" than the regular one because of
associated costs.

In the U.S., where fair-trade items are just catching on,
pricing anomalies already have arisen. Wild Oats Natural
Marketplace, a 78-store national supermarket chain run by
Wild Oats Markets Inc., of Boulder, Colo., introduced
fair-trade organic bananas in January at 99 cents a pound --
the same price as regular organic bananas. "We've taken a
margin hit, but we feel that bringing in the fair-trade
bananas is the right thing to do for the farmers," says a
spokeswoman. In late 2002, the chain introduced fair-trade
bulk organic coffee at $9.99 a pound, the same price as
regular bulk organic coffee.

At a Cafe Borders inside a Borders book store in New York
City, 10-ounce bags of fair-trade coffee sell for $9.99 --
nearly $16 a pound -- while 12-ounce bags of other coffees
are priced at $8.99, or about $12 a pound. According to FLO
documents, farmers receive $1.41 a pound for organic
fair-trade coffee. Borders charges the same prices for
packaged coffee in all of its 437 cafes.

A spokeswoman for Borders Group Inc. wrote in an e-mail,
"Based on your inquiry, we have been prompted to assess our
pricing." She later wrote that, effective June 28, the
company will lower the price of fair-trade coffee across its
stores to $7.99 for a 10-ounce bag.

Paul Rice, chief executive of Transfair USA -- an Oakland,
Calif., FLO affiliate that licenses certified fair-trade
products for U.S. companies -- says he believes his
organization shouldn't interfere in what companies charge
for fair-trade products, and that on average their retail
cost is 10% to 15% more than comparable goods in the U.S.

"As a core philosophy, fair traders believe in as little
market intervention as possible," he says. Regulating retail
prices goes against the idea of "using the market as a
vehicle for creating a win-win scenario for farmers and for
industry" as well as consumers. The growth of fair-trade
sales in the U.S., he says, suggests that "millions of U.S.
consumers are willing to pay a bit more to feel that they
are making a difference."

But Luuk Laurens Zonneveld, FLO's managing director, says,
"Of course I have a problem" with companies jacking up
prices. He says that if his organization gets wind of a
retailer charging "an outrageous margin," its affiliates
might approach the company and point out that a lower price
would give the product "a better chance for market share."

As a consumer, he says, he personally felt "scandalized"
when he discovered what a German supermarket was charging
for fair-trade orange juice.

*****

The Morning Call
June 14, 2004
Fair Trade coffee imports triple in three years But it is
still just a fraction of market in the United States.
By John Boudreau
Knight Ridder Newspapers

SAN JOSE, Calif. | How do you like your coffee? Without
guilt, say an increasing number of consumers, and an Oakland
nonprofit makes sure that's the way they get it.

TransFair USA has become the standard-bearer for the Fair
Trade movement, which pushes for coffee growers to be paid a
living wage. Any Fair Trade coffee sold in the United States
must get certification and a seal of approval from TransFair.

The nonprofit's job is growing. Fair Trade coffee imports
have tripled in the past three years, although they still
make up just a fraction of the $8.4 billion U.S.
gourmet-coffee market. The retail value of Fair Trade coffee
in the United States in 2003 came to $208 million.

"It is guilt-free coffee," said Paul Rice, founder and chief
executive of TransFair USA. "But I would never call it that.
I would call it feel-good coffee."

The price of coffee in the New York commodity market is
about 65 cents a pound. But farmers are typically paid
anywhere from 15 to 45 cents a pound.

About 70 percent of coffee growers are small family farms on
two to four acres of land. They often have no electricity --
and no computers. That means they have little or no access
to information about coffee markets. Brokers show up at
their gates and tell them what the price is, Rice said.

"They have virtually no negotiating power," he said.

Under the Fair Trade model, farmers bypass middleman brokers
and get significantly more for their coffee by operating in
cooperatives. Importers pay the cooperatives the Fair Trade
price of $1.26 a pound, or $1.41 a pound if the coffee is
certified organic.

