Coffee, co-operatives and competition: the impact of Fair Trade

Impact studies looking at the effectiveness of Fair Trade initiatives on increasing the welfare of coffee producers have predominantly shown that the system is working well. This study focuses on the Fair Trade system’s use of democratically run coffee cooperatives to reach small scale producers. These institutions often failed under earlier attempts to improve rural livelihoods but are apparently thriving under Fair Trade. By seeing the co-operative as an economic agent acting and interacting in a given market setting, the author derives hypotheses concerning the impact of the Fair Trade premium, through the cooperative, on a local coffee producer market. These hypotheses are then put into a developing country context and applied to a case study from the Chiapas region of Mexico.The Chiapas case study shows that even though coffee cooperatives are economically disadvantaged in competition with the large multinational exporters they still manage to succeed as successfully functioning economic and social organisations. This success would have been difficult without the financial support of the Fair Trade system or the organic market which has allowed them to sustain higher price levels and have a pro-competitive effect on the market. Other potential advantages of the Fair Trade system, such as direct access to the international market and the compulsory prepayment of Fair Trade purchasers are also seen as important. However, the case study provides little evidence that the Fair Trade conditions or the yearly visit from the Fair Trade monitor is of great significance to cooperatives that already have many years of experience. Conversely engagement with Fair Trade systems is by no means a guarantee of success. Right management to prevent inefficiency and dependency and to promote member participation is also crucial.The study highlights one particular shortcoming of the Fair Trade system as a means of reducing rural poverty. The Fair Trade Labelling Organisation will only engage with established and successful cooperatives. For the poor small scale producers reaching such a high level of co-operative success may be difficult. The author recommends that collaborative projects be explored between the labelling organisation and governments or NGOs, which can intervene to help establish successful cooperatives. More broadly the author advocates a continuing role for cooperatives, despite earlier failures and calls for further research to establish if they can still play an important part in poverty alleviation and economic development, with or without Fair Trade.