TransFair is part of an 18-member international umbrella
group, called Fairtrade Labelling Organizations
International, that dispatches inspectors to these farm
cooperatives around the globe. The specialists provide
annual audits of each cooperative to make sure buyers are
paying above-market prices to farmers. Buyers often will pay
in advance for coffee so struggling farmers aren't forced to
sell their beans early at cut-rate prices if they face
financial hardships.

"If there was no Fair Trade price, the farmers would
suffer," said Tadesse Meskela, general manager of a coffee
farmers cooperative in Ethiopia. "Their children would not
go to school. They would not even be able to feed their
families."

The nonprofit (http://www.transfairusa.org ), which operates
on an annual budget of about $3 million, is funded by
foundations and certification fees of 10 cents per pound of
Fair Trade coffee by commercial roasters. The agency now
also provides Fair Trade certification for tea, cocoa and fruit.

In 2003, 18.5 million pounds of Fair Trade coffee beans were
imported into the country. This year, TransFair expects 29
million pounds of Fair Trade coffee beans -- grown on small,
family farms from Colombia to Ethiopia -- to be imported
into the United States.

Sip by sip, Fair Trade coffee is increasingly meeting the
desires of java junkies across the country. Starbucks and
Peets each offer a Fair Trade coffee. In fall 2003, Dunkin'
Donuts introduced Fair Trade espresso drinks that will be
sold in more than 4,500 stores nationwide. Procter & Gamble
also launched a Fair Trade coffee, Mountain Moonlight.

And by year's end, Rice said, Wal-Mart and Target will start
selling Fair Trade coffee.

"We are at the tipping point," he said.

Free-market advocates disagree. They don't believe the
artificial prices set on Fair Trade coffee will dramatically
reshape the industry and buying habits of most coffee drinkers.

"It is a feel-good program," said economist Bill Conerly, a
senior fellow at the Dallas-based National Center for Policy
Analysis.

"I don't expect it to be a broad trend because people don't
like to spend more money. I expect the impact will be trivial."

The problem of poor farmers, he said, is really the market
glut of coffee, the normal volatility of agricultural
markets, as well as corrupt developing world governments
where "cronyism" is rewarded and onerous red tape often
leads to bribes.

Fair Trade is, in a sense, a way to sidestep world market
forces. But supporters of Fair Trade point out that the
agricultural markets are anything but free. Vietnam's coffee
industry was created with massive help from international
organizations and government spending. In the United States,
farmers enjoy billions of dollars in farm subsidies.

Also, Fair Trade coffee is more than a way to help
impoverished growers, Rice said. It's a model that ensures
high-quality coffee is available for the growing gourmet
coffee market.

"Better payments leads us to make sure the coffee is a
better quality," Meskela said. Farmers "care for the coffee
because people care for us. They pay us a fair price."

It is in the gourmet-coffee industry's best interest to
support Fair Trade farmers in order to guarantee a supply of
top-notch beans, said Mark Burton, co-owner of Connoisseur
Coffee Co. in Redwood City. Indeed, Starbucks has voiced
concerns about finding enough high-quality beans to fill its
ever-growing cups of espresso and lattes.

"It does make sense," Burton said while operating a roaster
cooking up 140 pounds of dark beans. About 10 percent of the
beans Connoisseur Coffee roasts are Fair Trade.

At the production level, it's the farmers who get squeezed,
Burton said.

"And they are the ones who decide if we have coffee or not,"
he said. "The richest coffee comes from the poorest countries."

The cost to consumers for Fair Trade coffee isn't that
great, he added. Connoisseur's Fair Trade coffee is priced
at about 50 cents more a pound.

The Rev. John Sullivan became hooked on Fair Trade coffee
after his church, Hope Lutheran Church in Santa Clara,
Calif., began serving it.

"The French roast decaf is the best decaf coffee I've ever
had," he said of the Equal Exchange brand, which only sells
Fair Trade coffee. "Even though I'm paying a few cents more,
I think it's worth it. I feel good about it."

*****

Posted on Wed, Jun. 09, 2004
Selling change along with coffee
By Kara J. Shire
CONTRA COSTA TIMES

To the bleary-eyed and sleep-deprived, a cup of coffee is a
way to start the day. To the Rogers family, the high-grade
arabica beans it roasts and sells have come to mean much more.

Over the past decade, the family's 25-year-old business, San
Leandro-based San Francisco Bay Coffee Co., has diverted
more than $700,000 in profits to bring schools, medical
clinics and organic farming to the Central American and
Mexican communities that grow their coffee beans.

The company, which sells more than 12 million pounds of its
coffee at Costco, Andronico's, Amazon.com and some
Albertsons stores, also said it pays its growers an average
of $1.38 per pound -- 12 cents more per pound than Fair
Trade-certified coffee buyers, who seek to pay growers a
living wage.

"We feel strongly as a family that this is the right way to
do business," said Pete Rogers, the firm's green coffee
buyer and son of company President Jon B. Rogers. "But we
also realize that we're unique. We're not a public company
that has shareholders to answer to."

It was Pete Rogers' trip to Guatemala in 1986 that started
the company down the path to social activism.

Rogers made the trek at the behest of his father, who was on
the hunt for high-quality beans that would set his brand
apart from the nation's top coffee producers.

"(We) realized we could improve the quality and price of our
coffee if we bought directly from growers," Jon B. Rogers said.

But Pete Rogers' South American trek, and the poverty and
strife he witnessed there, gave the company more than a
cheaper and tastier cup of coffee. It gave it a new mission.

"When I got back, my father asked how the trip was, and I
said, 'Terrible. We have to do something about this,'"
Rogers said.

It took nearly eight years for the company to determine the
best way to fulfill its dual roles as coffee roaster and
instrument of social change.

It gave farmers blank checks, but the money didn't make a
dent. It paid more for each pound of coffee, but that, too,
brought no change. It donated computers, but villagers
kindly asked for pencils and paper instead.

Then it built a school.

"We realized that if we could educate the kids and the
adults that we would be able to break that cycle of poverty
and at least give them a possible future," Pete Rogers said.

The company said it now has eight schools and 41 classrooms
on 17 farms in Panama, Nicaragua, Costa Rica, Guatemala and
Mexico.

The firm sponsors Little League teams, day care centers,
nutrition programs and medical clinics on the farms. It
helps pay teacher salaries at some schools and pay some
families to send their children to school.

More important to its roasting business, the company also
works with growers to teach them composting, waste water
disposal techniques and other organic farming methods.

But environmental farming was a tough sell. And when farmers
initially resisted Pete Rogers' "crazy" farming ideas, the
company bought a Panamanian cattle ranch and turned it into
an organic coffee farm. The coffee growers were hooked.

"All the farms we deal with reduced their synthetic
chemicals and now compost and clean up the water or we don't
deal with them," Rogers said.

San Francisco Bay Coffee's policies, while rooted in a sense
of activism, are also about business survival.

The company has seen demand for its specialty coffees ebb as
a glut of coffee beans from Brazil and Vietnam -- beans San
Francisco Bay Coffee considers low quality and does not sell
-- drove down market prices.

Paying farmers a higher wage and bringing social services to
their communities are two ways the company is keeping its
growers from abandoning coffee for more lucrative crops.

Haven Bourque, marketing director for Oakland-based
TransFair USA, which gives eligible roasters the Fair Trade
certification, said the Rogers' business philosophy, while
not always in line with TransFair's non-charity mission, is
commendable.

"Our perspective is that anyone who's trying to do the right
thing by farmers, we're going to praise them," Bourque said.

--
Dan Clore

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